In this economy, we may all be a little wary of investments. Which means consumers should know a bit about investing before laying down their money.
So how smart are you about investing? We have a Liz Quiz to check out your knowledge. Liz.
Do you invest your money for the next good idea that comes along. Or are you hiding it under the mattress to be safe. Tonight's quiz comes from the U.S. Securities and Exchange Commission. Ready for some investment knowledge? Here's question number one.
If you buy a company's stock...
a. you now own a part of the company...
b. you've lent the company money...
c. Or you're liable for company's debts. Which is it?
You own part of the company. :
HE'S RIGHT...YOU OWN A PART OF THE COMPANY.
OF COURSE, THERE'S NO GUARANTEE OF PROFITS...OR THAT YOU'LL EVEN GET YOUR ORIGINAL INVESTMENT BACK.
BUT IF THE COMPANY DOES WELL, YOUR STOCK WILL GO UP IN VALUE. HERE'S THE NEXT QUESTION..
If you buy a company's bonds...
a. You own part of the company...
b. You've lent the company money...
c. You are liable for the company's debts. Which is it?
You've lent the company money.
HE'S RIGHT. YOU LENT THE COMPANY MONEY. THE COMPANY PROMISES TO PAY YOU INTEREST...AND ALSO RETURN YOUR MONEY AT A FUTURE DATE.
BUT SOME BONDS ARE RISKY SO YOU SHOULD CHECK THE BOND'S CREDIT RATING. HERE'S THE NEXT QUESTION.
Over the past 70 years, which investment has the highest rate of return?
c. Savings accounts
I think bonds.
NO, THE ANSWER IS STOCKS. IF YOU INVESTED A DOLLAR IN 1925 AND REINVESTED ALL DIVIDENDS,
IT WOULD BE WORTH $2,350 TODAY. HERE'S THE NEXT QUESTION.
If you buy a new company's stock, like a new initial stock offering,
a. You cannot lose money...
b. You can only lose a portion of the money...
c. You could lose it all.
You could lose it all.
HE'S RIGHT. BUYING STOCK IN A NEW COMPANY IS ONE OF THE RISKIEST INVESTMENTS. NEW COMPANIES GO OUT OF BUSINESS MORE OFTEN THAN OLDER COMPANIES.
SO DON'T INVEST MORE THAN YOU CAN AFFORD TO LOSE. HERE'S THE NEXT QUESTION.
You've saved some cash. What would be the best investment...
a. a savings account..
b. savings bonds
c. or paying off the balance on your 18% credit card.
The credit card.
SHE'S RIGHT. PAY OFF THE CREDIT CARD. PAYING OFF THE CARD IS LIKE EARNING 18-PERCENT ON YOUR MONEY.
THE BEST YOU'D DO ON SAVINGS OR SAVINGS BONDS IS 3-TO-5 PERCENT. HERE'S THE NEXT QUESTION.
You invest in a mutual fund...it means
a. it's guaranteed to earn more than a savings account...
b. it's a risk free investment.
c. it's a fund managed by experts. What's the mutual fund?
It's a fund managed by experts.
HE'S RIGHT. MUTUAL FUND DECISIONS ARE MADE BY FUND MANAGERS. THESE MANAGERS OFTEN HAVE YEARS OF INVESTMENT EXPERIENCE.
YOU SHARE IN THE PROFITS OR LOSSES OF THE FUND. HERE'S THE NEXT QUESTION. :
If you own a wide variety of stocks, bonds and mutual funds to lower your investment risk...this is called...
c. Diversifying. Which is it?
I say saving.
IF YOU DIVERSIFY, YOUR ENTIRE SAVINGS WILL NOT BE WIPED OUT IF ONE INVESTMENT FAILS.
DIVERSIFICTION HELPS PROTECT YOUR SAVINGS. HERE'S THE NEXT QUESTION.
That's it. Thank you.