NGPF Unit 3 Stocks

Which of the following statements is TRUE about compound interest?

• Compound interest is difficult to calculate, so those who use it earn higher profits for their efforts

• Compound interest means you have a fund manager who is compounding your returns without charging a fee

• Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned

• Compound interest directly impacts how much you will be charged in fees

What kinds of behaviors can PREVENT people from making smart investing decisions?

• Staying calm when the market is experiencing a downturn

• Buying stocks when prices are low and selling them when they’re high

• Exiting the market because that’s what everyone else is doing  

• Investing in a diversified portfolio instead of trying to beat the market

You bought 10 shares of stock in StreamingVideoCo for $45 per share. Two months later you sold the 10 shares of stock for $80 per share. What was your profit or loss on StreamingVideoCo stock? (Assume that StreamingVideoCo didn't pay a dividend and that you didn't incur any trading fees during that period.)

• Loss of $800

• Profit of $350

• Loss of $450

• Profit of $800

Why is diversification a recommended investment strategy?

• Investing in a diversified portfolio guarantees that you won’t lose money with your investments

• If you tell your fund manager to use diversification, they’ll charge you lower fees

• Diversifying your portfolio helps reduce risk

• If you diversify your portfolio, you will definitely earn a high return

How is a bond different from a stock?

• A bond is a loan you give to an organization while a stock is partial ownership in a company

• Bonds are typically riskier than stocks but have the potential to earn higher returns

• Bonds are usually issued by smaller startup companies while stocks are issued by well established organizations

• Bonds are best for earning high returns while stocks are best for providing a stable source of income

How can someone make money from investing in a stock?

• They sell the stock for a lower price than what they bought it for

• They receive dividends or they sell the stock at a higher price than what they bought it for

• The stock loses value but the overall market experiences a positive return

• They sell the stock for the same price they bought it for

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

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

• It’s recommended that people with a low risk tolerance shouldn’t invest at all

• If you have a high risk tolerance, you may be eligible for lower fees since you won’t care if your portfolio drastically loses value

• You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with

A disadvantage of using a robo-adviser might be that…

• You are charged higher fees than if a human fund manager adjusted your portfolio

• You may not be able to get advice from a human financial advisor when you want it

• You don’t have any input as to how your portfolio is invested

• You’ll be put on a waitlist to use the robo-adviser since there are only a handful of them to choose from

Sanjana is explaining what Social Security is to her younger brother. Which of the following descriptions should she use?

• Social Security is a type of retirement savings plan that you can open through a brokerage firm

• Social Security is a government program that pools contributions from current workers to fund retirement support benefits to those who are eligible

• Social Security is a type of retirement savings plan offered by some employers

• Social security is a government mandate that requires employers to offer their employees a 401(k) or pension plan

What is meant by the term "robo-advisor?"

• A set of computer programs that automatically makes adjustments to finance portfolios

• An app that you download and access from your smart device to manage your investments

• A robot artificial intelligence who is trained to run an investment brokerage better than humans

• A fund manager who copies the same investments with every client so often it seems robotic