TIAA-CREF: Asset Classes

Answer the following questions:

• In your own words, how would you describe diversification (also known as asset allocation)?
• Why is diversification suggested as an effective strategy for managing investment risk?
• What are two risks that are associated with investing in securities? Why must every investor be aware of her/his risk tolerance?
• Why is it a good investment strategy to periodically reexamine and reallocate funds that you are investing?
• To what extent do you agree with this statement: “Asset allocation is an essential component in any wise investor’s strategy?”