Actively-managed funds
Incorrect. Actively-managed funds usually have higher fees.

Passively-managed funds
Correct! Passively-managed funds tend to have lower fees, and often produce better returns than active-managed funds.

Diversification concentrates your investment allocation on assets that have had high returns in the past quarter
Incorrect. This is a very high risk strategy that is the opposite of diversification.

Diversification spreads your assets out, reducing overall risk by not “putting all your eggs in one basket,” so to speak
Correct! Reducing the risk of catastrophic loss is one of the main benefits of diversification.

Diversification allows you to place some of your money in “fun” investments such as junk bonds and lottery tickets
Incorrect. Effective diversification does not involve investing in assets where the risks clearly outweigh the rewards.

True
Correct! The further you are from retirement, the more money you should put into riskier investments such as stocks and bonds, at least according to conventional advice.

False
Incorrect. A higher-risk, higher-reward portfolio is preferable when you are young. As you age, your portfolio should become more risk-averse.

True
Correct. Your home (house + land) has value which typically grows over time, and you are not paying monthly rent to a landlord either.

False
Incorrect.

Over time, interest is compounded multiple times, resulting in the principle growing exponentially
Correct! This is the power of compounding interest.

The balance in an account stays the same, but when you withdraw money, the balance is multiplied by the interest rate and by the number of years the money was on deposit, resulting in growth of the principle.
Incorrect. This is simple interest. Compound interest periodically adds accumulated interest to the principle (e.g., daily, weekly, etc.), resulting in faster growth.

A force of nature
Incorrect.

True
Correct! The employer is offering to double your money, up to a defined limit. Therefore, you should contribute at least the maximum amount they will match.

False
Incorrect. The employer is offering to double your money, up to certain limits.

True
Incorrect. There are two major reasons why tax deferment is valuable.

False
Correct! Tax deferment 1) allows the investment to grow much faster through compound interest, because tax does not have to be paid until the very end; 2) allows you to be taxed on the money in retirement, when you will be in a lower tax bracket.