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.
For a given investment return, there are optimal mixes of stocks, bonds, and cash that produce different returns with a minimum of risk.
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True. These portfolios are called "efficient." Their optimality has been demonstrated by analyzing returns over history.
4.
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.
5.
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.
6.
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.