Deck 9: Common Investment Mistakes

Question 1

When firms offer their employees a choice of investment options for retirement accounts,the percentage of dollars employees choose to invest in stocks in highly correlated with what?

Answer 1

the percentage of stock funds offered.

Question 2

While investors accurately estimate the past performance of the stocks in which they invest,they hold overly optimistic beliefs about these stocks' future performance.

Answer 2

False

Question 3

What change does the chapter offer to make in 401(k)savings plans in order to raise their enrollment rates?

Answer 3

to implement an automatic enrollment scheme with an opt-out option,instead of an opt-in option.

Question 4

The fact that the benefits of saving for retirement occur only in the distant future makes it easy for the _______ _______ to dominate people's decisions and to cause them to save less.

Question 5

Why are annuities regarded as no-risk saving schemes?

Question 6

People probably do not invest enough in:

A)Stocks in the long-term.
B)Bonds in the short-term.
C)Recent market losers.
D)Recent market winners.

Question 7

When a fund outperforms the market two years in a row,investors often neglect to consider the likelihood that this result may be due to _____________.

Question 8

The _____________ bias makes people resistant to change and drives them to prefer investment strategies that they have used in the past over searching for better strategies.

Question 9

An investor should avoid buying a diversified portfolio of stocks,since it may lead to excessive spending.

Question 10

The basic advantage of index funds over actively managed mutual funds is that:

A)They have a higher likelihood of outperforming the market.
B)They will always yield a profit,however small.
C)Their operating fees are lower.
D)All of the above.

Question 11

When Moore and his colleagues examined investor behavior in the lab,the participants behaved similar to investors in real markets - they chose too many actively managed funds that made too many trades and charged high fees.

Question 12

Roughly what is the percentage of mutual funds will outperform the market both this year and the next year?

A)Around 50%
B)Around 25%
C)Around 6%
D)Around 0.1%

Question 13

When Samuelson and Zeckhauser (1988)offered their participants to allocate their inheritance money between different options,participants displayed a consistent preference to invest in:

A)Risky stock.
B)Municipal bonds.
C)The same manner the money was previously invested.
D)None of the above

Question 14

Over time,the performance of mutual funds tends to:

A)Improve.
B)Decline.
C)Regress to the mean.
D)Outperform the market.

Question 15

Why,according to the chapter,do investors fail to compare their investment decisions to the overall market performance?

Question 16

In what way does overconfidence lead people to engage in active investing?

Question 17

From a strictly rational standpoint,the price at which a stock was purchased should be regarded as:

A)A reference point for judging gains and losses.
B)An indication of the stock's past performance
C)A helpful guide to avoid impatient trading of the stock.
D)Arbitrary and meaningless.

Question 18

After making an investment,people's estimations of its past performance become overly ___________.

Question 19

On average,actual returns of stocks picked by women are higher than returns of stocks picked by men.

Question 20

In order to come out to themselves as "winners" and to avoid becoming "losers",investors tend to:

A)Hold on to stocks that are trading below purchase price.
B)Buy recent market winners.
C)Engage in frequent trade.
D)Implement the same investment strategies that they have used in the past.