Investing - Test 6
Sam is 22, just started his first full-time job, and is selecting his investments through his company's 401(k) plan. Why might a target date fund (TDF) be a good option for Sam?
A TDF will automatically adjust his asset allocation based on the retirement year he has chosen
How are active investing and passive investing different?
Active investing is typically done by a fund manager trying to beat the market whole passive investing typically involves investing in a popular index like the S&P 500
What is one difference between actively managed mutual funds and index funds?
Actively managed mutual funds typically have higher funds than index funds do
What is a bond?
An investment in which you loan money to a corporation or government and are paid back with interest and the principal that you originally lent to them
Aleah is 19 and wants to get a head start on investing and opens a brokerage account. All of the following are benefits of doing so EXCEPT....
Any realized gains would be exempt from capital gains tax
A commonly used strategy to minimize investing risk is....
Diversifying across asset classes and within each asset class
Daniel has saved $2,000 in a savings account that earns 0.5% interest annually. What will most likely happen to the purchasing power of his savings over time?
His purchasing power will DECREASE because the interest rate is lower than the historical rate of inflation
Which of the following is true about investing?
It can help you grow you money through the power of compounding
Which of the following is an advantage of using a robo-advisor compared to hiring most financial advisors
Lower fees
Which of the following is true, based on the historic returns of the S&P 500?
The stock market fluctuates in the short term and is difficult to predict. It has an average annual return of 6-7%, adjusted for inflation
All of the following are advantages of saving for retirement in a 401(k), EXCEPT....
You can withdraw money at any time without paying a penalty
What are the two ways investors can earn money from a stock?
Dividends and selling the stock at a higher price than they bought it
Which of the following accurately describes a difference between an individual bond compared to a bond fund?
A bond is considered to be less diversified investment than a bond fund
Which of the following explains why risk is not always bad when it comes to investing
As risk increases, so does the possibility of greater returns
All of the following are risks of investing in a single stock, EXCEPT...
If the company doesn't issue new stock, current stockholders could lose their entire investment
Ben is 24 and wants to start saving for retirement. What can he do to set himself up for success?
Invest 10-15% of his monthly salary
If a person would like to avoid having their investment earnings taxed at the same rate as their marginal income tax, they should...
Wait at least 12 months to sell the investment
Tracie is new to investing and is going to use an app that offers trades with zero fees. After opening her account, Tracie should first...
Conduct research on the investment she's interested in
Which of the following is a characteristic of dollar-cost averaging
Dollar-cost averaging involves consistently investing small amounts of money over long periods of time
Which of the following is true about pension plans?
How much an employee gets from a pension depends on how long they've worked for the employer and how much they earn
Sanjana is explaining what Social Security is to her younger brother. Which of the following descriptions should she use
Social Security is a government program that pools contributions from current workers to then provide retirement support benefits to those who are eligible
Who would benefit the MOST from investing in a Roth IRA rather than another retirement account?
Someone who is young and expects to earn more money later in life, so they'll be at a higher tax bracket then
You buy a bond with a fixed coupon rate of 5%. A year later, similar bonds that are issued have a coupon rate of 3%. Which of the following is TRUE?
The price of you bond will increase
All of the following should be considered when creating your investing strategy EXCEPT...
Your credit score
Exchange traded funds...
can be traded throughout the day
