Choose wisely. There is only one correct answer to each question.
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1.
The possibility of crashes makes investing in stock a poor option for long-term investors.
False. Even with the Great Depression and the 1987 "Black Monday" crash, long-term investors have still done well investing in stocks.
2.
Investors with long investment time horizons should always pursue volatile investments.
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.
Which of the following investment portfolios is the best example of diversification through asset allocation?
Stocks, bonds, and cash (e.g., certificates of deposit). Unlike the other choices, these all represent different asset classes -- asset allocation consists of building a portfolio of different asset classes.
4.
A new retiree should shift all of his or her investments to low-risk securities like bonds.
False. New retirees may still have an investment time horizon of 20 years or more, which allows them to take advantage of some exposure in the stock market.
5.
Your child is about to enter college. Which portfolio is likely to be the most successful for your college-fund investments?
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.
