UNIT 7 -TEST

Sanjana is explaining what Social Security is to her younger brother. Which of the following descriptions should she use?

• Social Security is a type of retirement savings plan that you can open through a brokerage firm
• Social Security is a government program that pools contributions from current workers to then provide retirement support benefits to those who are eligible
• Social Security is a type of retirement savings plan offered by some employers
• Social security is a government mandate that requires employers to offer their employees a 401(k) or pension plan

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
• His purchasing power will INCREASE because the interest rate is higher than the historical rate of inflation
• His purchasing power will INCREASE because the interest will compound faster than the historical rate of inflation
• His purchasing power will remain the SAME because the interest rate is the same as the historical rate of inflation

All of the following are advantages of saving for retirement in a 401(k), EXCEPT...

• A 401(k) has a higher contribution limit than an IRA
• You can withdraw money at any time without paying a penalty
• Some employers will match contributions to your 401(k)
• Your 401(k) contributions are tax-deductible

What is a bond?

• A type of loan you can get from the federal government that you pay back with interest
• 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.
• A type of loan you can get from a bank that you pay back with interest
• An investment in which you loan money to another individual and are paid back with interest

Which of the following is TRUE about investing?

• It guarantees a high rate of return over a short period of time
• It can help you grow your money through the power of compounding
• It is meant for achieving short-term financial goals
• It involves little risk because your returns are insured up to $250,000

Which of the following is TRUE about pension plans?

• More nonunion workers have access to pension plans than union workers
• How much an employee gets from a pension depends on how long they’ve worked for the employer and how much they earn
• Employees generally control the investments within a pension plan
• Pension plans are becoming increasingly common among employers in the U.S.

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...

• Invest a large sum of money
• Limit herself to one small investment so she can't lose as much
• Conduct research on the investments she's interested in
• Hire an investment manager

Which of the following explains why risk is not always bad when it comes to investing?

• Insurance will cover your investing losses
• As risk increases, so does the possibility of greater returns
• Robo-advisors eliminate all risk
• Gains realized from higher-risk investments are untaxed

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 is actively managed by a fund manager but comes with low fees
• A TDF buys a single stock and bond so that beginner investors can practice day trading
• A TDF is insured by the federal government, so Sam's money is protected even if the fund performs poorly
• A TDF will automatically adjust his asset allocation based on the retirement year he has chosen

All of the following should be considered when creating your investing strategy EXCEPT...

• Your credit score
• The amount of time your money will be invested before you start drawing from it
• Your risk tolerance
• The amount of capital you have available to invest