OCS EPF Module 3 Review

Shawna has added up all her current expenditures and revenues and developed a plan for what she wants to do with all of her cash flow. She has included in this plan some money to put away for her 401k based on what she will need in the future. What is missing from Shawna's actions to make sure this is a sound financial plan?

• Shawna needs to make sure she revisits this plan on an ongoing basis.

• Shawna needs to invest. You can't have a sound financial plan without investing.

• Shawna should begin speculating on the market to potentially grow her extra income quickly.

• Shawna needs to consult with a financial advisor to make sure she has not missed any details.

Carl is a young adult and always has money left over in his account at the end of the month and has saved something. He doesn't really know how much he spends or exactly how much he makes, but he doesn't really think too much about it since he sees his savings account grow. What is true about Carl in terms of a financial plan?

• Carl has a great financial plan because he is saving each month. That's all that matters.

• Carl should be more intentional in determining his expenditures and developing a more specific savings plan

• Carl could potentially think about investing some money or saving for retirement with some of the money left over. As long as he is putting some money away for the future, he will be fine.

• Carl should be speculating. Since he is young, he must be taking some riskier moves with his money to have a good financial plan.

Maria is in the process of determining how much she wants to keep in her savings account for emergencies. If she is following the advice of most advisors, how should she calculate this?

• She should save 12 months of her salary.

• She should save 3-6 months of what she typically spends on non-essential and essential expenses.

• She should save 3-6 months of essential living expenses.

• She should save 12 months of her family's total income.

Sam's employer matches a portion of his contributions to a 401k. This is essential for Sam to consider when planning how to allocate his cash flow because ______.

• It means his company is going to provide dividends each year from the growth that occurs in those accounts.

• He doesn't have to save as much knowing he can collect money from his company at retirement age.

• It really doesn't impact him at all. This is a standard practice for all companies that he doesn't need to take advantage of.

• It's essentially getting free money. The more he puts away in his 401k account, the more free money he gets.

The amount of money you have left over after you list your assets and subtract your debt is called ______.

• Wealth

• Cost of living

• Budgets

• Financial Plan

Why do people recommend diverse portfolios?

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

• Diversifying your portfolio helps reduce risk.

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

• If you diversify your portfolio, you are guaranteed to make a high return.

How is a bond different from a stock?

• A bond is usually issued by smaller, startup companies while stocks are with well established organizations.

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

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

• 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 the same price they bought it for.

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

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

• They receive dividends from the company they bought the stock of and/or they sell the stock at a higher price than what they bought it for.

What is one question an investor should ask before investing in a Roth IRA or a Traditional IRA?

• Do I want to pay taxes now (Roth IRA) or later (Traditional IRA)?

• Do I want to make a guaranteed return of 6% or 8%?

• Do I want to pay taxes now (Traditional IRA) or later (Roth IRA)?

• What type of investments do I want to make?

Judi has some disposable income that she would like to see if she can get a high return for in a short amount of time. She is a risk taker and is willing to gamble her money knowing there is a high potential for loss, as well as gain. What would you suggest for Judi?

• Saving

• Speculating

• Investing

• Paying off debt