Investing-C * Unit Test

Katrina works for Penny's Pickles, which offers a 401(k) match for up to 3% of her salary, which is $65,000 per year. In her budget, she only has $150 per month available to save for retirement. What should she do?

• Opt out of the 401(k) plan since she doesn’t have much to contribute; use the money elsewhere in her budget
• Contribute $75/mo to her 401(k) and $75/mo to an IRA, so that she's diversified
• Save the $150/mo in a bank account until she has enough to max out her 401(k), and then invest
• Contribute the full $150/mo to the 401(k) because her company will match that full amount, "doubling" her investment every month

What is one question an investor should ask when deciding whether or not they would like to open a Roth IRA or a Traditional IRA?

• Do I want to make a guaranteed return of 6% or 8%?
• Do I want to pay taxes now or later?
• Do I want to take advantage of my employer’s matching contribution?
• Do I want to take on more or less risk?

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 fund 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

Why are Index Funds such a popular investing option?

• They are a mix of 2-3 individual stocks that can help you diversify your portfolio
• They provide a low-cost, diversified investment option that closely matches the overall return of a given index, such as the S&P 500
• They are actively managed by a fund manager
• They are managed by robo-advisors that guarantee higher returns than the overall stock market

You bought 10 shares of stock in StreamingVideoCo for $45 per share. Two months later you sold the 10 shares of stock for $80 per share. What was your profit or loss on StreamingVideoCo stock? (Assume that StreamingVideoCo didn't pay a dividend and that you didn't incur any trading fees during that period.)

• Loss of $800
• Profit of $350
• Loss of $450
• Profit of $800

Why is diversification a recommended investment strategy?

• Investing in a diversified portfolio guarantees that you won’t lose money with your investments
• If you tell your fund manager to use diversification, they’ll charge you lower fees
• Diversifying your portfolio helps reduce risk
• If you diversify your portfolio, you will definitely earn a high return

How is a bond different from a stock?

• A bond is a loan you give to an organization while a stock is partial ownership in a company
• Bonds are typically riskier than stocks but have the potential to earn higher returns
• Bonds are usually issued by smaller startup companies while stocks are issued by well established organizations
• Bonds are best for earning high returns while stocks are best for providing a stable source of income

How can someone make money from investing in a stock?

• They sell the stock for a lower price than what they bought it for
• They receive dividends or they sell the stock at a higher price than what they bought it for
• The stock loses value but the overall market experiences a positive return
• They sell the stock for the same price they bought it for

What is a brokerage account used for?

• It’s an online portal that allows you to set up appointments with a fund manager
• It’s the account you use to pay any taxes you owe on money you earned on your investments
• It’s a type of account used to buy and sell stocks, bonds, and funds
• It’s a special type of 401(k) plan that only some employers offer

How does investing in the stock market differ from putting money in a savings account at a bank?

• Investing is always a less risky option than saving
• Investing is best for short-term situations like emergency funds; saving is best for the long-term
• Investing typically earns between 1-2% while saving generally earns between 5-7%
• Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies