Investment Goals
What does it mean to invest money?
Putting money into something to earn a return over time
The chance of losing money on an investment.
What is a bond?
A loan from an investor to a company or government
What is a stock?
A share of ownership in a company
What is a mutual fund?
A pool of money from many investors used to buy a diversified mix of investments
Why should you start investing early?
Because the longer your money is invested, the more time it has to grow through compound interest.
What is the relationship between risk and reward?
Higher risk = higher potential reward
Lower risk = lower potential reward
What are two main ways bondholders earn money?
Interest payments and repayment of principal at maturity
What are two ways investors make money from stocks?
Who manages a mutual fund?
A professional fund manager
What should you do before you start investing?
Pay bills, balance your budget, reduce debt, and build an emergency fund.
What is diversification and why is it important?
Spreading investments across different assets to reduce risk
Why do people buy bonds?
For steady income and lower risk compared to stocks
What is the main purpose of the stock market?
To provide a place where investors can buy and sell shares of companies
What is one major advantage of investing in a mutual fund?
Diversification - spreads risk across many investments
What is the time value of money?
The idea that money today is worth more than the same amount in the future because it can earn interest and grow in value.
Who can usually take more risk - young or older investors - and why?
What is the difference between a corporate bond and a government bond?
Corporate bonds are issued by companies (higher risk, higher interest); government bonds are issued by the government (safer, lower interest)
What is the difference between a growth stock and an income stock?
Growth stock = reinvests profits to grow
Income stock = pays regular dividends
What's the difference between a stock mutual fund and a bond mutual fund?
Stock funds focus on growth and higher returns; bond funds focus on income and lower risk
Why should investment goals be specific and measurable?
Clear goals help you choose the right investments and track progress over time.
Give one example of a low risk investment and one example of a high risk investment.
Low risk: U.S. government bond
High risk: Stock in a new company
If a company borrows $1,000 from you at 5% for 5 years, how much interest do you earn in total?
$250 in interest ($50 per year x 5 years)
Why might an investor decide to hold a stock instead of selling it?
They believe in the company's long-term growth despite short-term price changes.
Why might a beginner investor choose the mutual fund over individual stocks?
It's affordable, professionally managed, and less risky due to diversification