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Financial Planning Courses: 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.
The primary risk associated with cash investments is _______.
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Inflation. Cash investments provide safety of principal and liquidity. But because of this, they offer a very low rate of return, often lower than the rate of inflation.
3.
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.
4.
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.
5.
Investors with a long-term goal like retirement in 20 or more years who are willing to live with significant declines in the short run often choose to allocate a higher percentage of their investment dollars to ________.
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Stocks. Stocks have historically returned much higher returns than bonds and cash for long-term investors; however, the investor must be willing to live with significant declines in stock values over the short term and the potential of losing money.
6.
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.