Basics Beginner: Creating a Portfolio

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1.
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.
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.
The closer the beta of an investment is to 1, _______.
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The closer its volatility is to that of the whole market. "1" is the base value of beta.
5.
By first _______, you can comfortably allocate a desired amount of money to investing.
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Taking an inventory of what you own. This will help you figure how much cash you have available to invest.
6.
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.