1. According to the document, what is the primary purpose of investing?
   a) To keep your money in a safe place.
   b) To put your money to work and generate returns.
   c) To get a fixed income every month.
   d) To pay off your debts faster.
2. What is the economic term for investing, as defined in the text?
   a) Capital formation.
   b) Deferred consumption.
   c) Marginal utility.
   d) Opportunity cost.
3. What is the key principle of diversification in investing?
   a) To invest all your money in one company.
   b) To always invest in the riskiest assets.
   c) To spread your money across different asset types.
   d) To only invest in fixed deposits.
4. The document states that “starting early matters more than starting big.” What principle does this illustrate?
   a) Risk and Return
   b) Diversification
   c) Time Horizon
   d) Compounding
5. What is the recommended starting point for a beginner investor, according to the document?
   a) Individual stocks
   b) High-risk cryptocurrencies
   c) Low-cost index funds or ETFs
   d) Real estate investment trusts (REITs)
6. The document warns against “chasing high returns without understanding risk.” What is the potential pitfall of this mistake?
   a) You will miss out on a good opportunity.
   b) The investment is likely misleading or extremely risky.
   c) You will have to pay more in taxes.
   d) You won’t be able to diversify your portfolio.
7. Why is it a mistake to “invest without a goal”?
   a) Your investment will not grow without a goal.
   b) You will have to pay higher fees and taxes.
   c) It’s illegal in most financial markets.
   d) Every investment should serve a specific purpose, like retirement or education.
8. What is the biggest advantage of investing, especially when you start early?
   a) The ability to time the market.
   b) The power of compounding.
   c) The security of a fixed return.
   d) The low fees and taxes.
9. What is the recommended mindset for dealing with market fluctuations?
   a) To react emotionally to every up and down.
   b) To panic and sell all your assets immediately.
   c) To stay focused on your long-term plan and avoid emotional decisions.
   d) To only invest when the market is at its peak.
10. How does investing, from an economic perspective, increase your capital productivity?
    a) It guarantees a high return on investment.
    b) It prevents your cash from losing value to inflation and contributes to growth.
    c) It allows you to withdraw your money at any time.
    d) It reduces the overall risk of your portfolio.

Answer Key and Explanations

1. b) To put your money to work and generate returns. The document explicitly states that the purpose of investing is to have your money work for you, not just sit idle.
2. a) Capital formation. The text defines investing in economic terms as “capital formation,” which is the process of building wealth and driving economic development.
3. c) To spread your money across different asset types. The document defines diversification as not putting all your money in one place, so that poor performance in one asset type doesn’t wipe out your entire investment.
4. c) Time Horizon. The text states that “the longer you stay invested, the more your money can grow,” and this principle is a key part of understanding the time horizon of your investments.
5. c) Low-cost index funds or ETFs. The document recommends these options for beginners because they are low-cost, easy to understand, and are diversified by nature.
6. b) The investment is likely misleading or extremely risky. The text specifically warns that any investment promising “guaranteed” high returns is likely either misleading or has a very high risk.
7. d) Every investment should serve a specific purpose, like retirement or education. The document highlights that investing without a goal is a mistake because a clear purpose helps you stay focused and disciplined.
8. b) The power of compounding. The text emphasizes that compounding—the process of earnings generating more earnings—is the biggest advantage of investing, especially when you start early.
9. c) To stay focused on your long-term plan and avoid emotional decisions. The document advises against reacting emotionally to market fluctuations and instead encourages discipline and a focus on long-term goals.
10. b) It prevents your cash from losing value to inflation and contributes to growth. The text explains that investing increases capital productivity by putting idle cash to work, which helps it grow instead of losing value to inflation.

Summary and Fun Fact

This quiz covered the core principles of investing, from understanding the basics of risk and return to the importance of diversification and the power of compounding. Investing is a tool to grow your money, and starting with a clear goal and a simple, disciplined approach is the most effective way to begin.

Fun Fact: The stock market is based on the concept of fractional ownership, which dates back to the Dutch East India Company in the 17th century. This allowed common people to own a small piece of a company and profit from its success.