Test your knowledge

Choose wisely. There is only one correct answer to each question.

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Review your answers below to learn more.

What types of activities form the base of the investment pyramid?

The most important activities for investment success

The least important activities for investment success

Broccoli and brown rice

The most important activities for investment success. The other parts will depend on these.

Why does budgeting still matter after you have stopped saving for retirement?

You may need to adjust your spending rate at times during retirement.

You need to continue saving money for retirement even when you're retired.

You should pinch pennies during retirement.

It doesn't matter, actually.

You may need to adjust your spending rate at times during retirement. Especially during market downturns.

In general, how should investors who are funding long-term goals allocate their assets?

Start heavy with high-quality stocks, then gradually shift more into safer securities over time

Less to high-quality stocks and more to safer securities

Exclusively in gold and emerging-market stocks

Start heavy with high-quality stocks, then gradually shift more into safer securities over time. A portfolio that consists entirely of cash and short-term bonds will exhibit very few fluctuations, which can provide peace of mind and may be appropriate for very short-term goals, but not for long-term goals. Over time, it will get eaten alive by a portfolio that includes a stock component.

Which statement is false?

By quantifying each of your goals, you may find that it is not possible to achieve them all

Each goal likely carries its own time horizon, which in turn will dictate what types of investments you hold and where

Once you've set your baseline goals and quantified how much they'll cost, checking your progress toward them can serve as the ultimate financial checkup

By quantifying each of your goals, you may find that it is not possible to achieve them all. But it's better to know that early on, so you can prioritize.

Asset allocation means _______.

Dividing your portfolio among stocks, bonds, and cash investments

Changing the holdings in your portfolio

Setting up your portfolio

Dividing your portfolio among stocks, bonds, and cash investments. Although there is some truth to the other options, this one is the basic definition of asset allocation.