As you lengthen the time horizon of your investment period and decide to invest for multiple years you will find that ________.
I.the average risk per year may be smaller over longer investment horizons
II.the overall risk of your investment will compound over time
III.your overall risk on the investment will fall
A) I only
B) I and II only
C) III only
D) I, II and III

Question

Quizplus · Accepted Answer

Option I is correct because over longer horizons, the erratic behaviour of markets tends to cancel out, resulting in smaller average risk per year. However, option II is incorrect because overall risk does not compound over time, whereas option III is also incorrect because the overall risk of the investment does not fall. Therefore, both I and II only is the correct choice.

As You Lengthen the Time Horizon of Your Investment Period