Basics of Money
What are the three main purposes of money?
To buy things, save for the future, and keep track of how much something is worth.
What are the two main types of investing?
Long-term Investing and Short-term Investing
What does the term "risk vs. reward" mean in investing?
Higher potential returns typically come with higher risks.
What is fundamental analysis?
Analyzing a company’s financials, leadership, and industry to determine if it is a good investment
What does an income statement show?
It shows how much money a company made and spent during a specific period, determining whether it made a profit or loss.
What is the difference between fixed costs and variable costs?
Fixed costs are regular expenses like rent or utilities, while variable costs change like groceries or entertainment.
How do stocks and bonds differ?
Stocks give ownership in a company and have higher potential returns with more risk; bonds are loans to companies/governments and have lower risk with steady income.
What’s an example of a low-risk investment?
Bonds or savings accounts.
What is technical analysis?
Answer: Analyzing stock price trends, movements, and past data to predict future performance.
What is the main purpose of a balance sheet?
To show what a company owns (assets), owes (liabilities), and the value left for shareholders (equity).
What is the purpose of setting aside emergency funds?
To be financially secure during unexpected situations, such as medical emergencies or job loss.
What is diversification, and why is it important in investing?
Diversification involves spreading investments across different assets to reduce risk.
What’s an example of a high-risk investment?
Stocks or cryptocurrencies.
What are the three types of financial documents that show a company’s financial health?
Balance sheet, income statement, and cash flow statement.
What is the cash flow statement used for?
It tracks how money comes in and goes out of a company, including operating, investing, and financing activities.
What is the power of compounding, and why is it important?
Reinvesting earnings to generate additional returns over time. It helps savings grow exponentially over time.
What is the goal of investing in assets like stocks, bonds, and real estate?
To grow wealth over time by generating returns on investments.
How does risk affect the potential for making money?
Higher risk can lead to higher rewards, but also a bigger chance of losing money.
What is the difference between assets, liabilities, and equity on a balance sheet?
Assets are what a company owns, liabilities are what it owes, and equity is the value left for shareholders.
Why is leadership and management important when analyzing a company?
Strong leadership and management can help a company grow and navigate challenges, affecting its financial success.
What is the role of money in driving trade and economic growth?
Money helps track income and expenses, prioritize spending, and achieve financial goals, which drives both individual and national economies.
What is value investing?
Focusing on undervalued stocks with strong fundamentals to find potential growth
Why do people diversify their investments?
To spread out the risk and not lose all their money if one investment fails.
How do financial statements help in evaluating a company’s success?
They show how much money a company earns, spends, and owns. They help investors decide if a company is financially healthy and a good investment.
What are the key factors, besides financial statements, that impact a company’s success?
Management/leadership, industry/competition, location, company culture, products/services, and brand strength.