C3 BASIC PRINCIPLES OF IM

Why do individuals invest?

• To never think about money

• To keep all their money in a savings account

• To maximize the long-run benefits from income

• To spend all their money immediately

What are the steps in portfolio management process?

• Ignore market conditions

• Buy random stocks and hope for the best

• Allocate available funds to minimize investor’s risks and meet investment goals

• Never review the portfolio performance

Why is a policy statement important to the planning process?

• It has no effect on the planning process

• It is not important at all

• It helps reduce the possibility of inappropriate behavior

• It complicates the planning process

What objectives and constraints should be detailed in a policy statement?

• Only objectives should be detailed

• Only constraints should be detailed

• Both objectives and constraints

• Neither objectives nor constraints

How and why do investment goals change over a person’s lifetime?

• They never change

• They change based on the weather

• They change based on the person's age and financial situation

• They change randomly

What is the focus of the Policy Statement?

• To never be reviewed

• To ignore all investment decisions

• To specify investment goals and acceptable risk levels

• To confuse investors

What are the benefits of constructing a policy statement?

• It helps reduce the possibility of inappropriate behavior

• It has no benefits

• It creates delays in transitioning money managers

• It increases the possibility of inappropriate behavior

What are the constraints mentioned in the text?

• Only liquidity needs

• None of the above

• Only time horizons

• Liquidity needs, time horizons, tax factors, and unique needs and preferences