Final answer:
The statement that ensuring adequate liquidity is the first step in applying asset allocation is True. The statement is true.
Step-by-step explanation:
True or False. The first step in applying asset allocation to your personal financial plan is to ensure adequate liquidity. This statement is True. Liquidity is crucial as it refers to how quickly you can convert your assets into cash to meet short-term needs.
Before committing to long-term investments, ensuring you have sufficient liquid assets to cover unforeseen expenses and emergencies is important. Investments such as mutual funds and stocks offer high liquidity if they are readily traded.
Conversely, tangible assets like housing, fine art, or collectibles have low liquidity due to the time and effort required to sell and access funds. Therefore, a key aspect of personal financial planning is to maintain an adequate liquidity level prior to diversifying investments to tackle various risk and return profiles.