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Financial Planning Courses: Investments

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1.
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.
2.
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.
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.
What ultimately causes stock prices to rise?
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Companies increase their profits in the future. Ultimately, a rise in profits causes stocks to grow in value, which leads to rising stock prices.
5.
When inflation occurs, it means a dollar in the future will be worth more than a dollar today.
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False. Inflation causes the price of products and services to go up over time, so a dollar today will not buy the same amount of products and services in the future.
6.
One of the risks of investing in bonds is interest rate risk. This means that if interest rates rise, your bond will be earning less than new bonds.
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True. This is one risk of investing in bonds.