Choose wisely. There is only one correct answer to each question.
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Investing in a mixed portfolio of stocks, bonds, and cash-equivalent instruments is an example of _______.
Asset allocation. This is the practice of apportioning investment capital among different asset classes, such as stocks, bonds, and cash-equivalent instruments.
A 32-year-old investing for retirement is likely to have _______.
Aggressive risk tolerance. A 32-year-old investing for retirement has a long time to hold investments; that time will allow long-term growth trends to overcome short-term price fluctuations, giving our investor an aggressive risk tolerance.
Which of the following questions is the best indicator of your risk tolerance?
Can you afford to lose your money? The financial consequences of poorly performing investments are the biggest determinants of your risk tolerance.
A risk-averse investor _______.
Takes on only as much risk as necessary. The risk-averse does this to achieve the level of return he or she seeks. Risk-averse investors also wish to maximize the returns they get for the level of risk they take on.
All of the following are elements of risk tolerance except _______.
None of the above. All of these are elements of an investor's risk tolerance.