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Portfolios 103: How Much Risk Can You Tolerate?

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1.
What type of risk do investors focus on most often?
Choose wisely. There is only one correct answer.
Market risk. Investors generally notice short-term volatility that's driven by factors such as market risk.
2.
To help you develop your investment philosophy about volatility and risk, there are several questions you should answer. Of the following, which one would be least helpful?
Choose wisely. There is only one correct answer.
What are your stock prices today? This question is not helpful for developing your investment philosophy.
3.
To help you develop your investment philosophy about volatility and risk, you should check your stock prices every day.
Choose wisely. There is only one correct answer.
False. Checking your stock prices every day will likely not help you develop a philosophy, although if you're fortunate, it can help you learn to tolerate daily fluctuations.
4.
Which is NOT a way that volatility can lead you to miss the forest for the trees?
Choose wisely. There is only one correct answer.
Volatility may make you buy or sell a security based on your goals. Volatility can make you invest too conservatively or make an investment decision based solely on short-term performance. Either way, you're not seeing the forest (your goal) for the trees (volatility).
5.
How can you limit market risk?
Choose wisely. There is only one correct answer.
Invest in a variety of markets. To limit the risk of one entire market losing money, invest in a variety of markets.