Investing and Saving Quiz

How does investing in the stock market differ from putting money in a savings account at a bank?

• Investing is always a less risky option than saving

• Investing is best for short-term situations like emergency funds; saving is best for the long-term

• Investing typically earns between 1-2% while saving generally earns between 5-7%

• Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies

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 will most likely happen to Daniel's purchasing power of his savings over time if his savings account earns 0.5% interest annually?

• His purchasing power will DECREASE because the interest rate is lower than the historical rate of inflation

• His purchasing power will INCREASE because the interest rate is higher than the historical rate of inflation

• His purchasing power will INCREASE because the interest will compound faster than the historical rate of inflation

• His purchasing power will remain the SAME because the interest rate is the same as the historical rate of inflation

What was your profit or loss on StreamingVideoCo stock if you bought 10 shares at $45 per share and sold them two months later at $80 per share, assuming no dividends were paid and no trading fees incurred?

• Loss of $800

• Profit of $350

• Loss of $450

• Profit of $800

Which statement BEST describes the relationship between risk and return when considering an investment?

• Investors expect to earn a lower return when they invest in a high risk asset

• Investors expect to earn a higher return when they invest in a low risk asset

• Investors expect to earn a higher return when they invest in a high risk asset

• Investors expect to earn zero return when investing in a low risk asset

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

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

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

Katrina works for Penny's Pickles, which offers a 401(k) match for up to 3% of her salary, which is $65,000 per year. In her budget, she only has $150 per month available to save for retirement. What should she do?

• Opt out of the 401(k) plan since she doesn’t have much to contribute; use the money elsewhere in her budget

• Contribute $75/mo to her 401(k) and $75/mo to an IRA, so that she's diversified

• Save the $150/mo in a bank account until she has enough to max out her 401(k), and then invest

• Contribute the full $150/mo to the 401(k) because her company will match that full amount, "doubling" her investment every month

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