Investing Assessment

Which represents the best time to start saving for your retirement?

• At age 45, so you have exactly 20 years until retirement
• Right after you pay off your student loans
• As soon as you graduate and have your first full-time job
• Once you are debt-free, including paying off all credit cards, auto loans, and your mortgage

Why is investing a better option than saving when it comes to planning for retirement?

• Investing begins as soon as you open a bank account, so you can start early in life.
• Investing usually has lower interest rates, so it offers a better deal.
• The stock market historically has returns higher than the rate of inflation, so your money can actually grow.
• Investing is guaranteed to produce the large sum of money needed for a happy retirement.

A commonly used strategy to minimize investing risk is...

• Investing only when a stock's value is rising
• Diversifying across asset classes and within each asset class
• Hiring an investment manager who promises to provide the largest returns
• Investing in only one company

Which of the following is TRUE about investing?

• It guarantees a high rate of return over a short period of time.
• It is meant for achieving short-term financial goals.
• It involves little risk because your returns are insured up to $250,000.
• It can help you grow your money through the power of compounding.

Which of the following explains why risk is not always bad when it comes to investing?

• Gains realized from higher-risk investments are untaxed.
• As risk increases, so does the possibility of greater returns.
• Robo-advisors eliminate all risk.
• Insurance will cover your investing losses.

All of the following should be considered when creating your investing strategy EXCEPT...

• Your credit score
• The amount of time your money will be invested before you start drawing from it
• Your risk tolerance
• The amount of capital you have available to invest

Ben is 24 and wants to start saving for retirement. What can he do to set himself up for success?

• Delay his expected retirement age by 20 years
• Wait until his 30s to start investing
• Invest 10-15% of his monthly salary
• Invest primarily in low-risk investments like bonds

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

• Investing is best for short-term situations like emergency funds; saving is best for the long-term.
• Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies.
• Investing typically earns between 1-2% while saving generally earns between 5-7%.
• Investing is always a less risky option than saving.

Why is compound interest more advantageous than simple interest?

• 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 has lower fees than simple interest.
• Compound interest means you have a fund manager who is compounding your returns without charging a fee.
• Compound interest is harder to calculate, so those who use it earn higher profits for their efforts.

Which of the statements below BEST describes the relationship between risk and return when considering an investment?

• Investors expect to earn a higher return when they invest in a high risk asset like stock in a small company.
• Investors do not expect to earn a return on a high risk investment but rather expect to lose their money.
• Investors expect to earn a lower return when they invest in a risky asset.
• Investors expect to earn a higher return when they invest in a low risk asset, like a bond.