Investing Unit Review

Which of the following best describes the difference between investing, saving, and trading, and explains how compounding builds wealth over time?

• Investing involves putting money into assets for long-term growth, saving is setting aside money for future use, trading is buying and selling assets frequently, and compounding allows wealth to grow exponentially over time.

• Investing and saving are the same, while trading is unrelated to wealth building, and compounding has no effect on wealth.

• Saving is riskier than investing, trading guarantees profits, and compounding only applies to savings accounts.

• Investing is only for experts, saving is for everyone, trading is illegal, and compounding reduces wealth over time.

What are stocks?

• Shares representing ownership in a company

• Loans given to a company

• Government-issued bonds

• Physical assets like gold

Which of the following best summarizes what a bond is, the pros and cons of investing in bonds, how interest rates can impact bond prices, and the differences between individual bonds and bond funds?

• A bond is a debt instrument; bonds offer steady income but can lose value if interest rates rise; individual bonds have set maturities, while bond funds are pooled investments.

• A bond is a type of stock; bonds always increase in value when interest rates rise; bond funds and individual bonds are the same.

• A bond is a savings account; bonds have no risk and are not affected by interest rates; bond funds are less diversified than individual bonds.

• A bond is a commodity; bonds are only for short-term investment; interest rates do not affect bond prices.

Analyze the role risk plays in investing and how to manage risk using strategies such as diversification and dollar cost averaging.

• Risk is an important factor in investing and can be managed through strategies like diversification and dollar cost averaging.

• Risk has no impact on investing and cannot be managed.

• Diversification and dollar cost averaging increase risk in investing.

• Risk can only be managed by avoiding all investments.

Which of the following best describes mutual funds, index funds, ETFs, and TDFs in terms of their definitions, pros and cons, and their fit into active versus passive investing strategies?

• They are all types of investment funds with different management styles and risk profiles, and can be used in both active and passive investing strategies.

• They are all types of stocks that are only used in active investing strategies.

• They are all types of bonds that are only used in passive investing strategies.

• They are all types of real estate investments with no relation to active or passive investing.

Investing can be used to build wealth for retirement by:

• Saving money in a regular savings account

• Investing in retirement accounts like 401(k)s and IRAs, and using tools such as robo-advising and AI to optimize investments

• Keeping all money in cash at home

• Spending all income immediately

As an investor, when you purchase a(n) __________ bond from a company, you are lending the company money which it promises to repay with interest by a certain date.

• bond

• stock

• dividend

• warrant

As __________ increases, the purchasing power of the dollar decreases, which impacts how much you can buy in goods and services.

• inflation

• deflation

• employment

• productivity

Investors can purchase shares in an actively managed __________ mutual fund, which pools money from many people to buy a diversified portfolio of stocks, bonds, or other securities.

• mutual fund

• savings account

• certificate of deposit

• retirement plan

For someone like Sarah who prefers a hands-off approach to investing, a(n) __________ robo-advisor can automatically manage her portfolio based on her risk preferences.

• robo-advisor

• stockbroker

• mutual fund manager

• day trader