Investing 101
Putting money into assets with the goal of growing your money over time is called this
What is investing
Purchasing this gives an investor ownership of a small piece of a company
What is a stock
When you purchase one of these, you are lending money to a company or government rather than becoming an owner
What is a bond
The possibility that an investment's actual outcome will be different from what you expected is known as this
What is risk
This investment pools money from many investors to purchase a diversified collection of stocks, bonds, or other securities
What is a mutual fund
This employer-sponsored retirement account allows workers to contribute part of their salary toward retirement
What is a 401(k)
This causes money to lose purchasing power over time as prices generally rise
What is inflation
A person who owns shares of a company's stock is called this
What is a shareholder
Bonds issued by the federal treasury to borrow money are generally known as these
What are U.S. government bonds
Spreading your money among different investments to reduce your exposure to any single investment is called this
What is diversification
This well-known market index tracks the performance of about 500 large U.S. companies
What is the S&P 500
This type of account allows an individual to buy and hold investments such as stocks and funds and is different from a normal bank account
What is a brokerage account
Buying and selling investments frequently in an attempt to profit from short-term price changes is called this
What is active trading
Some companies distribute part of their profits to shareholders through these payments
What are dividends
A state or local government might issue this type of bond to help pay for schools, roads, hospitals, or other public projects
What is a municipal bond
In our casino lesson, we discussed how casinos have a mathematical advantage built into their games. What is this advantage called
What is the house edge
Spreading your money across many different investments rather than relying on just one is called this
What is diversification
What does the acronym IRA stand for
What is an Individual Retirement Account
This occurs when your investment earns a return, and those previous earnings begin generating returns of their own
What is compound return / compounding
A market characterized by generally rising stock prices is known as this animal-themed market
What is a bull market
When you buy a government bond, are you becoming a part-owner of the government or lending the government money
What is lending the government money
A poker player makes a smart decision based on the odds but still loses the hand. What important lesson about risk does this demonstrate
A good decision can still have a bad outcome / decision quality is different from outcome quality
An investor wants exposure to hundreds of different companies without having to research and purchase each company's stock individually. What type of investment could help accomplish this
What is an index fund
TRUE or FALSE: The longer your retirement lasts, the more money you will generally need to have saved
What is TRUE
Saving generally prioritizes safety and short-term access to money, while investing accepts more of this in pursuit of potential long-term growth
What is risk
A company increases the number of its outstanding shares while lowering the value of each individual share
What is a stock split
Put these in order from national → state → local: Sarasota city bond, U.S. Treasury bond, Florida state bond
What is U.S. Treasury → Florida state → Sarasota city
An investor owns 30 different stocks—but all 30 are technology companies. Why might this portfolio still have significant risk
It is too concentrated in one industry / isn't sufficiently diversified
An investor researches and selects investments with the goal of beating the overall market's performance. This approach is called what
What is active investing
This type of IRA can be attractive to someone whose tax rate is relatively low today compared with what they expect it to be in the future
What is a Roth IRA
Mia begins investing $100 per month at age 18. Noah waits until age 30. Even if Noah eventually contributes more each month, what major advantage does Mia have
What is more time for compounding/growth
Name three factors that could cause the price of a company's stock to rise or fall
Company performance/news, economic conditions, investor expectations, industry developments, supply and demand, etc
The federal government, State of Florida, and City of Sarasota all need to raise money for different projects. What financial tool could all three levels of government use to borrow money from investors
What are bonds
Alex needs his invested money next year. Jordan doesn't need hers for 40 years. Why might Jordan be able to accept more investment risk than Alex
Jordan has a longer time horizon and more time to potentially recover from market declines
Instead of trying to pick individual winners and beat the market, an investor follows a strategy designed to match the overall market's performance. What investing strategy is this
What is passive investing
Explain one major difference between an IRA and a 401(k)
A 401(k) is employer-sponsored, while an IRA is opened by an individual