Investing

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.

If interest rates rise, what will typically happen to bond prices?

• Rise

• Fall

• Stay the same

• Interest Rates are not related to bond prices

Answer explanation

When interest rates rise, new bonds are issued at higher rates, making existing bonds with lower rates less attractive. As a result, the prices of existing bonds typically fall.

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 compound interest more beneficial than simple interest?

• Your money grows faster when it is compounded

• Your taxed on simple interest, but not compound interest

• Fees for compound interest are greater than simple interest

• Compound interest is hard to calculate, so fewer use it

Answer explanation

Compound interest is more beneficial because it allows your money to grow faster by earning interest on both the initial principal and the accumulated interest over time, unlike simple interest which only earns on the principal.

An account that is used to buy and sell stocks, bonds, and funds is called a

• Roth IRA

• ETC Account

• Brokerage Account

• Target Date Fund

Answer explanation

A brokerage account is specifically designed for buying and selling stocks, bonds, and funds. In contrast, a Roth IRA is a retirement account, an ETC account is not standard terminology, and a target date fund is an investment option, not an account.

Which type of investment is typically considered the safest?

• Stocks

• Mutual Funds

• Bonds

• Real Estate

Putting regular amounts of money into an investment account at specific time intervals is

• Compound interest

• Diversification

• Dollar cost averaging

• Inflation

Answer explanation

Putting regular amounts of money into an investment account at specific intervals is known as dollar cost averaging. This strategy helps reduce the impact of volatility by spreading out the investment over time.

Which of the following is a characteristic of a growth stock?

• High dividend payouts

• Stable and predictable returns

• Potential for significant capital appreciation

• Low market volatility

What's the main difference between a Roth IRA and a Traditional IRA?

• Roth IRAs have higher interest rates

• Roth IRAs have you pay taxes upfront

• Roth IRAs have higher fees

• Roth IRAs are riskier investments

Answer explanation

The main difference is that Roth IRAs require you to pay taxes on contributions upfront, while Traditional IRAs allow you to defer taxes until withdrawal. This affects how and when you pay taxes on your retirement savings.

What is Social Security?

• Social Security is a private retirement fund run by your company

• Social Security is another name for a 401(k)

• Social Security is a government run retirement program

• Social Security is a program that matches your 401(k) contributions

Answer explanation

Social Security is a government run retirement program that provides financial support to retirees, disabled individuals, and survivors of deceased workers, distinguishing it from private retirement funds and 401(k) plans.