Strategy Beginner: Asset Allocation and the Investment Time Horizon

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
A new retiree should shift all of his or her investments to low-risk securities like bonds.
Choose wisely. There is only one correct answer.
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.
2.
Which statement best describes the effect of investment time horizon on asset allocation strategies?
Choose wisely. There is only one correct answer.
The longer you have to hold an investment, the more risk you can assume. This is true because long-term growth trends will tend to overcome short-term fluctuations in value. This is a key impact of investment time horizon on asset allocation.
3.
Short investment time horizons increase the risk of volatile investments.
Choose wisely. There is only one correct answer.
True. Holding volatile investments for short periods increases the risk that your investment may not recover from a short-term price drop.
4.
If you are investing for your childs college education, when does your investment time horizon permit you to take the most risk?
Choose wisely. There is only one correct answer.
When your child is born. At this point, you have the longest to invest before you need to cash in on your investments. Your investment time horizon is the longest, thus permitting you to allocate capital to assets that are more volatile.
5.
The possibility of crashes makes investing in stock a poor option for long-term investors.
Choose wisely. There is only one correct answer.
False. Even with the Great Depression and the 1987 "Black Monday" crash, long-term investors have still done well investing in stocks.