Basics 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.
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.
3.
How does having a lot of money affect your risk tolerance?
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It can enable you to afford loss. If you have a lot of money, you can afford to lose some, and so your risk tolerance will increase.
4.
Having lots of money opens you to a wide choice of investment options.
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True. Many investments require a large minimum amount to begin. For example, some bonds are sold in $5,000 minimums.
5.
The portion of the future over which you will invest is your _______.
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Time horizon. Taking your time horizon into consideration will help you determine how to allocate your resources.
6.
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.