Basics Beginner: Creating a Portfolio

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1.
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.
2.
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.
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.
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.
There are mutual funds that change the amounts of their holdings to keep up with market changes.
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True. These funds are called asset allocation funds. They use formulas to change their allocations.
6.
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.