What is the potential drawback of holding a large number of mutual funds within the same investment category? Option: "Lower expense ratios compared to index funds.", "Increased diversification leading to higher returns.", "Diworsification, leading to overlapping holdings and potentially higher fees.", "Reduced risk due to a wider range of investments."

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What is the potential drawback of holding a large number of mutual funds within the same investment category?

"Lower expense ratios compared to index funds."

"Increased diversification leading to higher returns."

"Diworsification, leading to overlapping holdings and potentially higher fees."

"Reduced risk due to a wider range of investments."

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Why does the author recommend avoiding multiple mutual funds of the same subcategory?

"To reduce the overall expense ratio of the portfolio"

"To maximize diversification across asset classes"

"To simplify portfolio management and tracking"

"To minimize portfolio overlap and redundancy"

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What is a potential drawback of over-diversification in a stock portfolio?

Increased exposure to market volatility

Diminished returns due to the inclusion of less-performing assets

Higher transaction costs due to frequent trading

Increased complexity in managing a large number of stocks

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What is a potential downside of having a widely diversified mutual fund portfolio?

Increased exposure to market risk

Higher likelihood of significant losses

Greater complexity in tracking individual stock performance

Reduced potential for substantial gains

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Which of the following is a potential drawback of investing in sector mutual funds?

"They can be highly volatile due to their focus on a single sector"

"They are generally less expensive than other types of mutual funds"

"They offer high diversification, reducing risk"

"They are not subject to market risks, ensuring stable returns"

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Why might a large mutual fund with hundreds of stocks underperform market indexes?

High management fees

Difficulty in concentrating on the best investment opportunities

Lack of diversification

Excessive focus on short-term gains