Chapter 8 Review

A single stock would be a good place to keep your emergency fund.

• True

• False

Diversification lowers risk with investing.

• True

• False

The Fifth Foundation is: Build Wealth and Give.

• True

• False

Always invest money in anything you do not understand.

• True

• False

Money market investments are low-risk, and therefore, have low returns.

• True

• False

Pre-tax contributions are taken from your gross income before taxes.

• True

• False

Name three types of Employer Retirement Plans.

• 401(k), 403(b), and SIMPLE IRA

• Roth IRA, Traditional IRA, and SEP IRA

• Pension Plan, Profit Sharing Plan, and Cash Balance Plan

• Defined Benefit Plan, Defined Contribution Plan, and Hybrid Plan

What is diversification in investing?

• A. A technique that involves investing all money in a single stock

• B. A risk-management technique that mixes various investments in a portfolio

• C. A strategy to avoid investing in the stock market

• D. A method of only investing in bonds

What is a key characteristic of a Roth IRA?

• It's funded with pre-tax money

• Withdrawals are always taxed

• It's funded with after-tax money

• Only employers can contribute

According to the text, what should you never do when investing?

• Use diversification strategies

• Invest in mutual funds

• Use borrowed money

• Invest in tax-free accounts