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

The average risk per year may decrease over a longer horizon due to diversification and time smoothing effects, but the overall risk compounds as it accumulates over time. The overall risk does not fall; it is the average annual risk that may decrease.

As You Lengthen the Time Horizon of Your Investment Period