Financial Counseling Certification Program (FiCEP) Practice Exam

In terms of financial investment, what is generally better to invest in over time?

1. Cash equivalents

2. Stocks

3. Penny stocks

4. Short-term bonds

The correct answer is: Stocks

Investing in stocks over time is generally considered the most advantageous option due to their potential for higher returns compared to other asset classes. Stocks represent ownership in companies and, historically, have outpaced various other investment types regarding growth. While they can be more volatile in the short term, their long-term appreciation typically yields significant returns that can outstrip inflation and increase wealth. In contrast, cash equivalents offer stability but very low returns, making them less effective for long-term growth. Similarly, short-term bonds tend to have lower yields, primarily serving as safe havens without the appreciation potential of stocks. Penny stocks, while they may promise high returns, carry a high risk and lack the stability and performance track record of established companies, leading to a greater chance of losing invested capital. Overall, stocks have historically demonstrated resilience and growth, making them a preferred choice for long-term investment strategies aimed at capital appreciation.