Basics Beginner: Risk Tolerance

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1.
The risk-return tradeoff concept states that _______.
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The riskier an investment is, the greater its potential return should be. The risk-return tradeoff also states that safe investments usually yield low returns, and vice versa.
2.
Investing in a mixed portfolio of stocks, bonds, and cash-equivalent instruments is an example of _______.
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Asset allocation. This is the practice of apportioning investment capital among different asset classes, such as stocks, bonds, and cash-equivalent instruments.
3.
A 75-year-old couple investing their life savings are likely to have _______.
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Conservative risk tolerance. A 75-year-old couple investing their life savings will need to protect their capital, and are likely to have conservative risk tolerance.
4.
Managing risk can help you take advantage of risk without conflicting with your risk tolerance.
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True. Diversification and maximizing your investment time horizon can minimize the negative impact of risk on your investments, allowing you to take on more risk in segments of your investment portfolio.
5.
Which of the following questions is the best indicator of your risk tolerance?
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Can you afford to lose your money? The financial consequences of poorly performing investments are the biggest determinants of your risk tolerance.