Investment 101: Basics of Investing

Question 1
What does diversification mean in investing?

(A) Putting all your money into one type of investment

(B) Focusing solely on high-risk investments

(C) Mixing investments that are all affected similarly by market changes

(D) Investing in a variety of assets to reduce overall risk

Question 2
What is the typical relationship between risk and return in investing?

(A) There is no connection between risk levels and returns

(B) Lower risk always leads to higher returns in every situation

(C) Higher potential returns are generally associated with higher risk levels

(D) Higher risk investments always guarantee superior returns

Question 3
Which of the following best describes an investment account?

(A) An account designed for holding various types of investments like stocks or bonds

(B) A savings account meant only for storing cash

(C) A bank account that does not allow any investment activity

(D) A type of account that automatically invests without offering control over choices

Question 4
Compared to bonds, what is a typical characteristic of stocks?

(A) Stocks offer ownership in a company and generally exhibit greater price fluctuation

(B) Stocks provide complete capital protection like Treasury bonds

(C) Stocks always have more predictable returns than bonds

(D) Stocks guarantee fixed income payments similar to bonds

Question 5
Which of the following asset classes is often used to balance a portfolio by providing more stable returns?

(A) Stocks, despite their volatility, are best known for consistently stable returns

(B) Bonds are frequently chosen for their generally stable interest payments and lower volatility

(C) Real estate is used exclusively for high-risk, high-reward investments, ensuring stable returns

(D) Commodities are typically the safest choice in a balanced portfolio

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