Basics Beginner: Investments

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1.
The interest you earn on a savings account or similar cash investment is not taxed as ordinary income by the federal government.
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False. Interest is taxed as ordinary income at both the state (if you are required to pay state taxes) and federal levels.
2.
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.
3.
What results when you sell an investment for more than you paid for it?
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A capital gain. It can be thought of as a gain on the capital invested.
4.
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.
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.