Basics Beginner: Investments

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1.
When you invest in a bond you are guaranteed to receive your principal back because bonds have a maturity date and fixed term.
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False. Only US government bonds have a guaranteed return of principal if the bond is held to maturity.
2.
Professional management is a benefit of investing in an index mutual fund.
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False. Index funds are passively managed mutual funds, meaning the portfolios simply mirror an index like the SP 500. Actively managed funds have continuous monitoring and management from investment professionals.
3.
Which of the following is not a characteristic of a cash investment?
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Moderate return. Cash investments have historically provided low returns because they are safe and liquid.
4.
What is asset allocation?
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Determining how much money to spend on different types of assets. Asset allocation is a big term, but it refers to how we distribute our money among investments.
5.
When inflation occurs, it means a dollar in the future will be worth more than a dollar today.
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False. Inflation causes the price of products and services to go up over time, so a dollar today will not buy the same amount of products and services in the future.
6.
What results when you sell an investment for more than you paid for it?
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A capital gain. It can be thought of as a gain on the capital invested.