Strategy Beginner: Asset Allocation and the Investment Time Horizon

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1.
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.
2.
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.
3.
Long investment time horizons decrease the risk of volatile investments.
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True. Holding volatile investments for long periods increases the likelihood that long-term growth trends will overcome short-term price fluctuations.
4.
Your child is about to enter college. Which portfolio is likely to be the most successful for your college-fund investments?
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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.
5.
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.