Over long periods, what explains most of the variation in a diversified portfolio's returns?

The mix of asset classes you held

Which individual stocks you picked

Which month you started investing

Your target is 60/40. After a strong year your $200,000 portfolio sits at 70 percent stocks and 30 percent bonds. What does rebalancing require?

Sell $20,000 of stocks and buy $20,000 of bonds

Sell $10,000 of stocks and buy $10,000 of bonds

Sell $40,000 of stocks and buy $40,000 of bonds

Nothing, because the portfolio grew

You own a large cap US fund and add a second one with a correlation of 0.95 to the first. What have you gained?

Very little, because two holdings that move together are close to one bet

Half the volatility, because you now hold two funds

Protection against a market wide decline

A higher expected return for the same risk

You hold both a taxable brokerage account and a traditional IRA. What does asset location suggest?

Keep income heavy holdings such as taxable bond funds inside the tax deferred account, and tax efficient stock index funds in the taxable one

Put the highest returning assets in the taxable account so gains are realized sooner

Hold identical allocations in both, so each account is balanced on its own

Keep all the bonds in the taxable account to harvest losses

You sell an ETF at a loss for tax purposes and buy the same ETF back ten days later. What happens to the loss?

It is disallowed, because the wash sale rule covers the 30 days before and after the sale

It is allowed, because ETFs are exempt from the rule

It is allowed, because ten days is outside the settlement window

You have a lump sum to invest and are choosing between investing it now and spreading it over twelve months. What does the evidence broadly show?

Investing it at once has the higher expected return because the money spends longer exposed to the market, while spreading it lowers the risk of a badly timed entry

Spreading it produces higher expected returns

The two are identical in every respect

Spreading it is the only responsible option

What is a 5 percent threshold rebalancing rule?

Rebalance only when an allocation drifts more than 5 percentage points from its target, whatever the calendar says

Rebalance whenever the market moves 5 percent in a month

Sell 5 percent of the portfolio each year

Keep 5 percent of the portfolio in cash at all times

What is the 4 percent rule in retirement planning?

A starting withdrawal guideline drawn from historical US market data, adjusted each year for inflation

A guarantee that a portfolio lasts 30 years

A requirement that at least 4 percent of a 401(k) be held in cash

A minimum return target for a retirement portfolio

Portfolio & Risk quiz intermediate

Portfolio Construction Quiz: 10 Questions

See whether your portfolio decisions rest on arithmetic or on habit.

10 questions · about 6 minutes · instant explanations · nothing you answer leaves your browser

AI-assisted, reviewed and edited by Beth Ruelos. How we use AI

Sep 23, 2026 6 min read

About this quiz

Ten questions on allocation, correlation, rebalancing, Sharpe ratios, beta and asset location, with the arithmetic behind each decision spelled out. Each question comes with a short explanation of the right answer and a link to the guide that teaches it, so a wrong answer is a reading list rather than a dead end.

The quiz draws on the Portfolio & Risk section. If you are new to the topic, start with the guides below, then come back and test yourself. Scores are calculated in your browser and are not stored or sent anywhere.

Frequently asked questions

Is this quiz free?

Yes. It is free to take, needs no account and asks for no email address, and the questions are scored in your browser so your answers are never sent anywhere.

What score counts as passing?

Seven out of ten is a good result. The rebalancing and correlation questions are the ones worth revisiting, because both describe risks that build up quietly over years rather than showing up in a single bad week.

Is any of this personal financial advice?

No. Everything here is education about how portfolios behave arithmetically, and none of it accounts for your income, your tax position, your time horizon or your obligations. Decisions about your own money deserve advice that knows those details.

About this quiz

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