CFP (Certified Financial Planner) Practice Questions — All Questions

Asset allocation refers to:

• a.Picking a single stock
• b.Dividing a portfolio among asset classes like stocks, bonds, and cash✓
• c.Timing the market daily
• d.Avoiding all risk

Asset allocation spreads investments across asset classes to balance risk and return.

A longer time horizon generally allows an investor to:

• a.Take on more risk for potentially higher returns✓
• b.Never hold stocks
• c.Avoid diversification
• d.Ignore goals

Longer horizons can tolerate more volatility for higher expected returns.

Dollar-cost averaging means:

• a.Buying only at market lows
• b.Investing a lump sum once
• c.Investing a fixed amount at regular intervals✓
• d.Selling everything yearly

Dollar-cost averaging invests fixed amounts periodically, smoothing purchase prices.

Diversification helps primarily by:

• a.Guaranteeing gains
• b.Eliminating market risk
• c.Increasing fees
• d.Reducing the impact of any single investment's poor performance✓

Diversification reduces unsystematic risk from individual holdings.