Investment Starting Investment 2

Question 1

What is typically the first step before making any investment?

Accepted Answer

Building an emergency fund

Answer

An emergency fund covering 3-6 months of expenses protects you from selling investments at a loss during a crisis.

Question 2

Which account offers tax-advantaged retirement savings in the U.S.?

Accepted Answer

Roth IRA

Answer

A Roth IRA allows after-tax contributions to grow tax-free, making it a popular retirement vehicle.

Question 3

What does 'dollar-cost averaging' mean?

Accepted Answer

Investing fixed amounts at regular intervals

Answer

Dollar-cost averaging invests a fixed amount regularly, reducing the impact of market volatility.

Question 4

Why is starting to invest early beneficial?

Accepted Answer

Compound growth has more time to work

Answer

Starting early gives compound returns more time to multiply your wealth.

Question 5

What is a low-cost way for beginners to diversify?

Accepted Answer

Investing in an index fund or ETF

Answer

Index funds and ETFs hold many securities, giving instant diversification at low cost.

Investment Practice Test