Starting Investment Flashcards
7 cards from real Investment practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Starting Investment flashcards as text
What does 'risk tolerance' refer to?
Answer: Your ability and willingness to endure losses
Risk tolerance describes how much volatility and potential loss you can comfortably handle.
Which investment is generally considered the lowest risk?
Answer: U.S. Treasury bonds
U.S. Treasury bonds are backed by the federal government, making them among the safest investments.
What is asset allocation?
Answer: Dividing investments among different asset classes
Asset allocation spreads money across stocks, bonds, and cash to balance risk and return.
A common rule of thumb for stock allocation by age is to subtract your age from what number?
Answer: 100
Subtracting your age from 100 (or 110) gives a rough percentage to hold in stocks.
What does diversification primarily reduce?
Answer: Unsystematic (company-specific) risk
Diversification reduces company-specific risk by not relying on any single investment.
Why might a young investor hold more stocks than bonds?
Answer: They have a long horizon to recover from downturns
A long time horizon lets younger investors ride out market dips and benefit from higher stock growth.
What is rebalancing a portfolio?
Answer: Adjusting holdings back to target allocation
Rebalancing restores your intended asset mix after market movements shift the proportions.