A key difference between saving and investing is

• Saving is for everyone, investing is for the wealthy

• Your money is insured when investing, it is not in savings

• Investing has a guaranteed return, savings does not

• Saving is for emergencies & goals, investing is for long-term wealth

Answer explanation

The correct choice highlights that saving is primarily for emergencies and short-term goals, while investing is aimed at building long-term wealth. This distinction is crucial for effective financial planning.

Which would be considered the highest risk investment type?

• Stock

• Mutual Fund

• U.S. Government Bond

• Bank Certificate of Deposit

Answer explanation

Stocks are considered the highest risk investment type due to their volatility and potential for significant price fluctuations, unlike more stable options like U.S. Government Bonds or Bank Certificates of Deposit.

A diversified portfolio is desirable because

• It limits investment choice

• It's a good predictor on rate of return

• It increases risk and return

• It decreases risk

Answer explanation

A diversified portfolio decreases risk by spreading investments across various assets, reducing the impact of any single asset's poor performance on the overall portfolio.

Why is it important to start investing as soon as possible?

• You take less risk when you are young, so money will be safe

• You have more time for your money to compound

• Investing is an easy way to make quick money

• Fees on investments are cheaper when you are younger

Answer explanation

Starting to invest early allows your money to compound over time, maximizing growth. The longer your investments have to grow, the more wealth you can accumulate, making this the most important reason to start investing as soon as possible.

What is a stock?

• A loan an investor makes to a company or government that pays interest over time.

• A share of ownership in a company

• A collection of investments sold as a package.

• An option to purchase something in the future at todays price.

Answer explanation

A stock represents a share of ownership in a company, giving investors a claim on assets and earnings. This distinguishes it from loans or options, which involve debt or future purchase rights.

What is the primary reason for a company to issue stock?

• The stocks help investors earn a higher rate of return

• To raise money to grow the company

• To distribute the risk of bankruptcy across more investors

• To increase greater awareness of the company

Answer explanation

The primary reason a company issues stock is to raise money to grow the company. This capital can be used for expansion, research, and development, which are essential for the company's growth and success.

Which one of the following types of investments has the highest risk and the highest potential rate of return?

• Stocks

• Government Bonds

• Certificates of Deposits

• Savings Accounts

Answer explanation

Stocks are known for their high volatility, which means they carry the highest risk among investment options. This volatility also allows for the potential of high returns, making stocks the correct choice for the highest risk and return.

Examples include gold, oil, silver and natural gas. They are traded on a stock exchange.

• Bonds

• Stocks

• Collectibles

• Commodities

Answer explanation

Gold, oil, silver, and natural gas are all examples of commodities, which are raw materials traded on stock exchanges. The other options, like bonds and stocks, refer to financial instruments, not physical goods.

Cash payment (per share) made by the company to its shareholders is called a.....

• Beta

• Bid

• Dividend

• Market Cap

Answer explanation

The cash payment made by a company to its shareholders is known as a dividend. It represents a share of the company's profits distributed to its owners, unlike terms like beta, bid, or market cap, which refer to different financial concepts.

Which is NOT sound financial advice?

• Start early

• "Diversify" your money into a variety of investments

• Buy only technology stocks - It is the future!

• Don't take money out of your retirement account until age 59.5 or later.

Answer explanation

Buying only technology stocks is risky and not sound advice, as it lacks diversification. A balanced investment strategy is essential for managing risk and ensuring long-term financial stability.