Unit 7 - Investing #1 (Review)

A commonly used strategy to minimize investment risk is...

• Investing only when a stock's value is rising
• Investing in only one company
• there is no risk when investing in the stock market
• Diversifying your portfolio as much as possible

Which would be considered the highest risk investment, based on the given below:

• Company Stock
• Mutual Fund/ETF

• Savings Account
• Checking Account

Which of the following is TRUE about investing?

• It guarantees a high rate of return over a short period of time
• It can help you grow your long-term wealth through the power of compounding
• It is meant for achieving short-term savings goals
• It involves little risk because your guaranteed to make a return

Which of the following explains why risk is not always bad when it comes to investing?

• As risk increases, so does the possibility of greater returns
• There is no risk when it comes to investing
• Gains realized from higher-risk investments are low

What are the two ways investors can earn money from a stock?

• Dividends (bonus) and decreasing the stock’s market cap

• Dividends (bonus) and stock price appreciation (going up)

• A fixed interest rate on the investment and selling the stock at a higher price

What is one difference between actively managed mutual funds and index funds?

• Actively managed mutual funds typically have higher fees than index funds do
• Actively managed mutual funds invest in less risky investments than index funds
• Actively managed mutual funds track the performance of a single stock and bond while an index fund follows an index
• Actively managed mutual funds guarantee the average return of the securities in the fund while index funds aim to beat the market

All of the following are reasons to invest, EXCEPT…

• To minimize the impact on inflation, which causes you to lose purchasing power
• To earn a consistent rate of return with lower risk than typical savings accounts
• To build wealth by reinvesting your returns and allowing them to compound
• To earn higher average rates of return than you would in a typical savings account

What is the benefit of starting to invest early, even with a small amount?

• Your investments are likely to grow more since compounding means returns get larger over time
• You are guaranteed higher returns since compounding reduces the risks of investing
• You can use your investments to meet short-term financial goals since you don’t need to hold them as long
• You can take advantage of brokerage discounts for long-term investors

Which of the following statements about the stock market is true?

• A bear market is one where stock prices are trending upwards.

• We are always in a bull market

• Historically, the stock market averages 6-7% growth per year

• Stocks are a low-risk short-term investment because trends are predictable.

Leaving your investments in the stock market alone for at least 5-10 years is a good way to reduce risk because

• It allows your investments to earn more interest
• It keeps you from reacting to dips in the market and selling at too low of a price
• Fees are waived for investments held for over five years
• You get a bonus from the company if you invest for five years