Investment types 101

What are the basic principles of investing?

• Start with your asset allocation

• Diversify your portfolio

• Control the cost to invest, pay attention to the expense ratio

• Finding the right mix of asset types (risky level)

When you buy a stock, you own a piece of the company that issues it

• True

• False

Choose all true statements:

• • If you buy a company's stock, you become a part owner and you'll generally make money if the company does well—or lose money if it doesn't.

• • Depending on how established the company is, most of the money you make will come either through increases in share price or through dividend payments.

• • Larger companies tend to be more stable than smaller companies, but they also have less room for growth.

If you buy 50 shares at $10 a share and then the share price increases to $15, you're now $ (a)   richer.

If you buy 50 shares at $40 a share and then the share price drops to $15, you lost $ (a)   .

The stock holder might also receive dividend from the company. Say the issuer of your 50 shares of stock announces a $2 dividend annually. That means you'll be paid $ (a)  

The stock holder might also receive dividend from the company. Say the issuer of your 50 shares of stock announces a $2 dividend quarterly. That means you'll be paid $ (a)   in total each year.

Over shorter periods of time (weeks or months), the value of a particular stock can fluctuate based on a lot more than the actual performance of the company.

• True

• False

Companies generally fall into 1 of 2 categories depending on how they make money for their investors.​ (a)   companies are in an expansion phase. Any available money they have is likely to be funneled toward the expansion of their businesses or the development of new products and services. As they ​ (b)   , the value of their shares increases.​ (c)   companies are relatively established. While they may still be growing, there's not as much room for the kind of rapid expansion that growth companies pursue. So rather than plow all their cash flow into opportunities for development, these companies are more likely to pay dividends.

• grow
• Growth
• Value

Companies can also be divided up based on the total value of their shares—their "capitalization." Stocks are generally considered to be large-, mid-, or small-cap. In general, large-cap stocks make up about ​ (a)   % to​ (b)   % of the entire market, and mid- and small-cap stocks about ​ (c)   % to​ (d)   % each.

• 65
• 75
• 10
• 15