Planning Beginner: Creating a Portfolio

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1.
Financial advisors suggest diversifying because putting your money into different investments is often the best way to avoid losing large sums of money.
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True. Diversifying spreads risk among several investments.
2.
Risk tolerance is the amount of risk with which you are comfortable.
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True. It determines your choices of investments, among many other things.
3.
Investment advisors suggest increasing the number of fixed-income securities in your portfolio as you age because _______.
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Advanced age makes it difficult to regain losses from more volatile investments such as stocks. Having fixed-income securities in your portfolio can reduce this problem.
4.
There are mutual funds that change the amounts of their holdings to keep up with market changes.
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True. These funds are called asset allocation funds. They use formulas to change their allocations.
5.
By first _______, you can comfortably allocate a desired amount of money to investing.
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Taking an inventory of what you own. This will help you figure how much cash you have available to invest.
6.
In investing, taking as many factors as possible into account and then choosing the best course of action is called _______.
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Calculated risk. This approach involves taking account of various factors to judge how they will affect your possible choices.