Basics Beginner: Creating a Portfolio

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1.
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.
2.
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.
3.
When a financial advisor says, "Let's talk about risk and how much you can deal with," he or she is talking about _______.
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Risk tolerance. Risk tolerance is the amount of risk with which you are comfortable.
4.
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.
5.
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.
6.
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.