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Portfolios 103: How Much Risk Can You Tolerate?

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1.
How can you limit company-specific risks?
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Invest in a variety of stocks. To limit the operational and price risk that one company poses, invest in a variety of companies.
2.
To limit volatility?
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Diversify. Owning a variety of investments is the best defense against volatility.
3.
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.
4.
To help you develop your investment philosophy about volatility and risk, you should check your stock prices every day.
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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.
5.
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?
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What are your stock prices today? This question is not helpful for developing your investment philosophy.