Investing Vocabulary
This term describes profits a company makes after expenses.
Earnings
A retirement plan commonly offered by private companies.
What is a 401(k)?
The Rule of 72 estimates it will take this long to double your money at 6% interest.
What is 12 years
This bias causes people to fear losses more than they enjoy gains.
What is loss aversion
Buying part of many companies through a fund is an example of this.
What is index fund
The formula “72 ÷ interest rate” estimates this.
What is how long to double your money?
This retirement plan is available to public school employees.
What is a 403(b)?
A stock costs $50 and earns $5/share. What’s the P/E ratio?
What is 10
This is when someone continues investing in a bad choice to avoid “wasting” earlier money.
What is the sunk cost fallacy
GARP stands for this investing strategy.
What is Growth at a Reasonable Price?
This ratio compares stock price to earnings per share.
What is the P/E ratio?
This plan is not employer-sponsored and can be traditional or Roth.
What is an IRA
A company has $200 million revenue and 20 million shares. What’s the revenue per share?
What is $10
This bias can lead people to find information that only agrees with their investments.
Confirmation bias
This investment typically pays a fixed interest rate and is lower risk than stocks.
What is a bond
This type of stock is usually undervalued but stable and profitable.
What is a value stock?
A government-run program providing retirement income.
What is Social Security?
You have a portfolio of $12,000 split 50% stocks, 30% bonds, 20% cash. How much is in bonds?
What is $3,600?
This principle helps determine how much to bet/invest based on odds.
What is Kelly Criterion
This stock type is chosen for its potential to increase value rapidly.
What is a growth stock?
This strategy reduces risk by investing in a variety of assets.
What is diversification?
This type of retirement plan guarantees a monthly benefit after retirement.
Using Rule of 72, estimate the interest rate needed to double money in 9 years.
What is 8%
This happens when investors make irrational decisions based on emotions or mental shortcuts.
What is cognitive bias
This strategy involves investing in a mix of assets like stocks, bonds, and cash to reduce overall risk and improve long-term returns.
What is diversification