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.
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.
2.
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.
3.
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.
4.
Long investment time horizons decrease the risk of volatile investments.
Choose wisely. There is only one correct answer.
True. Holding volatile investments for long periods increases the likelihood that long-term growth trends will overcome short-term price fluctuations.
5.
Your child is about to enter college. Which portfolio is likely to be the most successful for your college-fund investments?
Choose wisely. There is only one correct answer.
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.