Investment Starting Investment 3

Question 1

What does 'risk tolerance' refer to?

Accepted Answer

Your ability and willingness to endure losses

Answer

The maximum you can legally invest

Answer

The fee a broker charges

Answer

How fast a stock trades

Question 2

Which investment is generally considered the lowest risk?

Accepted Answer

U.S. Treasury bonds

Answer

Penny stocks

Answer

Cryptocurrency

Answer

Options contracts

Question 3

What is asset allocation?

Accepted Answer

Dividing investments among different asset classes

Answer

Picking one winning stock

Answer

Selling all assets at once

Answer

Borrowing to buy assets

Question 4

A common rule of thumb for stock allocation by age is to subtract your age from what number?

Accepted Answer

100

Answer

50

Answer

200

Answer

25

Question 5

What does diversification primarily reduce?

Accepted Answer

Unsystematic (company-specific) risk

Answer

Total returns

Answer

Tax obligations

Answer

Trading fees

Question 6

Why might a young investor hold more stocks than bonds?

Accepted Answer

They have a long horizon to recover from downturns

Answer

Stocks never lose value

Answer

Bonds are illegal for young people

Answer

Stocks have no risk

Question 7

What is rebalancing a portfolio?

Accepted Answer

Adjusting holdings back to target allocation

Answer

Cashing out entirely

Answer

Buying only the best performer

Answer

Switching brokers