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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?
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Market risk. Investors generally notice short-term volatility that's driven by factors such as market risk.
2.
Which is NOT a way that volatility can lead you to miss the forest for the trees?
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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).
3.
To limit volatility?
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Diversify. Owning a variety of investments is the best defense against volatility.
4.
Learning to tolerate day-to-day gyrations in your portfolio is not helpful for dealing with risks in the longer term.
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False. Most likely, it will help you to put risk into perspective and help you tolerate longer-term risks.
5.
How can you limit market risk?
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Invest in a variety of markets. To limit the risk of one entire market losing money, invest in a variety of markets.