Chapter 16-Market Timing

Question 1

Dow Jones Industrial Average (DJIA) declines from 1990-2021 are very telling.
1) Routine declines of 5% or more occur ___ on average with an average length of ___.
2) Moderate declines of 10% or more occur ___ on average with an average length of ___.
3) Severe declines of 15% or more occur ___ on average with an average length of ___.
4) Bear market declines of 20% or more occur ___ on average with an average length of ___.

Answer 1

1) 3 times per year; 47 days
2) once a year; 113 days
3) every 2 years; 216 days
4) every 3.5 years; 332 days

Question 2

Time diversification is the idea that the __ of risky assets decreases over time, and that above-average returns will ___ over a long period.

Answer 2

volatility; offset below-average returns

Question 3

___ aims to invest more when the share price falls and less when the share price rises.

Answer 3

Value averaging (VA)

Question 4

When analyzing an investment, what variable is very likely to be the most predictable?

Answer 4

Cost … I think. Could not find this in the textbook, but online I found this: https://www.morningstar.co.uk/uk/news/149421/how-fund-fees-are-the-best-predictor-of-returns.aspx#:~:text=If%20you’ve%20been%20following,when%20they%20run%20the%20data.

Question 5

The SEC requires fund prospectuses to show ___

Answer 5

before- and after-tax returns https://www.sec.gov/rules-regulations/2001/09/disclosure-mutual-fund-after-tax-returns#:~:text=SUMMARY:%20The%20Securities%20and%20Exchange,the%20performance%20of%20different%20funds.

Question 6

When allocating an older client’s portfolio, think of their Social Security payments as a/an ___.

Answer 6

fixed-rate annuity??