Strategy Beginner: Asset Allocation and the Investment Time Horizon

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1.
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.
2.
A new retiree should shift all of his or her investments to low-risk securities like bonds.
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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.
3.
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.
4.
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.
5.
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.