Basics Beginner: Creating a Portfolio

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1.
Investment risk is the risk that one may never have enough resources to begin investing.
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False. Investment risk is the chance of loss due to the uncertainty of future events.
2.
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.
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.
A mutual fund that changes its holdings as the market itself changes is called a(n) _______ fund.
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Asset allocation. Asset allocation funds use formulas to alter the percentages of their holdings as market conditions change.
5.
The amount of money you have to invest does not play a role in your choice of investments.
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False. It plays a role because it alters your investment options and risk tolerance.
6.
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.