Basics Beginner: Investments

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1.
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.
2.
When you invest in a bond you are guaranteed to receive your principal back because bonds have a maturity date and fixed term.
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False. Only US government bonds have a guaranteed return of principal if the bond is held to maturity.
3.
Which of the following is not a characteristic of a cash investment?
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Moderate return. Cash investments have historically provided low returns because they are safe and liquid.
4.
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.
5.
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.
6.
It is possible to buy shares of a mutual fund directly from the fund instead of through a broker.
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True. Although you can buy shares through a broker, most funds also let you buy shares directly from the funds themselves.