Investing Basics
High risk investments also come with a possibility for what?
High reward/return on investment
What is an initial public offering?
The amount paid to own a small part/share of a business
What is the safest type of bond to invest in?
Federal Bond
The two most popular funds are...
Mutual funds and index funds
What is retirement?
The stage in life when one decides to leave the workforce and live off sources of income or savings that do not require active work.
Why should you invest your money?
To beat inflation, build wealth, and to hopefully have some passive income as you age.
What are the two stock markets called?
New York Stock Exchange and the Nasdaq
True or False. Bonds have more risk than stocks.
FALSE
What is loss aversion?
The tendency to fear losses more than we enjoy the gains.
What is the standard retirement age?
65
What is inflation?
A rise in the general price of goods and services over a period of time.
What kind of market is described with a decline in the stock market, and when things get bad? This could mean a recession or stock market crash could be looming
Bear Market
(Note: In contrast, a Bull market is when everything is great, the economy is booming, people are finding jobs, and stock prices are rising)
What does the term coupon mean?
The annual interest rate paid on a bond
What is a target date fund?
A fund that seeks to grow assets over a specified period of time for a targeted goal (i.e. retirement) They reduce exposure to risk and you get closer to the target date.
What percentage of your income should you save for retirement in your 20's and 30's?
10% of your income each year
What does it mean to diversify your investments?
When your investment portfolio includes different asset types such as bonds, mutual funds, cash, stocks, hard assets, and index funds.
What is the basic goal of an investor in the stock market?
To buy when prices are low and sell when prices are high
What is a bond?
A loan to the government or a company that pays investors a fixed rate of return over a specified period of time
What is the difference between active and passive investing?
Active investing requires a dedicated portfolio manager that is actively trying to outperform the index, and thus requiring fees, whereas passive investing requires little human intervention, letting your money sit and perform alongside the index, requiring fairly low fees
How much is social security tax?
12.4 (6.2% paid by you and 6.2% paid by your employer)
When investing, what is someone's risk tolerance?
An investor's ability and willingness to lose some or all of an investment in exchange for greater potential returns
How can you minimize risk when investing in the stock market?
Diversify your money and invest in a lot of different types of companies, creating an investing plan, and learning strategies for up, down and sideways markets.
What is default risk?
The possibility that the issuer defaults on paying back the principal
How do investment funds give an investor instant diversification?
When you invest in these funds you are investing in a wide variety of companies in different industries
What is the difference between a pension/401k and a Roth/Traditional IRA?
A pension/401k is a retirement account set up and managed by your employer, while a Roth/Traditional IRA is an individualized retirement account you set up outside of your employer. Your employment status does not affect your IRA, but it directly affects your pension/401k.