Funds Intermediate: Asset Allocation Mutual Funds

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1.
Asset allocation is the practice of dividing investment assets among different markets.
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True. Asset allocation is the practice of dividing investment assets among different markets to achieve diversification and a balance between risk and return consistent with an investor's objective.
2.
With the multi-fund approach to asset allocation, each transaction can have costs associated with both the sale and purchase of fund shares.
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True. Each time an investor using the multi-fund approach makes a change in the allocation, it may involve the liquidation of one fund's shares and the purchase of another. Such transactions can have costs associated with both the sale of the old shares and the purchase of the new ones.
3.
If you select a mutual fund that invests in bonds, preferred stocks, and blue chip stocks, you most likely have selected a(n) _______.
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Conservative fund. Current income, through bonds and preferred and blue chip stocks, is often the primary objective of a conservative fund.
4.
Which of the following is not considered when deciding whether or not to reallocate assets using active allocation?
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The Dow Jones Industrial Average. While the Dow can influence investor decisions, its daily performance is too universal to have any meaningful effect on an individual portfolio. Instead, investors should look to such benchmarks as the price, volatility, and performance of their portfolios, as well as interest rates and changes in management of their funds.
5.
An asset allocation mutual fund spreads its portfolio among only a handful of investments.
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False. An asset allocation mutual fund spreads its portfolio among a wide variety of investments, including domestic and foreign stocks and bonds, government securities, cash, gold, and real estate stocks.