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Financial Planning Courses: Investments

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1.
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.
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.
Social Security is meant to cover _______ of your retirement income needs.
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Some. While it can be an important piece of your income during retirement, most of your income should come from your retirement investments. Social Security was never intended to provide the majority of someone's retirement income.
4.
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.
5.
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.
6.
If an investor has a time horizon of 18 months to invest for a specific goal, they should consider investing what percentage of their investment dollars in stocks?
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0%. In general, 18 months is too short a time period to invest in stocks due to the chance for short-term price swings. You increase the risk of loss if you have a short timeline until needing to sell your stock investments. A general rule when buying stocks is that investors should be willing to hold stocks for five years or longer.