General Education Development (GED) Practice Exam

An individual about to retire who wants to earn interest without risking their principal would most likely invest in?

1. Value stocks

2. An index fund

3. A mutual fund

4. U.S. Treasury bonds

The correct answer is: U.S. Treasury bonds

Investing in U.S. Treasury bonds is a sound choice for an individual about to retire who seeks to earn interest while preserving their principal. These bonds are issued by the federal government and are considered one of the safest investments available because they are backed by the "full faith and credit" of the U.S. government. This ensures that investors receive their principal back upon maturity in addition to interest payments that are typically made every six months. For someone in retirement, the priority often shifts towards safeguarding their investments while still generating some income to support their lifestyle. U.S. Treasury bonds fulfill this need by providing stable returns with minimal risk, making them particularly appealing for conservative investors. In contrast, value stocks, index funds, or mutual funds can involve greater levels of risk due to market fluctuations. These options may offer potential for higher returns but also come with the possibility of losing principal, which is not ideal for someone nearing or in retirement who may rely on their investment for income. Thus, the preference for U.S. Treasury bonds illustrates a risk-averse strategy that aligns well with the financial goals of many retirees.