Quizmaster, Doug Hutchinson, presents his quiz for the month. Here, Doug explores portfolio volatility.
Consider this Scenario:
Your friend Margaret has recently inherited some money and is considering how to invest it. Her current portfolio is invested exclusively in long term US Government bonds. She is leaning toward investing the inheritance in more long-term US Government bonds, but her friend Tiffany has suggested that Margaret invest this inheritance in a diversified portfolio of stocks instead of buying more bonds. The inheritance will make up 10% of her total portfolio.
Margaret isn’t so sure and she tells Tiffany, “I’m not comfortable with volatility in my portfolio. I want to have as little volatility as possible. So I’m leaning toward just adding more long-term US Government bonds since bonds typically have less volatility than stocks.”
If her goal is to have as little volatility as possible in her portfolio – which investment option for the addition, is most likely to achieve Margaret’s goal:
1) more long-term US Government bonds of the same duration as her existing holidngs or
2) a diversified portfolio of stocks?[+] Read More