Basics Beginner: Investments

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1.
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.
2.
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.
3.
Investment diversification can be accomplished by owning _______.
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Small, mid-sized, and large company stocks. Owning many different-sized companies provides diversification because they have different characteristics and generally perform differently based on the economic and market conditions.
4.
As a rule, the longer your time horizon is for investing, the more aggressive you can be with your investments.
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True. This is due to the fact that you will have more time to recoup losses.
5.
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.
6.
If you see letters such as AAA, BB, A, etc. in the financial news media and they are in reference to bonds, what are they referring to?
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Credit ratings of the companies that sell the bonds. These letters describe the credit ratings of the companies that sell the bonds. The closer they are to AAA, the better the health of the company, and therefore the less risky they will be.