The Ultimate Investment Diversification Quiz

Estimated Completion Time
3 min
The Ultimate Investment Diversification Quiz
Image: iStockphoto.com/Steve Rabin

About This Quiz

Your friends and associates may consider you an astute investor and they could be correct. Are you doing everything possible to maximize your return and to protect your assets? Determine how much you know about diversification by taking this quiz.
Investing is:
a terrific way to make a lot of money
like a game of roulette
a high-risk pastime
Spreading your money over several types of investments is referred to as:
portfolio management
strategic allocation
diversification
What is the most attractive attribute of Investment diversification?
Investment diversification is a safe way to grow your money.
Investment diversification is a strategy reserved for rookie investors.
Investment diversification is ideal for people that have little time to manage investments.

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Why does diversification work well to help you earn a good return on investment?
Diversification works because you tend to watch your investments carefully and can respond to losses faster.
Diversification works because some of the investments in your portfolio have guaranteed rates of return.
Diversification works because it takes a long-term position on investing.
What is one key to understanding and working with investment diversification?
The return on your investment will be high if you divest of losers quickly.
You should not worry if some assets do poorly in any given year.
You must analyze the performance of each asset on a weekly basis.
How many classes of investment assets are there?
two
three
four

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What is a good lesson to learn when it comes to investing?
High risk equals huge profit.
Buying and selling often reaps big dividends.
No risk equals zero growth.
Which is the riskiest investment group among the three asset classes?
stocks
bonds
cash
When referring to stocks, what does the term market capitalization mean?
total dollar value of a company's outstanding stock
total amount of cash held in reserve by a company
amount by which assets exceed liability for a given company

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What dollar amount is assigned by most brokerage firms to categorize a company as small cap?
less than $250 million in market capitalization
less than $500 million in market capitalization
less than $1 billion in market capitalization
What dollar amount is assigned by most brokerage firms to categorize a company as large cap?
more than $5 billion in market capitalization
more than $10 billion in market capitalization
more than $15 billion in market capitalization
Although bonds are less risky than stocks, they:
are assessed yearly management fees
have maturity dates at least five years after issue
offer lower returns on investment

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What is the most attractive feature of cash investments?
You can withdraw the money from a cash investment account any time you want without penalty.
You can move money freely between different cash investment accounts.
You have your money in a highly secure account with very little risk.
To what does the term allocation of investments refer?
the process of rebalancing your investment portfolio.
the process of reinvesting dividends earned on your investments.
the process of allocating amounts of money to invest in each asset class.
What other major factor must comes in to play when you are allocating your investment dollars?
your net income
your stage in life
your experience

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How do some experts say that you should reallocate your investments as you approach retirement age?
90 percent to stocks and 10 percent to bonds
80 percent to stocks and 20 percent to bonds
60 percent to stocks and 40 percent to bonds
Is it enough to diversify your investments across investment classes?
Diversifying your investments across investment classes is the best strategy.
Diversifying your investments across investment classes is not good enough.
Simply diversifying your investments across investment classes is extremely risky.
True diversification means:
putting your money in as many differing sectors of the economy as is possible
investing your money in several companies with similar products
putting a significant portion of your investment dollars into several mutual funds

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What is a good tool to use that can help you to diversify your assets within a given class?
pie chart
bar chart
style chart
At first glance, the logic of rebalancing your portfolio every year seems:
too simple
illogical
very risky