Multiple Choice
In the context of investments in securities, what does the nonforfeiture value of an annuity represent before annuitization?
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7. Receivables and Investments
Introduction to Investments in Securities
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When it comes to investing, one of the most important things to remember is: never invest
A
more than you can afford to lose
B
in a diversified portfolio
C
in companies that pay dividends
D
in government bonds
Verified step by step guidance1
Understand the concept of risk tolerance: In financial accounting and investing, risk tolerance refers to the amount of risk an investor is willing and able to take on. This is influenced by factors such as income, expenses, financial goals, and personal circumstances.
Recognize the principle of affordability: The phrase 'never invest more than you can afford to lose' emphasizes the importance of ensuring that investments do not jeopardize your financial stability. This means only using discretionary funds for investing, not money needed for essential expenses.
Learn about diversification: A diversified portfolio spreads investments across various asset classes (e.g., stocks, bonds, real estate) to reduce risk. Diversification helps mitigate losses if one investment performs poorly.
Understand dividend-paying companies: Companies that pay dividends distribute a portion of their profits to shareholders. While these can provide steady income, they are not risk-free and should be considered as part of a broader investment strategy.
Explore government bonds: Government bonds are considered low-risk investments because they are backed by the government. However, they typically offer lower returns compared to riskier investments. They can be a good option for conservative investors or as part of a diversified portfolio.
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