Module 3 Quiz

Why is diversification important?

It guarantees that you will always make a profit It ensures you never lose money on any investment It spreads investments across different companies and sectors so one bad performer doesn’t wipe out your entire portfolio It allows you to avoid paying any taxes on dividends

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What is the biggest difference between ETFs and mutual funds?

ETFs are passively managed and usually have lower fees, while mutual funds are often actively managed with higher fees ETFs never pay dividends, while mutual funds always do ETFs can only be bought through retirement accounts, while mutual funds can be bought anytime ETFs are illegal outside the United States, while mutual funds are available globally

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What is a downside of investing in ETFs and mutual funds?

They stop you from diversifying your portfolio They guarantee higher returns than picking individual stocks They eliminate all investment risk through diversification They charge management fees and limit your control over which specific companies you own

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What is a downside of a DRIP (Dividend Reinvestment Program)?

It stops companies from paying dividends in the future It locks you into reinvesting dividends into the same stock, which can reduce diversification and keep you from getting immediate cash It prevents you from selling your shares whenever you want It guarantees lower returns than taking dividends as cash

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What are the requirements for a dividend to be qualified?

It must be reinvested through a DRIP instead of taken as cash It must come only from technology companies and be paid monthly It must be paid by a U.S. or qualified foreign company, and the investor must hold the stock for a minimum number of days? It must be approved by the SEC before investors can receive it

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