Unit 5 Econ Test Review

Why is it important to diversify your investments?

• If you diversify your portfolio you will make riskier investments and get higher returns

• If you diversify your portfolio, you won't lose money in your investments

• Mutal Funds charge less for diversification

• Diversifying your portfolio helps reduce risk

How is investing in the stock market different from putting your money in a savings account?

• Investing is to accumulate wealth, while saving is best for short term goals

• Investing is less risky than saving

• Investing is for short-term goals, saving is best for long-term goals

• Investing generally earns 1-2% return, while saving usually earns 5-7%

You buy a share of “E” stock for $50.Two months later, you sell the stock for $80.  What was your profit or loss on the “E” stock?  (assume no dividend or trading fees)

• capital loss of $80 

• capital gain of $30

• capital loss of $50

• capital gain of $800

What is a stock?

• a loan you give to an organization

• a financial product offered by banks and credit unions

• An interest-bearing deposit account held at a bank or other financial institution

• A stock is partial ownership in the company

How do you earn money by investing in stocks?

• Sell the stock for a lower price than you bought it for

• The stock loses value

• Through dividends and/or sell the stock at a higher price than you bought it fo

• Sell the stock for the same price you bought it for

Why is it important to know your risk tolerance before you start investing?

• It helps you decide if you want to participate in your employer's match program for your 401k

• You should only invest at the level of risk your are comfortable with

• People with high risk tolerance may be charged lower fees

• People with a low risk tolerance should not invest at all

What should you ask yourself before deciding to invest in a Roth or Traditional IRA?

• Do I want to make a guaranteed return of 6-8%?

• What type of investments do I want to make?

• Do I want to pay taxes now (Roth) or later (Traditional)?

• Do I want to pay taxes now (Traditional) or later (Roth)?

At what age can you start making "catch up"contributions to your retirement account?

• 50+

• 70 1/2

• 55+

• You can always contirbute more

Which retirement account is for public employees like teachers and school administrators?

• 403b

• Roth IRA

• 401k

• Traditional IRA

Which retirement account is NOT funded with pretax contributions?

• 403b

• 401k

• Roth IRA

• Traditional IRA