Funds Intermediate: Asset Allocation Mutual Funds

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1.
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.
2.
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.
3.
The three general levels of risk are conservative, moderate, and growth.
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True. The three general levels of risk are conservative, moderate, and growth (a close relative of which is aggressive-growth).
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.
Investors using the multifund approach to asset allocation are interested in _______.
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Taking advantage of particular fund managers or families. Investors are interested in taking advantage of the management expertise of particular fund managers to duplicate specific historical performances.