The Ultimate How to Start Investing Quiz

By: HSW Contributors

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?

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.

Every good investment plan starts with:

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:

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.

If you would like to retire early, approximately how much of your income should you invest?

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.

What else should you put in place before you start investing?

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.

Most people buy stocks for the:

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.

What is a good strategy for deciding which stocks to purchase?

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.

Historically, what is the average growth of investments on the stock market?

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.

Although bonds are a safer investment than stocks, they:

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.

What is a huge advantage that mutual funds have over other types of investment vehicles?

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.

What is an REIT company?

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.

To buy and sell stocks in the United States you will need:

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.

Before you can engage the services of a broker, what piece of information will be required?

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.

How do brokers make their money?

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.

What is churning?

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.

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 a period of several years. Stocks have a history of averaging an increase of about twelve percent in value.

When investing in stocks, what is a good basic strategy that seems to make a great deal of sense?

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?

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.

What is very important advice for any budding investor?

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.

What is a final piece of good advice for any investor?

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.

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