Basics Beginner: Investments

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1.
If you own a bond with an interest rate of 4% and rates increase to 5%, what will happen to the value of the bond if you try to sell it?
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It will decrease. If interest rates rise, the price of the bond on the market will decline because investors will seek bonds with these new, higher rates. This occurs with US government bonds too, and if you were to sell it before it matures, you would sell for less than you invested. If you hold the US government bond until its maturity date, you will receive all of your principal back.
2.
What is the most commonly used type of cash investment?
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Savings account. A savings account is made up of cash you deposit, but unlike the cash in your pocket, it pays some interest to you.
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.
During your retirement years, what do you need your investments to do the most of for you?
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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.
5.
When you purchase stock from a company, you become _______ of the company.
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An owner. When you purchase stock, you receive shares of ownership from the company.
6.
Investors with a long-term goal like retirement in 20 or more years who are willing to live with significant declines in the short run often choose to allocate a higher percentage of their investment dollars to ________.
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Stocks. Stocks have historically returned much higher returns than bonds and cash for long-term investors; however, the investor must be willing to live with significant declines in stock values over the short term and the potential of losing money.