Investing Test Review Quiz

Which of the following is TRUE, based on the historic returns of the S&P 500?

• Stock prices rise consistently in the short term and only decrease during recessions. The stock market has an average annual return of 15%, adjusted for inflation.

• The stock market fluctuates in the short term and is difficult to predict. It has an average annual return of 6-7%, adjusted for inflation.

• The stock market fluctuates in the short term and the majority of investors can predict the direction of the market. The stock market has an average annual return that is negative, adjusted for inflation.

• On average, the growth of the stock market matches the rate of inflation. It has an average annual return of 2-3%, adjusted for inflation.

Which of the following descriptions should Sanjana use to explain Social Security?

• Social Security is a type of retirement savings plan offered by some employers.

• Social Security is a government mandate that requires employers to offer their employees a 401(k) or pension plan.

• Social Security is a government program that pools contributions from current workers to then provide retirement support benefits to those who are eligible.

• Social Security is a type of retirement savings plan that you can open through a brokerage firm.

What will most likely happen to the purchasing power of Daniel's savings over time?

• His purchasing power will DECREASE because the interest rate is lower than the historical rate of inflation.

• His purchasing power will INCREASE because the interest rate is higher than the historical rate of inflation.

• His purchasing power will INCREASE because the interest will compound faster than the historical rate of inflation.

• His purchasing power will remain the SAME because the interest rate is the same as the historical rate of inflation.

All of the following are advantages of saving for retirement in a 401(k), EXCEPT...

• You can withdraw money at any time without paying a penalty.

• Your 401(k) contributions are tax-deductible.

• A 401(k) has a higher contribution limit than an IRA.

• Some employers will match contributions to your 401(k).

What is a bond?

• A type of loan you can get from a bank that you pay back with interest.

• An investment in which you loan money to a corporation or government and are paid back with interest and the principal that you originally lent to them.

• A type of loan you can get from the federal government that you pay back with interest.

• An investment in which you loan money to another individual and are paid back with interest.

How are active investing and passive investing different?

• Active investing typically has lower fees while passive investing typically has higher fees.

• Active investing requires you to make a minimum number of trades per day while passive investing does not.

• Active investing requires a hands-off approach while passive investing requires a hands-on approach.

• Active investing is typically done by a fund manager trying to beat the market while passive investing typically involves investing in a popular index like the S&P 500.

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

• Diversifying across asset classes and within each asset class.

• Investing only when a stock's value is rising.

• Investing in only one company.

• Hiring an investment manager who promises to provide the largest returns.

Which of the following is TRUE about investing?

• It involves little risk because your returns are insured up to $250,000.

• It guarantees a high rate of return over a short period of time.

• It can help you grow your money through the power of compounding.

• It is meant for achieving short-term financial goals.

Which of the following is TRUE about pension plans?

• Pension plans are becoming increasingly common among employers in the U.S.

• More nonunion workers have access to pension plans than union workers.

• Employees generally control the investments within a pension plan.

• How much an employee gets from a pension depends on how long they’ve worked for the employer and how much they earn.

After opening her account, what should Tracie do first?

• Conduct research on the investments she's interested in.

• Limit herself to one small investment so she can't lose as much.

• Invest a large sum of money.

• Hire an investment manager.