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Investing Basics Beginner: Risk Tolerance

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1.
Which of the following questions is the best indicator of your risk tolerance?
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Can you afford to lose your money? The financial consequences of poorly performing investments are the biggest determinants of your risk tolerance.
2.
Investing in a mixed portfolio of stocks, bonds, and cash-equivalent instruments is an example of _______.
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Asset allocation. This is the practice of apportioning investment capital among different asset classes, such as stocks, bonds, and cash-equivalent instruments.
3.
The risk-return tradeoff concept states that _______.
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The riskier an investment is, the greater its potential return should be. The risk-return tradeoff also states that safe investments usually yield low returns, and vice versa.
4.
All of the following are elements of risk tolerance except _______.
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None of the above. All of these are elements of an investor's risk tolerance.
5.
A risk-averse investor _______.
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Takes on only as much risk as necessary. The risk-averse does this to achieve the level of return he or she seeks. Risk-averse investors also wish to maximize the returns they get for the level of risk they take on.