Basics Beginner: Investments

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1.
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.
2.
Social Security is meant to cover _______ of your retirement income needs.
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Some. While it can be an important piece of your income during retirement, most of your income should come from your retirement investments. Social Security was never intended to provide the majority of someone's retirement income.
3.
When a bond matures, what happens to it?
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The money gets paid back to you. When a bond matures (that is, when its term ends), the money in it gets paid back to you, along with any interest that is yet due.
4.
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.
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.
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.