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Questions and Answers
Which of the following include long-term investments properly diversified?
Which of the following is a good investment option?
What is true about liquidity?
The more liquid an investment, the less return.
Why do people need to save and invest?
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If you own stock in Company X, what can you expect to receive?
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Savings accounts and money-market accounts are most appropriate for?
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What is the benefit of diversification in your investments?
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To ensure that some of your retirement savings will not be subject to income tax upon withdrawal, you would contribute to?
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What type of fund is a young investor willing to take moderate risk most likely interested in?
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What should you do regarding your 401(k) plan regardless of company matching?
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What retirement plan is found in nonprofit organizations like churches and hospitals?
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Which statement about the stock market is false?
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When buying and selling investments, what should you avoid?
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What do employee benefits packages include?
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What is a savings account sold by an insurance company that provides payments at specified intervals?
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Money markets are great for your emergency fund due to their liquidity and stability.
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The last time the United States issued war bonds was during the Vietnam War.
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A mutual fund portfolio that is properly diversified will have all investment dollars located in just one of four different classes of financial assets.
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Single stocks and mutual funds carry the same amount of risk.
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You can start investing with a small amount of money.
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Good investment portfolios are extremely complex.
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You should start investing as soon as you have your college education funded.
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If you leave a job and have money saved in your employer's retirement plan, it is wise to roll that money into an IRA.
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If you get into financial trouble, borrowing against your retirement plan is a good option.
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Saving and investing have nothing to do with the amount of money you make.
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What quality permits an asset to be converted quickly into cash without loss of value?
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What describes the relationship of substantial reward compared to the amount of risk taken?
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What is a list of your investments called?
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What is a piece of ownership in a company or mutual fund referred to as?
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What are securities that represent part ownership or equity in a corporation?
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What is the money invested within a retirement plan that is either tax deferred or tax free called?
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What is the government agency responsible for regulating the stock market?
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Which federal agency is responsible for collecting taxes and enforcing tax codes?
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What is distribution of a portion of a company's earnings to its shareholders called?
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What is a savings plan designed to help families set aside funds for future college costs?
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Study Notes
Long-term Investments
- Properly diversified long-term investments include growth, growth and income, international, and aggressive growth mutual funds.
Good Investment Options
- Mutual funds are considered a good investment option for various financial goals.
Liquidity of Investments
- There is an inverse relationship between the liquidity of an investment and its potential return; more liquid investments tend to yield lower returns.
Importance of Saving and Investing
- Savings and investments enable money to generate additional income over time.
Dividends
- Shareholders of Company X can expect to receive dividends when the board of directors decides to issue earnings.
Savings Accounts Usage
- Savings accounts and money-market accounts are best suited for emergency funds and short-term financial goals.
Diversification Benefits
- Diversification of investments helps reduce risk by spreading investment dollars across various assets.
Tax Treatments on Withdrawals
- Contributions to a Roth IRA ensure that some retirement savings remain tax-free upon withdrawal.
Young Investor Preferences
- A young investor with a moderate risk tolerance seeks mutual funds for potential above-average growth.
401(k) Plans
- It's advisable to contribute to a 401(k) plan regardless of employer matching since many employers offer contribution matches.
403(b) Retirement Plans
- A 403(b) plan serves as a retirement option for employees in nonprofit organizations like schools and hospitals.
Stock Market Misconceptions
- A false statement about the stock market is that the NYSE, formed in 1792, is the smallest organized exchange in the U.S.
Investment Strategy Consistency
- Investors should avoid frequently changing strategies based on market trends, maintaining a consistent approach is key.
Employee Benefits
- Employee benefits packages provide non-wage compensations in addition to salaries.
Annuities
- An annuity is a savings account from an insurance company that makes periodic payments after retirement.
Money Market Accounts
- Money market accounts are highly recommended for emergency funds due to their liquidity and stability.
War Bonds Issuance
- The statement regarding the last issuance of war bonds in the Vietnam War is false; they have been issued more recently.
Misconceptions About Mutual Funds
- A properly diversified mutual fund does not place all investment dollars into a single class of financial assets.
Risk Assessment
- Single stocks carry higher risk compared to mutual funds, which are generally less risky.
Investment Accessibility
- Individuals can initiate investments with small amounts of money, making it accessible to a broader audience.
Investment Portfolio Complexity
- Good investment portfolios are not necessarily complex; simplicity can often lead to better investment outcomes.
Timing for Investment
- It is advisable to start investing soon after securing funding for college education.
Retirement Plan Transfers
- Always opt for a direct rollover into an IRA when leaving a job to avoid taxes and penalties on retirement savings.
Borrowing Against Retirement Plans
- Borrowing from a retirement plan during financial distress is not recommended.
Saving and Earning Correlation
- Saving and investing are not solely dependent on income levels; anyone can participate regardless of earnings.
Definitions
- Liquidity: The quality that allows quick conversion of assets into cash without sacrificing value.
- Risk-return Ratio: This indicates the relationship between expected rewards and the risks taken in investments.
- Portfolio: A comprehensive list of an individual’s investments.
- Share: Represents ownership in a company or mutual fund.
- Stocks: Securities that denote partial ownership in a corporation.
- Tax-favored Dollars: Money invested under favorable tax conditions in retirement accounts.
- Securities Exchange Commission: The federal agency responsible for stock market regulation.
- Internal Revenue Service: Agency tasked with tax collection and enforcement of tax laws.
- Dividend: A distribution of earnings to shareholders determined by the board of directors.
- 529 Plan: A state-operated savings plan assisting families in funding future college expenses.
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Description
Test your knowledge on key concepts from Chapter 8 of Foundations in Personal Finance. This quiz covers important topics related to long-term investments, mutual funds, and liquidity. Ideal for reinforcing your understanding before exams.
