1. Is the average rate of return on an investment a good representation of the long-run rate of return that a buy-and-hold investor receives? Is it possible to lose all your money on a buy-and-hold portfolio that had a positive average rate of return.
2. Which asset classes generally offer higher average rates of returns? Why?
3. Do you care about overall basket of investments' risk and reward, or do you care about the risk and reward of each investment in your basket individually? (Hint: Diversification of risks). Explain why.