Investing: Bonds, Risk, and Retirement

1. All of the following are strategies to reduce risk EXCEPT…

• 1. Holding your investments for at least five years

• 1. Making sure your investments are diversified

• 1. Investing small amounts of money over longer periods of time

• 1. Hiring an investment manager who you think can beat the market

1.  Leaving your investments in the stock market alone for at least five years is a good way to reduce risk because…

• 1. It allows your investments to earn more interest

• 1. It keeps you from reacting to dips in the market and selling at too low of a price

• 1. Fees are waived for investments held for over five years

• 2. You get a bonus from the company if you invest for five years

1. Which of the following is an example of diversification?

• 1. Purchasing shares of stock in a variety of companies and industries

• 1. Using multiple investment managers to get different opinions

• 1. Investing different amounts of money every month

• 1. Putting the majority of your money into a savings account and investing the rest

1. Which of the following most accurately describes what a bond is?

• 1. A bond is a government loan made to a corporation with the expectation that it will be paid back with interest

• 1. A bond is an investment in which a corporation lends an individual investor money with the expectation that it will be paid back with interest

• 1. A bond is a government loan made to an individual investor with the expectation that it will be paid back with interest

• 1. A bond is an investment in which an investor lends money to a corporation or government with the expectation that it will be paid back with interest

1. Juan buys a bond with a fixed coupon rate of 3%. Six months later, similar bonds that are issued have a coupon rate of 4%. Which of the following is TRUE if he chooses to sell the bond before maturity?

• 1. The interest rate of Juan’s bond will increase to reflect the current market

• 1. The price of Juan’s bond will decrease

• 1. More investors will be willing to buy Juan’s bond

• 1. The price of Juan’s bond will increase

1. One difference between bonds and bond funds is…

• 1. Bonds pay dividends to its investors

• 1. A bond fund can help you diversify your investment portfolio

• 1. You receive the principal amount you invest in a bond fund after a certain amount of time

• 1. Buying an individual bond is generally cheaper than buying a bond fund

1. What does it mean when someone says “Good investing is boring”?

• 1. There should be little to no change in how your portfolio performs

• 1. You should avoid talking to anyone about how your investments are performing

• 1. You’re better off making long-term investments that don’t require day-to-day management

• 1. You should avoid checking how your investments are doing for at least 10 years

1. All of the following are recommended strategies for beginner investors EXCEPT…

• 1. Try to pick winning stocks and beat the market

• 1. Recognize cognitive biases that may be influencing your decisions

• 1. Choose your investments based on your risk tolerance

• 1. Minimize expense ratios to cut back on costs

1. Which of the following is a characteristic of a brokerage account?

• 1. Typically no capital gains tax

• 1. Limits on how much you can invest

• 1. No penalties for withdrawing your money

• 1. Require a large amount of money to open an account

1. 401(k)s and IRAs are both…

• 1. Types of investments that you can choose to have in an investment account

• 1. A type of savings account that generally offers around a 1% rate of return

• 1. Investment accounts that you can open to help you invest for retirement

• 1. Investment accounts that are commonly offered by employers