Stock Advisor Portfolio Management Strategies 1

Question 1

What is 'asset allocation' in portfolio management?

Accepted Answer

Distributing investments across different asset classes like stocks, bonds, and cash

Answer

Asset allocation is the strategy of distributing a portfolio across different asset classes to balance risk and return based on an investor's goals and risk tolerance.

Question 2

What is 'diversification' meant to achieve in a portfolio?

Accepted Answer

Reduce unsystematic risk by spreading investments across different securities

Answer

Diversification reduces unsystematic (company-specific) risk by spreading investments across different assets, sectors, and geographies.

Question 3

What does 'rebalancing' a portfolio mean?

Accepted Answer

Adjusting holdings back to target allocation percentages after market movements

Answer

Rebalancing restores a portfolio to its target asset allocation by selling overweighted assets and buying underweighted ones after market movements shift the balance.

Question 4

What is 'dollar-cost averaging' (DCA)?

Accepted Answer

Investing a fixed dollar amount at regular intervals regardless of price

Answer

Dollar-cost averaging involves investing a fixed amount regularly, buying more shares when prices are low and fewer when prices are high, reducing average cost over time.

Question 5

What is a 'benchmark' used for in portfolio management?

Accepted Answer

A standard index used to measure portfolio performance

Answer

A benchmark, such as the S&P 500, is a standard against which portfolio performance is compared to evaluate whether the portfolio is outperforming or underperforming.

Stock Advisor Practice Test

Stock Advisor Practice Test

Stock Advisor Portfolio Management Strategies 1