All Courses > Stocks > 500
Stocks 501: Constructing a Portfolio

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
What is a good rule of thumb for deciding how to weight the stock holdings in your portfolio?
Choose wisely. There is only one correct answer.
Use your confidence in each of the stocks as a guide. Be certain that the highest-weighted stocks are the ones you feel the most confident about.
2.
If an economic event affects every single stock in the country, it is likely an example of _______ risk.
Choose wisely. There is only one correct answer.
Systematic. Systematic risk is the type that affects all stocks, not those of a particular company. It cannot normally be diversified away.
3.
Imagine you have plenty of stocks in the software sector, the energy sector, and the agriculture sector, but you want to add some mutual funds to your portfolio to gain some breadth. Which of the following sectors would make the most sense to look into?
Choose wisely. There is only one correct answer.
Manufacturing. Begin by looking for gaps. Here, manufacturing would be a gap. It may have some promising opportunities for you.
4.
The more diversification in your portfolio, the better your chance of beating the market.
Choose wisely. There is only one correct answer.
False. After a certain number of stocks (12 to 20), the effect wears down. However, it will reduce your overall risk.
5.
An advantage of investing within your circle of competence is that it is fairly easy to find companies to invest in.
Choose wisely. There is only one correct answer.
True. When you know an industry, it is usually fairly easy to evaluate potential investments in it.
6.
How many stocks do you need to own in your portfolio to derive 90% of the benefits from diversification?
Choose wisely. There is only one correct answer.
12 to 18. Ninety percent of the benefits of diversification are achieved by holding 12 to 18 stocks.