Basics Beginner: Investments

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1.
What is time horizon?
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The length of time over which you will be investing your money. Your time horizon will be a factor when choosing investments.
2.
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.
3.
What does diversification do for a mutual fund?
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Spread risk. By spreading risk among many different securities in a fund, you can reduce the damage that a downturn in a few of them can cause.
4.
Certificates of deposit (CDs) pay slightly higher interest rates than savings accounts. Why?
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Your money is committed to the CD for a certain amount of time. The idea behind a CD is that you commit your money for a certain term, such as 6 months. In return for doing that, you earn a higher rate of interest.
5.
As a general rule, which type of investment earns the highest rates?
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Stocks. As a rule, stocks earn the highest rates because their returns are not fixed. Of course, they also have the highest risks.
6.
What are some reasons why people invest their money?
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All of the above. These -- and many others -- are the most common reasons people invest their money.