Investing Quiz:
Test Your Expertise
How much do you know about the world of investing? In this quiz, you can test your knowledge of common investing terminology and strategies. If there’s something you’re unfamiliar with, we’ve provided you with helpful 3rd-party articles to learn more and boost your investment knowledge. See how many answers you can get right in this short investing quiz.
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Question 1/10:
Which of the following is an example of dollar-cost averaging?
Index funds
401(k) plan
Certificates of deposit
That’s the correct answer!
Dollar-cost averaging means investing your money regularly in small amounts over time, rather than in a single lump sum. A 401(k) plan is an example of dollar-cost averaging because you are investing a percentage of every paycheck into a retirement account.
Learn more about dollar-cost averaging here.
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B. 401(k) plan
Sorry, that’s the wrong answer!
The correct answer is… B. 401(k) plan
Question 2/10:
True or false: Options are too risky to add to your portfolio.
True
False
“Options” are often misunderstood, and labeled as dangerous or risky to your portfolio. However, when used correctly, options can actually help generate long-term income and protect you from a market downturn.
Find out how options can help your investment portfolio here.
The correct answer is… False
Question 3/10:
True or false: Direct indexing operates through the principle of fractional investing
Unlike mutual funds, direct indexing allows investors to purchase shares of stocks individually through the principle of fractional investing. With this principle, any type of investor can place small amounts of money in various positions.
Learn more about direct indexing and how it works here.
A. True
The correct answer is… True
Question 4/10:
What is a benefit of cryptocurrency?
Governments and banks cannot interfere in the currency system
It is immune to hacking and cybersecurity issues
Mining cryptocurrency is affordable and eco-friendly
Cryptocurrency is an ever-evolving system, and it does have some considerable benefits to consumers, including its immunity to government regulation. However, cryptocurrency is susceptible to security issues and requires considerable energy output, making it a risky prospect for individual investors.
Find out more about the benefits and drawbacks of cryptocurrency here.
A. Governments and banks cannot interfere in the currency system
The correct answer is… A. Governments and banks cannot interfere in the currency system
Question 5/10:
How does asset allocation reduce risk?
It divides assets among various categories such as cash, stocks, bonds, and real estate
It distributes assets to the highest-performing categories according to market fluctuations
It uses very conservative strategies to ensure assets are never placed in risky categories
Asset allocation uses the principle of diversification, meaning that it balances risk by placing assets in important asset classes proven to generate income. Your level of investment risk can range from very conservative to very aggressive, depending on your goals.
Learn more about asset allocation here.
A. It divides assets among various categories such as cash, stocks, bonds, and real estate
The correct answer is… A. It divides assets among various categories such as cash, stocks, bonds, and real estate
Question 6/10:
Why are SPACs called “blank-check companies?”
Companies who merge with them can use funds as they see fit, as the SPAC has no other investments
They go public to raise funds specifically to acquire companies, and have 2 to 3 years to use these funds
They use blank-check preferred stock to raise funds from investors
Special purpose acquisition companies (SPACs) are becoming increasingly popular as they offer private companies an alternative to initial public offerings. Formed by investors or sponsors, SPACs are called “blank-check companies” because their main purpose is to acquire other companies.
Read here to find out the best SPACs to buy.
B. They go public to raise funds specifically to acquire companies, and have 2 to 3 years to use these funds
The correct answer is… B. They go public to raise funds specifically to acquire companies, and have 2 to 3 years to use these funds
Question 7/10:
What does return on equity (ROE) tell you about a company?
The value of a company’s assets compared to its debts
If a company is regularly going over budget
How much profit a company generates using shareholder funds
Return on equity (ROE) can tell you if a company is doing a good or bad job managing shareholder funds. ROE is calculated as net income divided by shareholder equity.
Learn more about this in our ultimate guide to ROE.
C. How much profit a company generates using shareholder funds
The correct answer is… C. How much profit a company generates using shareholder funds
Question 8/10:
What qualifications must you have to be an accredited investor?
An individual income over $200,000, a net worth over $1 million, or professional knowledge of unregistered securities
A degree in the financial field, a business with $300,000 in equity, or a net worth of $1.5 million
A portfolio valued at over $1 million, job experience in accounting, or a net worth of $500,000
An accredited investor has the background and resources to make riskier investments than a casual investor. They must be able to absorb heavy losses, which is why they must either have an individual income of $200,000 (or $300,000 as a married couple), a net worth of $1 million, or professional knowledge of unregistered securities.
Find out more about accredited investors here.
A. An individual income over $200,000, a net worth over $1 million, or professional knowledge of unregistered securities
The correct answer is… C. An individual income over $200,000, a net worth over $1 million, or professional knowledge of unregistered securities
Question 9/10:
What is an inverse ETF?
An ETF that uses derivative contracts to profit from the reverse of an index’s price movements
An ETF that uses aggressive investing strategies to profit from strong market fluctuations
An ETF that invests in declining stocks
Contrary to a traditional exchange-traded fund (ETF), an inverse ETF is designed to profit during a bear market. It profits from the opposite of an index’s price movements, helping investors survive in down-turning markets.
Learn more about inverse ETFs here.
A. An ETF that uses derivative contracts to profit from the reverse of an index’s price movements
The correct answer is… A. An ETF that uses derivative contracts to profit from the reverse of an index’s price movements
Question 10/10:
What is an ETF expense ratio?
A single exchange-traded fund’s end-of-year value compared to how much it costs to own
The value gained on an ETF at the end of the year
A measurement of how much it costs annually to own a fund
MORE
An expense ratio is the amount of money you pay each year to own a fund. The money typically goes toward management of the fund, which can include marketing, advertising, administrative fees, as well as other associated costs.
Learn more about ETF expense ratios here.
C. A measurement of how much it costs annually to own a fund
The correct answer is… C. A measurement of how much it costs annually to own a fund
Results:
0 out of 10 correct
START OVER
Final Resources Page
You did it! Now learn more. Read these related investing articles for more information:
1. Dollar-cost averaging: How does DCA work, and should you do it? 2. How options can help your portfolio 3. What is direct indexing? 4. What is cryptocurrency? 5. What is asset allocation and how does it work? 6. What is a SPAC? 6 best SPACs to buy 7. What is return on equity: The ultimate guide to ROE 8. What is an accredited investor? 9. Inverse ETFs: What they are and how to invest in them 10. What is an expense ratio and what’s a good one?
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