Strategy Beginner: Asset Allocation and the Investment Time Horizon

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1.
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.
2.
Investors with long investment time horizons should always pursue volatile investments.
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False. While longer horizons can help overcome short-term market fluctuations, investors who rely on investment capital or income for living expenses or emergency needs should take steps to protect their capital.
3.
Short investment time horizons increase the risk of volatile investments.
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True. Holding volatile investments for short periods increases the risk that your investment may not recover from a short-term price drop.
4.
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.
5.
Your child is about to enter college. Which portfolio is likely to be the most successful for your college-fund investments?
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20 percent stocks, 60 percent bonds, 20 percent cash. With a short investment time horizon, youll probably want to have most of your funds invested in less-volatile instruments like bonds.