Planning Beginner: Asset Allocation and the Investment Time Horizon

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1.
A new retiree should shift all of his or her investments to low-risk securities like bonds.
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False. New retirees may still have an investment time horizon of 20 years or more, which allows them to take advantage of some exposure in the stock market.
2.
Long investment time horizons decrease the risk of volatile investments.
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True. Holding volatile investments for long periods increases the likelihood that long-term growth trends will overcome short-term price fluctuations.
3.
The possibility of crashes makes investing in stock a poor option for long-term investors.
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False. Even with the Great Depression and the 1987 "Black Monday" crash, long-term investors have still done well investing in stocks.
4.
Short investment time horizons increase the risk of volatile investments.
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True. Holding volatile investments for short periods increases the risk that your investment may not recover from a short-term price drop.
5.
Your child is about to enter college. Which portfolio is likely to be the most successful for your college-fund investments?
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20 percent stocks, 60 percent bonds, 20 percent cash. With a short investment time horizon, youll probably want to have most of your funds invested in less-volatile instruments like bonds.