Basics Beginner: Investments

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
Stocks have outperformed every other type of investment because ______.
Choose wisely. There is only one correct answer.
Their returns are not fixed. Stocks have unlimited earning capacity.
2.
Asset allocation is associated with determining how many stocks you will hold in your stock portfolio.
Choose wisely. There is only one correct answer.
False. Asset allocation is associated with determining how much you will allocate to an asset class like stocks, bonds, and cash. The number and types of stocks you have in your portfolio has to do with diversification.
3.
The interest you earn on a savings account or similar cash investment is not taxed as ordinary income by the federal government.
Choose wisely. There is only one correct answer.
False. Interest is taxed as ordinary income at both the state (if you are required to pay state taxes) and federal levels.
4.
Investment diversification can be accomplished by owning _______.
Choose wisely. There is only one correct answer.
Small, mid-sized, and large company stocks. Owning many different-sized companies provides diversification because they have different characteristics and generally perform differently based on the economic and market conditions.
5.
One of the risks of investing in bonds is interest rate risk. This means that if interest rates rise, your bond will be earning less than new bonds.
Choose wisely. There is only one correct answer.
True. This is one risk of investing in bonds.
6.
During your retirement years, what do you need your investments to do the most of for you?
Choose wisely. There is only one correct answer.
Provide income. During your later years, you will need money to live on, and that will ideally come from your investments. Although growth is good, it also comes with risk, which you don't want during your retirement.