Basics Beginner: Investments

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1.
If you see letters such as AAA, BB, A, etc. in the financial news media and they are in reference to bonds, what are they referring to?
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Credit ratings of the companies that sell the bonds. These letters describe the credit ratings of the companies that sell the bonds. The closer they are to AAA, the better the health of the company, and therefore the less risky they will be.
2.
Compound interest is interest that is calculated only on the principal you invest.
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False. Compound interest is interest that is calculated on the principal you invest plus any interest you earn.
3.
Cash investments, like a savings account, are often used to save for goals like _______.
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Emergency funds. Because of their easy access and safety, they are a good vehicle to add savings dollars to so you can pay for unexpected emergencies when they occur. Retirement is a long-term goal, and most investors are willing to take some risk with their money to have an opportunity to earn a higher return.
4.
What is time horizon?
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The length of time over which you will be investing your money. Your time horizon will be a factor when choosing investments.
5.
What is a mutual fund?
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A ready-made portfolio of securities investments. Mutual funds are convenient because the investments in them have already been selected. You and many others invest your money into the fund and thereby participate in the gains and losses of the fund's investments.
6.
When you purchase stock from a company, you become _______ of the company.
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An owner. When you purchase stock, you receive shares of ownership from the company.