Investing Fundamentals
What is the main purpose of investing?
To grow your money over time
Which is the safest? T-bills, bonds, or stocks?
T-bills
Exchange-Traded Fund
What is risk?
The chance of losing money.
How long you plan to invest before needing the money
What does diversification mean?
Spreading investments out to reduce risk.
What is an asset? Give an example.
Something you own that has value and can help you make money in the future
(Money, stocks, bonds, a house, a car, a business)
Who manages a mutual fund?
A professional fund manager.
What is a return?
The money you earn from an investment
Who typically has higher risk tolerance: younger or older people?
What is dollar cost averaging?
Investing a fixed amount of money regularly, no matter the price.
Bonds pay investors what?
Interest
What is one similarity between mutual funds and ETFs?
They both hold many stocks and bonds and offer diversification.
Name one type of investment risk.
Business risk, inflation risk, credit risk, interest rate risk, market risk, etc.
How does your time horizon affect your investment choies?
Short time horizon= safer choices
Long time horizon= riskier choices
profit you make when you sell an investment for more than you paid for it
What is a share?
a small piece of ownership in a company
What is one key difference between mutual funds and ETFs?
ETFs trade all day, ETFs usually have lower fees, mutual funds often have minimum investments
How are risk and return related?
Higher risk = higher potential return
Why is diversification helpful?
It lowers risk because not all investments move the same.
What is "volatility"?
how much and how quickly the price of an investment moves up and down
Why are stocks riskier than T-Bills?
Their value rises and falls with company performance.
What is interest income?
the money you earn for lending your money to someone else, like a bank, company or government
You could earn interest from things like bonds, savings deposits, CDs, T-bills.
What are dividends?
payments a company gives to its shareholders (people who own its stock). They are usually paid every few months and come from the company's profits
What is one strategy to manage risk?
Diversification, research, managing emotions, long-term investing, etc