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WorksheetsInvesting Test
Total questions: 58
Worksheet time: 28mins
How does investing in the stock market differ from putting money in a savings account at a bank?
Investing is always a less risky option than saving
Investing is best for short-term situations like emergency funds; saving is best for the long-term
Investing typically earns between 1-2% while saving generally earns between 5-7%
Investing allows you to accumulate wealth for retirement while saving is best forshort-term purchases or emergencies
Which of the following statements is TRUE about compound interest?
Compound interest is difficult to calculate, so those who use it earn higher profits for their efforts
Compound interest means you have a fund manager who is compounding yourreturns without charging a fee
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 directly impacts how much you will be charged in fees
What kinds of behaviors can PREVENT people from making smart investing decisions?
Staying calm when the market is experiencing a downturn
Buying stocks when prices are low and selling them when they’re high
Exiting the market because that’s what everyone else is doing
Investing in a diversified portfolio instead of trying to beat the market
Which of the statements below BEST describes the relationship between risk and return when considering an investment?
Investors expect to earn a lower return when they invest in a high risk asset
Investors expect to earn a higher return when they invest in a low risk asset
Investors expect to earn a higher return when they invest in a high risk asset
Investors expect to earn zero return when investing in a low risk asset
Why is diversification a recommended investment strategy?
Investing in a diversified portfolio guarantees that you won’t lose money with your investments
If you tell your fund manager to use diversification, they’ll charge you lower fees
Diversifying your portfolio helps reduce risk
If you diversify your portfolio, you will definitely earn a high return
How is a bond different from a stock?
A bond is a loan you give to an organization while a stock is partial ownership in a company
Bonds are typically riskier than stocks but have the potential to earn higher returns
Bonds are usually issued by smaller startup companies while stocks are issued by well established organizations
Bonds are best for earning high returns while stocks are best for providing a stable source of income
An actively managed mutual fund…
Generally has lower fees than a passively managed index fund
Is managed by a fund manager who charges a fee
Always performs better than an index fund
Is a mix of two types of stocks and two types of bonds to diversify your portfolio
How can someone make money from investing in a stock?
They sell the stock for a lower price than what they bought it for
They receive dividends or they sell the stock at a higher price than what they bought it for
The stock loses value but the overall market experiences a positive return
They sell the stock for the same price they bought it for
What is a brokerage account used for?
It’s an online portal that allows you to set up appointments with a fund manager
It’s the account you use to pay any taxes you owe on money you earned on your investments
It’s a type of account used to buy and sell stocks, bonds, and funds
It’s a special type of 401(k) plan that only some employers offer
Why is it important for you to understand your risk tolerance before you start investing?
It helps you decide if you want to participate in your employer’s match program for your 401(k)
It’s recommended that people with a low risk tolerance shouldn’t invest at all
If you have a high risk tolerance, you may be eligible for lower fees since you won’t care if your portfolio drastically loses value
You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with
Katrina works for Penny's Pickles, which offers a 401(k) match for up to 3% of her salary, which is $65,000 per year. In her budget, she only has $150 per month available to save for retirement. What should she do?
Opt out of the 401(k) plan since she doesn’t have much to contribute; use the money elsewhere in her budget
Contribute $75/mo to her 401(k) and $75/mo to an IRA, so that she's diversified
Save the $150/mo in a bank account until she has enough to max out her 401(k), and then invest
Contribute the full $150/mo to the 401(k) because her company will match that full amount, "doubling" her investment every month
What is one question an investor should ask when deciding whether or not they would like to open a Roth IRA or a Traditional IRA?
Do I want to make a guaranteed return of 6% or 8%?
Do I want to pay taxes now or later?
Do I want to take advantage of my employer’s matching contribution?
Do I want to take on more or less risk?
Why are Index Funds such a popular investing option?
They are a mix of 2-3 individual stocks that can help you diversify your portfolio
They provide a low-cost, diversified investment option that closely matches the overall return of a given index, such as the S&P 500
They are actively managed by a fund manager
They are managed by robo-advisors that guarantee higher returns than the overall stock market
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
Which would be considered the highest risk investment type?
