Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
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.
3.
When planning for retirement needs, the best asset allocation strategy is to pick a portfolio of investments and stick with it until retirement.
False. Asset allocation should change as individuals approach retirement, the investment time horizon becomes shorter, and their reliance on income from investments increases.
4.
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.
5.
Long investment time horizons decrease the risk of volatile investments.
True. Holding volatile investments for long periods increases the likelihood that long-term growth trends will overcome short-term price fluctuations.
