Basics Beginner: Investments

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1.
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.
2.
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.
3.
If an investor has a time horizon of 18 months to invest for a specific goal, they should consider investing what percentage of their investment dollars in stocks?
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0%. In general, 18 months is too short a time period to invest in stocks due to the chance for short-term price swings. You increase the risk of loss if you have a short timeline until needing to sell your stock investments. A general rule when buying stocks is that investors should be willing to hold stocks for five years or longer.
4.
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.
5.
When a company shares some of its profits with its stockholders, what are those profits called?
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Dividends. Dividends are a cut of a company's profits that are shared with stockholders.
6.
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.