Basics Beginner: Investments

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1.
What are some reasons why people invest their money?
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All of the above. These -- and many others -- are the most common reasons people invest their money.
2.
What ultimately causes stock prices to rise?
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Companies increase their profits in the future. Ultimately, a rise in profits causes stocks to grow in value, which leads to rising stock prices.
3.
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.
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.
The interest you earn on a savings account or similar cash investment is not taxed as ordinary income by the federal government.
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False. Interest is taxed as ordinary income at both the state (if you are required to pay state taxes) and federal levels.
6.
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.