Question 1

Stocks are a good way to satisfy the growth factor in personal investing.

Accepted Answer

Stocks generally have the potential to provide higher returns than other investments like bonds or savings accounts, which can help satisfy the growth factor in personal investing. However, it is important to note that investing in stocks also comes with higher risks and volatility.

Question 2

Since stocks have greater returns than other investment alternatives, they are the logical choice for all investors.

Accepted Answer

This statement is false. While stocks have historically provided greater returns than other alternatives over the long-term, they also come with higher risk and volatility. Investing in stocks may not be suitable for all investors, and it is important to consider individual financial goals and risk tolerance before making investment decisions.

Question 3

For most investors, the amount of time your investments have to work for you is of no concern.

Accepted Answer

The amount of time your investments have to work for you is a crucial factor in determining your investment strategy and expected returns. It can impact the level of risk you're willing to take, the types of investments you choose, and ultimately, the success of your portfolio.

Question 4

Asset allocation is the process of spreading your money among several different types of investments to lessen risk.

Accepted Answer

Asset allocation is a strategy where an investor diversifies their portfolio by investing in different asset classes such as stocks, bonds, real estate, and commodities. By doing so, the investor reduces the risk of relying on one type of investment and spreads their risk across different categories.

Question 5

A personal budget lists your assets and liabilities.

Accepted Answer

A personal budget primarily tracks your income and expenses, not your assets and liabilities.

Question 6

A true financial planner has had at least two years of training in investments, insurance, taxation, retirement planning, and estate planning.

Accepted Answer

A true financial planner would have had significant training in multiple areas related to personal finance, including investments, insurance, taxation, retirement planning, and estate planning. This typically involves completing a rigorous educational program and obtaining various certifications and licenses.

Question 7

Your age should be taken into account when determining which investments are right for your investment portfolio.

Accepted Answer

Age is an important factor in determining the risk tolerance of an individual, their investment goals, and the time horizon for their investments. Younger investors can take on more risk and focus on longer-term investments, while older investors may want to focus on more stable investments to preserve their wealth. Therefore, age should be considered when deciding which investments to include in a portfolio.

Question 8

Bank accounts that pay interest are considered a form of conservative investment.

Accepted Answer

Bank accounts that pay interest are generally considered conservative investments because they offer a low-risk way to earn a return on your money.

Question 9

One of the primary reasons to begin investing when you are young is that your investments have more time to work for you.

Accepted Answer

When you begin investing at a young age, your investments have more time to grow and earn compound interest. This can result in a larger portfolio when you are ready to retire or reach your financial goals.

Question 10

Most CFPs and ChFCs do not charge for their services, but rather receive commissions for the securities they recommend to their clients.

Accepted Answer

While it is true that some CFPs and ChFCs may receive commissions for the securities they recommend, a growing number of financial advisors are fee-only and do not receive commissions. These fee-only advisors typically charge their clients a flat fee or a percentage of assets under management, rather than earning commissions on specific products.

Question 11

Generally, small cash dividends or no dividends are received from an investment in a corporation that is in the process of growing.

Accepted Answer

A growing corporation typically reinvests its profits into the business rather than distributing them to shareholders as dividends, resulting in small cash dividends or no dividends at all.

Question 12

Mary Lou asks for your help. She must prepare a personal balance sheet for a class assignment. You tell her that a personal balance sheet simply lists her income and expenses for a specified period of time.

Accepted Answer

A personal balance sheet lists assets, liabilities, and equity, not just income and expenses.

Question 13

When evaluating an investment, the potential return should be directly related to the assumed risk.

Accepted Answer

This is because higher risk investments should have a higher potential return in order to compensate for the increased risk. Conversely, lower risk investments generally have a lower potential return.

Question 14

Investors often choose investments like precious metals and antique collectibles because they offer substantial income possibilities.

Accepted Answer

Investors often choose investments like precious metals and antique collectibles as a hedge against inflation or as a store of value, but these types of investments do not typically offer substantial income possibilities.

Question 15

An important, and often first, warning sign of credit card trouble is the inability to pay you entire balance each month.

Accepted Answer

When you cannot pay off your entire credit card balance each month, it means you are carrying a balance and will incur interest charges. This can lead to a cycle of debt and late payments, ultimately damaging your credit score and causing financial trouble.

Question 16

Investments in the stock issued by new, start-up companies are an excellent way to generate investment income.

Accepted Answer

While investing in start-up companies can potentially yield high returns, it also comes with a higher level of risk. Start-up companies are often unproven and may have limited resources or experience. It's important for investors to carefully research and evaluate these companies before investing in their stock.

Question 17

The purpose of portfolio management is to increase both risk and returns.

Accepted Answer

The purpose of portfolio management is to maximize returns while minimizing risks. Therefore, the statement is false.

Question 18

For an investor, liquidity can be defined as the ease with which an investment can be converted into cash.

Accepted Answer

Liquidity refers to how easily an investment can be converted into cash, and this is true for investors seeking to maintain flexibility and access to funds.

Question 19

A blue-chip stock is an investment that generally attracts a high-risk or speculative investor.

Accepted Answer

A blue-chip stock is actually considered a low-risk investment because it typically represents a large, stable, and financially sound company with a long history of consistent earnings and dividend payments.

Question 20

To be useful, investment goals must be specific and measurable.

Accepted Answer

Specific and measurable investment goals help investors track their progress and make informed decisions about their portfolio. Vague or abstract goals are harder to evaluate and can make it difficult to determine if the investment strategy is successful.

Quiz 20: B: Understanding Personal Finances and Investments