D.31 Asset allocation and portfolio diversification

Question 1

Which of the following best defines asset allocation?

A. The process of investing in a single type of asset
B. The process of investing in multiple types of assets
C. The process of selecting individual stocks to invest in
D. The process of investing in commodities only

Answer 1

B. The process of investing in multiple types of assets.

D.31 Asset allocation and portfolio diversification

Question 2

Which of the following is not an asset class commonly used in asset allocation?

A. Stocks
B. Bonds
C. Cash
D. Artwork

Answer 2

D. Artwork

D.31 Asset allocation and portfolio diversification

Question 3

Which of the following is not a common investment objective for asset allocation?

A. Capital preservation
B. Income generation
C. Capital appreciation
D. Inflation avoidance

Answer 3

D. Inflation avoidance

D.31 Asset allocation and portfolio diversification

Question 4

Which of the following is not a factor that should be considered when determining asset allocation?

A. Risk tolerance
B. Investment time horizon
C. Personal beliefs and values
D. Investment fees and expenses

Answer 4

C. Personal beliefs and values

D.31 Asset allocation and portfolio diversification

Question 5

Which of the following is an example of tactical asset allocation?

A. Rebalancing a portfolio to maintain the target asset allocation
B. Investing in a target-date fund
C. Adjusting the allocation to take advantage of market trends
D. Investing in a diversified mutual fund

Answer 5

C. Adjusting the allocation to take advantage of market trends.

D.31 Asset allocation and portfolio diversification

Question 6

Which of the following is an example of strategic asset allocation?

A. Rebalancing a portfolio to maintain the target asset allocation
B. Investing in a target-date fund
C. Adjusting the allocation to take advantage of market trends
D. Investing in a diversified mutual fund

Answer 6

A. Rebalancing a portfolio to maintain the target asset allocation.

D.31 Asset allocation and portfolio diversification

Question 7

Which of the following is an example of dynamic asset allocation?

A. Rebalancing a portfolio to maintain the target asset allocation
B. Investing in a target-date fund
C. Adjusting the allocation to take advantage of market trends
D. Investing in a diversified mutual fund

Answer 7

B. Investing in a target-date fund

D.31 Asset allocation and portfolio diversification

Question 8

Which of the following is not a common method of diversification?

A. Investing in a variety of asset classes
B. Investing in multiple stocks within the same industry
C. Investing in a variety of mutual funds
D. Investing in a variety of individual bonds

Answer 8

B. Investing in multiple stocks within the same industry

D.31 Asset allocation and portfolio diversification

Question 9

Which of the following is an example of sector rotation?

A. Investing in a target-date fund
B. Investing in a single stock
C. Adjusting the allocation to take advantage of market trends
D. Rebalancing a portfolio to maintain the target asset allocation

Answer 9

C. Adjusting the allocation to take advantage of market trends

D.31 Asset allocation and portfolio diversification

Question 10

Which of the following is a potential benefit of diversification?

A. Increased risk
B. Decreased risk
C. Increased return
D. Decreased return

Answer 10

B. Decreased risk

D.31 Asset allocation and portfolio diversification

Question 11

Which of the following is not a type of risk to consider when diversifying a portfolio?

A. Market risk
B. Inflation risk
C. Credit risk
D. Sector risk

Answer 11

B. Inflation risk

D.31 Asset allocation and portfolio diversification

Question 12

Which of the following is an example of passive management?

A. Investing in an actively managed mutual fund
B. Investing in a passively managed mutual fund
C. Selecting individual stocks to invest in
D. Trading securities frequently

Answer 12

B. Investing in a passively managed mutual fund

D.31 Asset allocation and portfolio diversification

Question 13

Which of the following is an example of active management?

A. Investing in an actively managed mutual fund
B. Investing in a passively managed mutual fund
C. Selecting individual stocks to invest in
D. Trading securities frequently

Answer 13

A. Investing in an actively managed mutual fund

D.31 Asset allocation and portfolio diversification

Question 14

Which of the following is not a factor to consider when selecting an investment manager?

A. Investment philosophy
B. Fees and expenses
C. Performance history
D. Geographic location

Answer 14

D. Geographic location

D.31 Asset allocation and portfolio diversification

Question 15

Which of the following is not a potential limitation of diversification?

A. Limited investment options
B. Overlapping investments
C. Higher fees and expenses
D. Lower returns

Answer 15

D. Lower returns

D.31 Asset allocation and portfolio diversification

Question 16

Sarah is a 30-year-old investor who is willing to take on moderate risk. Which of the following asset allocations would be most appropriate for her?

A. 70% stocks, 20% bonds, 10% cash
B. 40% stocks, 40% bonds, 20% cash
C. 20% stocks, 60% bonds, 20% cash
D. 90% stocks, 5% bonds, 5% cash

Answer 16

A. 70% stocks, 20% bonds, 10% cash

D.31 Asset allocation and portfolio diversification

Question 17

Tom is a 65-year-old investor who is looking to generate income from his portfolio while minimizing risk. Which of the following asset allocations would be most appropriate for him?

A. 60% stocks, 30% bonds, 10% cash
B. 30% stocks, 60% bonds, 10% cash
C. 10% stocks, 80% bonds, 10% cash
D. 5% stocks, 90% bonds, 5% cash

Answer 17

B. 30% stocks, 60% bonds, 10% cash

D.31 Asset allocation and portfolio diversification

Question 18

James is a 40-year-old investor who is interested in investing in sustainable and socially responsible companies. Which of the following investment strategies would be most appropriate for him?

A. Active management
B. Passive management
C. Growth investing
D. Value investing

Answer 18

B. Passive management

D.31 Asset allocation and portfolio diversification

Question 19

Lisa is an investor who wants to diversify her portfolio with international investments. Which of the following investment options would provide her with exposure to foreign markets?

A. U.S. large-cap mutual fund
B. U.S. bond fund
C. International stock fund
D. Money market fund

Answer 19

C. International stock fund

D.31 Asset allocation and portfolio diversification

Question 20

John is a 50-year-old investor who is interested in investing in real estate but does not want to purchase physical property. Which of the following investment options would provide him with exposure to real estate?

A. Index funds
B. Mutual funds
C. Real estate investment trusts (REITs)
D. Exchange-traded funds (ETFs)

Answer 20

C. Real estate investment trusts (REITs)

D.31 Asset allocation and portfolio diversification

Question 21

Which of the following financial vehicles have many older members of Gen Z been proactive about?

A. Stocks, real estate, and cryptocurrency
B. Bonds and mutual funds
C. Precious metals
D. Only traditional savings accounts

Answer 21

A. Stocks, real estate, and cryptocurrency

D.31 Asset allocation and portfolio diversification