Investment Risk Quiz

What is the role of risk in investing?

• To guarantee a return on investment

• To reduce the potential for earning money

• To play a part in the decision-making process

• To eliminate the need for diversification

Which of the following is NOT a strategy to manage investment risk?

• Investing early

• Diversification

• Dollar cost averaging

• Avoiding investments altogether

What can you use to calculate the impact of using dollar cost averaging in hypothetical scenarios?

• NGPF Personal Finance Dictionary

• Historical performance of a stock

• Historical performance of an index fund

• A random number generator

Even though risk seems like a bad thing, why is that not always the case with investing?

• Risk can lead to higher returns

• Risk eliminates the need for diversification

• Risk guarantees investment success

• Risk is always a bad thing

In your own words, explain the three strategies the video suggests using to manage risk.

• Time, Diversification, Invest over time

• Savings, Investment, Speculation

• Bonds, Stocks, Mutual Funds

• Insurance, Real Estate, Commodities

Explain what it means to diversify by asset class.

• Investing all your money in one asset class

• Spreading investments across different sectors

• Buying assets only from one country

• Focusing on a single stock

Explain what it means to diversify across investments.

• Investing in different types of assets within the same class

• Putting all your money into one investment

• Trading frequently to manage risk

• Choosing investments from the same industry

The video mentions that diversification doesn’t guarantee that if one investment goes down, another will go up to make up for it. Why is it still a good idea to diversify your investments?

• It ensures a fixed return on all investments

• It reduces overall risk by spreading investments

• It allows for faster growth of a single investment

• It guarantees that you will never lose money