Stock
Mutual Fund
Bond
Money Market Account
Brokers who suggest specific investments, create an investment plan, & make adjustments are
Discount/Online Brokers
Discount Brokers with Assistance
Full-Service Brokers
Money Managers
Your money remains tax-deferred in this account until you withdraw (taxed as income)
Roth IRA
Traditional IRA
Why is it important to start investing as soon as possible?
You take less risk when you are young, so money will be safe
You have more time for your money to compound
Investing is an easy way to make quick money
Fees on investments are cheaper when you are younger
The number of years it takes for your money to double
72 Rules
Rule of 72
When would it be a good idea to invest your money instead of putting it in a savings account?
When you won’t need the money for a long time.
When you want to put your money somewhere safe.
When you’re looking to maintain the value of your money with a little bit of growth.
None of the above
People invest in the stock market because:
The time value of money states that money available now is worth more than the same amount of money later because of its potential to grow.
Investing in companies through the stock market offers a chance to share in the profits of those companies.
Investing in the stock market generally offers a higher return than interest earned on a savings account.
All of the above
Which of the following is NOT a reason why people invest in the stock market?
Investing in the stock market usually offers a higher return than the interest earned on a savings account.
Investing is a guaranteed way to make money.
Investing in companies through the stock market offers a chance to share in the profits of those companies.
None of the above
Which of the following statements about stocks is FALSE?
Stocks represent a share of ownership in a company.
When you buy stocks, you get a say in shareholder meetings.
Stocks pay out interest annually.
Stocks are considered relatively risky compared to bonds.
___________ is an investment strategy that mixes a wide variety of investments from different categories within a portfolio.
Asset allocation
Diversification
Risk tolerance
Technical analysis
Which type of retirement account is set up for workers by their employers who may match a certain percentage of their contributions?
401(k)
IRA
Mutual fund
Flexible Savings Account
Which type of IRA requires you to pay taxes when making contributions to the account, but then allows you to withdraw money tax-free at retirement?
Traditional IRA
Roth IRA
Which is a benefit of investing?
not having to work now to earn money
spending lavishly now and living off investments later
having a no-risk way of earning a large amount of money
living comfortably after retirement
Which of the following should not be paid for with an emergency savings fund?
Replacing a broken down transmission in your car
Getting a regular oil change to keep your car running
Repairing your car after a fender bender
A downpayment for a new car after your previous car was totaled
Sara is a server at a restaurant and most of her pay is in cash. She's used to dealing with cash and has a system where she divides her money into different envelopes each month. She has one envelope for rent, one for groceries, one for gas, etc. At the end of each month, she takes one envelope for savings and deposits it into her savings account. What money management strategy is Sara using?
Pay yourself first
The 50-30-20 Method
The Categories Method
Investing in stocks
A goal to save money for a new saxophone is ________.
Specific
Measurable
Time-based
Attainable
What does the term "bull market" refer to?
A market in decline.
A market showing sustained increase in stock prices.
A market dominated by bearish investors.
A market where stocks are traded for animals.
What is a bear market?
A market showing a consistent rise in stock prices
A market showing a consistent decline in stock prices
A market with stable stock prices
A market where only animal stocks are traded
What does IPO stand for?
Immediate Profit Opportunity
International Purchase Offer
Initial Public Offering
Internal Product Overview
What is the role of the Securities and Exchange Commission (SEC)?
To provide loans to companies
To regulate the stock market and protect investors
To manage the country's money supply
To issue new stocks
What is the S&P 500?
A stock exchange
A single stock
An index that measures the stock performance of 500 large companies listed on stock exchanges in the United States
A government bond
What is a blue-chip stock?
A stock from a company that is not well-known
A stock that is very risky
A stock from a financially strong and well-established company
A stock that has a blue chip
Which type of savings account typically offers the highest interest rate?
Basic savings account
Certificate of Deposit (CD)
Checking account
Money market account
I will save money to buy a used car. Why is this not a good example of a SMART goal?
It's neither specific nor time-based
It's not attainable
It's not realistic
None of the above
