Basics Beginner: Investments

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

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1.
Cash investments, like a savings account, are often used to save for goals like _______.
Choose wisely. There is only one correct answer.
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.
2.
During your working years, what do you need your investments to do the most of for you?
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Grow. If you are like most people, you will need your investments to grow so that when you are older, you can withdraw sufficient money from them to live on.
3.
Asset allocation is associated with determining how many stocks you will hold in your stock portfolio.
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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.
4.
In mutual funds, a sales charge is used to compensate the mutual fund manager.
Choose wisely. There is only one correct answer.
False. It is to compensate the financial advisor for providing advice. The expense ratio is what compensates the mutual fund manager.
5.
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?
Choose wisely. There is only one correct answer.
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.
6.
When you purchase stock from a company, you become _______ of the company.
Choose wisely. There is only one correct answer.
An owner. When you purchase stock, you receive shares of ownership from the company.