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Module 4 Quiz: Portfolio Building

What is the primary goal of diversification?

*

What is the primary goal of diversification?

A

Reduce overall portfolio risk

B

Minimize taxes

C

Increase volatility

D

Maximize short-term gains

What does asset allocation determine in a portfolio?

*

What does asset allocation determine in a portfolio?

A

What brokerage account you use

B

How often you should trade

C

How your money is divided among asset classes

D

The specific stocks you'll own

According to the Rule of 100, how much of a 30-year-old's portfolio should be in stocks?

*

According to the Rule of 100, how much of a 30-year-old's portfolio should be in stocks?

A

50%

B

100%

C

70%

D

30%

Which of the following is not a major factor in deciding asset allocation?

A

Favorite companies

B

Age

C

Financial goals

D

Risk tolerance

Why is it dangerous to let a portfolio drift heavily toward stocks over time?

*

Why is it dangerous to let a portfolio drift heavily toward stocks over time?

A

Stocks are always declining

B

Cash loses value

C

Bonds always outperform stocks

D

You may face increased risk during market downturns

If your target allocation is 60% stocks, what would be your expected portfolio drop in a 30% market crash?

A

60%

B

30%

C

18%

D

24%

Why does rebalancing help control portfolio risk?

*

Why does rebalancing help control portfolio risk?

A

It restores target allocations

B

It reduces tax bills

C

It times the market

D

It increases returns immediately

What is a common signal to trigger threshold-based rebalancing?

*

What is a common signal to trigger threshold-based rebalancing?

A

Stock market hits all-time high

B

Every 3 months

C

Investor retires

D

Allocation changes more than 5–10%

In a well-diversified portfolio, assets should:

*

In a well-diversified portfolio, assets should:

A

React differently to market conditions

B

All rise together

C

Be highly correlated

D

Include only stocks

What asset class is typically more volatile but offers greater long-term potential?

*

What asset class is typically more volatile but offers greater long-term potential?

A

Cash

B

Bonds

C

Real estate

D

Stocks

What kind of investment is most likely to provide portfolio stability during a stock market crash?

A

Real estate investment trusts (REITs)

B

Stocks

C

Cryptocurrencies

D

Bonds

Time-based rebalancing usually occurs every:

*

Time-based rebalancing usually occurs every:

A

6–12 months

B

2 weeks

C

1–2 years

D

3 months

What would happen if you never rebalanced your portfolio?

*

What would happen if you never rebalanced your portfolio?

A

Your returns would be higher

B

You’d automatically lower your risk

C

You’d be less diversified over time

D

Your taxes would increase

Index funds aim to:

*

Index funds aim to:

A

Match the market

B

Buy undervalued stocks

C

Beat the market

D

Short the market

Which of the following is true about actively managed funds?

*

Which of the following is true about actively managed funds?

A

They try to outperform the market through research and strategy

B

They always outperform index funds

C

They hold the same assets as the index

D

They are illegal for individual investors

Over the long term, what percentage of active large-cap funds underperform the S&P 500?

*

Over the long term, what percentage of active large-cap funds underperform the S&P 500?

A

50%

B

75%

C

Over 85%

D

25%

What is a major benefit of index funds?

*

What is a major benefit of index funds?

A

Personalized strategies

B

Low cost and simplicity

C

Guaranteed profits

D

Active management

What happens if your stock allocation drifts from 60% to 80% over time?

*

What happens if your stock allocation drifts from 60% to 80% over time?

A

You reduce risk

B

You're more exposed to volatility

C

You become more diversified

D

It guarantees higher returns

A diversified portfolio is least likely to include:

*

A diversified portfolio is least likely to include:

A

One single tech stock

B

Stocks from different sectors

C

Bonds from multiple issuers

D

International investments

Which best describes the relationship between diversification and asset correlation?

*

Which best describes the relationship between diversification and asset correlation?

A

Diversification is most effective when assets are highly correlated

B

All asset classes always move together

C

Asset correlation has no impact on risk

D

The lower the correlation between assets, the more effective the diversification