Strategy Beginner: Asset Allocation and the Investment Time Horizon

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1.
The possibility of crashes makes investing in stock a poor option for long-term investors.
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False. Even with the Great Depression and the 1987 "Black Monday" crash, long-term investors have still done well investing in stocks.
2.
When planning for retirement needs, the best asset allocation strategy is to pick a portfolio of investments and stick with it until retirement.
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False. Asset allocation should change as individuals approach retirement, the investment time horizon becomes shorter, and their reliance on income from investments increases.
3.
Long investment time horizons decrease the risk of volatile investments.
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True. Holding volatile investments for long periods increases the likelihood that long-term growth trends will overcome short-term price fluctuations.
4.
Why might an asset allocation that is heavily weighted toward stocks, with only a small portion in bonds, be more appropriate for a 28-year old planning for retirement than for a 60-year old?
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The 28-year old has a longer time horizon, and this will allow him or her to ride out temporary market fluctuations and take advantage of the long-term growth potential in the stock market. The older investor will have less time to make up for any short-term downturns in the stock market.
5.
If you start investing for your newborn childs college education, you should avoid risking your capital in the stock market.
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False. With a long investment time horizon, more volatile investments like stocks will do the best job of generating growth in value.