Which investor is making a common error? A. An employee of a popular hardware store who invests only in that company’s stock.
B. An employee of a popular software company who invests in many similar companies.
C. Someone who sells the slumping stock while they are still able to make a profit based on what they paid.
D. Someone who buys stock in both domestic and more risky international companies.
The correct answer is A. An employee of a popular hardware store who invests only in that company’s stock.
Explanation: This investor is making a common error known as “home bias” or lack of diversification. By investing only in their employer’s stock, they are not spreading their investment risk across different assets. This puts them at risk if the company performs poorly, as their investment relies heavily on a single source. Diversifying investments typically helps in managing risk more effectively.