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About This Quiz
You have a good start on a successful career and you are ready to invest a portion of your monthly salary. Do you know enough about how to start investing to be successful? Take our quiz and make sure you are ready.
What is one important thing to remember as a beginning investor?
Make sure you have job security before you begin investing.
Start investing with a small amount that you can afford and contribute to your investment regularly.
You can start investing with a small amount of money that you can spare and build up your assets over time. A little money invested now can result in huge rewards 20 or 30 years down the road.
Never start investing until all your bills are paid and you are debt free.
Every good investment plan starts with:
an interest in making money in addition to your salary
an appointment with a Certified Financial Planner
a clear statement of financial goals
Before you start investing, you need to have a clear understanding of what your life goals are. Once you establish goals, your goals will help you to define your investment strategy.
You are ready to start taking steps to build an investment portfolio but first you need to:
educate yourself about investing
Once you have decided that it is a good idea to invest, you will need to educate yourself about investing. Find out all you are able about stocks, bonds, mutual funds and other investment strategies.
subscribe to a some investment journals
hire a broker that can also offer you financial planning services
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If you would like to retire early, approximately how much of your income should you invest?
as much as 15 percent of your monthly salary
as much as 20 percent of your monthly salary
If you would like to retire at the age of 50 and live on your investments, you may have to invest as much as 20 percent of your salary. If you plan to wait for social security to help pay the bills you can likely get away with investing less money.
as much as 25 percent of your monthly salary
What else should you put in place before you start investing?
a firm financial foundation
Establish a firm financial foundation before you start putting money at risk. According to Kiplinger, many financial experts recommend medical insurance and at least six months of income in a low-risk bank account prior to investing.
a separate bank account solely for investment purposes
a 401K as a tax shelter for your money
Most people buy stocks for the:
dividends that they can reinvest
thrill of earning income from owning part of a company
financial security of profiting from investments
Most investors purchase stocks as long-term or short-term investments. Dividends are nice and if reinvested can increase your stock assets, but buying low and selling high is where the money is.
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What is a good strategy for deciding which stocks to purchase?
Invest in companies that you feel will increase in value significantly within a few months.
Invest in companies that you feel sure are going to grow.
You should do your market research and invest in companies that you feel confident are going to grow. A company that has steady growth over a long-term is an excellent investment.
Invest in companies that are new on the market and have displayed good short-term growth.
Historically, what is the average growth of investments on the stock market?
between 6 and 10 percent
between 10 and 12 percent
History has shown that the stock market has grown on average 10 to 12 percent per annum. Remember, this in average performance over the years and not an average for every single year, which reinforces the concept of a long-term investment strategy.
between 12 and 17 percent
Although bonds are a safer investment than stocks, they:
are assessed yearly management fees
have maturity dates at least five years after issue
offer lower returns on investment
Along with lower risk comes lower return on investment potential. The only exception is junk bonds that offer a higher return on investment, but they have a low credit rating and are more likely to default.
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What is a huge advantage that mutual funds have over other types of investment vehicles?
instant investment diversity
Joining a mutual fund will give an investor instant diversity in their investment portfolio. Mutual funds by design insure that your money is invested in a balanced portfolio managed by a professional and there are no broker fees for each purchase made by the fund manager.
low initial cost to join
management by a co-operative
What is an REIT company?
A REIT is a company that only manages rental properties.
A REIT is a company that owns and manages a portfolio of real estate properties and mortgages.
A real estate investment trust (REIT) is a company that owns and manages a portfolio of real estate properties and mortgages. When you invest in an REIT you are entitled to a share of the profits the company generates.
A REIT is a company that manages retirement plans for individuals and other companies.
To buy and sell stocks in the United States you will need:
to register your trading account with a stock exchange
to have a good credit score and a trading account
to choose a broker or a brokerage firm
Only licensed brokers are permitted to trade stocks, bonds and mutual funds. You will need to find a broker and set up a brokerage account that they will use to finance your trades.
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Before you can engage the services of a broker, what piece of information will be required?
You will need to prepare a balance sheet listing your assets and liabilities before selecting a broker.
You will need to know what the minimum deposit requirement is for the brokerage account.
Most brokers require that you have a minimum deposit for your brokerage account and they will not work for you without the deposit. According to Investopedia, minimum deposits can average anywhere from $500 to $2,500, but can go as high as $10,000.
You will have to bring your last completed tax return with you to show the prospective broker.
How do brokers make their money?
Brokers charge a commission on each trade they make on your behalf.
Brokers are paid a commission from your account for every trade they perform on your behalf. Most brokers also charge other fees, so it is best to clarify what amount of commissions and fees you will be charged.
Brokers charge between one and five percent of the total value of each trade.
the company of record on the shares traded will compensate brokers
What is churning?
Churning is simply another term to describe the practice of day trading.
Churning is the practice of encouraging multiple unnecessary trades.
According to Investopedia, churning is an unethical practice that people sometimes accuse full-service brokers of employing to increase their commissions. Remember that not all full-service brokers are worth their huge commissions, because they tend to be salespeople that peddle their firm’s investments and that is not always in your best interest.
Churning is the practice of investing in the Forex market.
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What is the advantage of a younger investor having a larger share of their investment dollars dedicated to stocks?
Stocks have less long-term risk and a better return on investment over time.
Stocks have less long-term risk and a better return on investment over a period of several years. Stocks have a history of averaging an increase of about twelve percent in value.
A younger investor has a lot of time to trade up to better performers.
Young investors tend to worry less when a stock they own suffers significant loss.
When investing in stocks, what is a good basic strategy that seems to make a great deal of sense?
“Get in cheap and get out quickly with a profit.â€
“Don’t roll the dice, take good advice.â€
“Invest aggressively for the long-term and conservatively for the short term.â€
According to Kiplinger.com, you should “Invest aggressively for the long-term and conservatively for the short term.†If you plan to save money to use next year put it in something relatively safe and if you are saving with a view to the long-term you can be more aggressive.
What strategy should you employ if you want to remove a lot of the guesswork out of investing?
invest only in mutual funds
use dollar-cost averaging
Dollar-cost averaging (DCA) is a strategy where you decide a fixed monthly amount to invest in the same investment instrument. For example, with your allotment you buy stocks in the same company every month regardless of their performance, in the long term you pay a lower average price per share then if you were randomly buying and selling.
hire a Certified Financial Planner
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What is very important advice for any budding investor?
You must stick with your investment strategy.
Do not be trapped by get-rich-quick schemes and investment scams. If it sounds too good to be true, it most likely is. Once you have developed a reasonable investment strategy based on your knowledge and professional advice when necessary, you should stick with your strategy to achieve the best return on investment.
You can beat the odds by sticking with only mutual funds.
Try to become proficient at estimating the future performance of your stocks.
What is a final piece of good advice for any investor?
Always reserve a small portion of your liquid assets for short-term investment in the next hot sector.
A change of course is not bad if it is obvious that a part of your plan is not working.
If a part of your plan is not working, it makes good sense to change courses in that area of your investment plan. If, for example, you invested in a stock and it has lost value consistently for several years, it is probably time to cut your losses and find a different place to put your money.
Have a Certified Financial Planner review your plan with you every three years.
You Got:
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