Basics Beginner: Investments

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1.
Compound interest is interest that is calculated only on the principal you invest.
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False. Compound interest is interest that is calculated on the principal you invest plus any interest you earn.
2.
The interest you earn on a savings account is taxed differently from the money you earn at your job.
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False. It is taxed the same way, that is, as ordinary income.
3.
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.
4.
Stocks have outperformed every other type of investment because ______.
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Their returns are not fixed. Stocks have unlimited earning capacity.
5.
What is asset allocation?
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Determining how much money to spend on different types of assets. Asset allocation is a big term, but it refers to how we distribute our money among investments.
6.
Which bonds are subject to credit risk?
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Both municipal and corporate. Corporate and municipal bonds are subject to credit risk, and the value of their bonds can be impacted if the financial strength of the company or municipality declines.