Mutual Funds
Are mutual funds typically self-managed or run by a manager?
A manager or a group of managers. This means there is typically a fee involved.
Never put all of your eggs in one basket to minimize your risk. This strategy is called ____________.
Diversification
When the stock market is doing well and there is a lot of confidence in market conditions it is called a ______ market.
Bull
Of the three factors that influence the growth of your investment-input, rate of return, and time-which one is the most important to the future growth of your money.
Time
What is a bond?
An IOU/loan to a corporation or government.
Mutual funds can be defined by their objective; aggressive growth, growth, growth and income, balanced, and income. In what category would fixed-income securities like bonds and CD's fall?
income
What is the risk vs return tradeoff?
The higher the risk, the higher the potential return.
Lower risk options generally have lower rates of return.
When the stock market prices are dropping and there is little confidence in the market, it is called a ______ market.
Bear
When we put money into an investment or savings account, it earns interest on the initial deposit and the interest that has accumulated on that initial deposit. What is this called?
Compound interest
When are you due back the money that you paid for the bond?
On the maturity date. Bonds maturity dates can vary from less than 5 years to more than 10 years.
Mutual funds can also be categorized by size. Small-cap, Mid-cap and Large-Cap. What category would a company with over $10 billion market capitalization likely fall?
Large cap
A conservative portfolio would consist mostly of...
low-risk investments: interest and dividends in fixed-income securities, money markets, CD's, bonds, bills.
What is an IPO?
Initial Public Offering. This is when a company lists shares of their stock on an exchange.
Should you allocate a greater percentage of your investment to small-cap stock options when you are young or when you are older?
Young. When you are older, you should keep your investments in fixed-income securities to protect the assets you have.
What impacts the rate of return on a bond?
Interest rates
A mutual fund may be classified according to where the majority of its assets are invested; domestic, foreign, and global. What market generally performs the best?
Domestic
An aggressive growth portfolio would consist of...
mostly small-cap stocks
What is a group of funds that investors use to gauge the performance of their portfolio?
Market indexes. (S&P 500, Dow Jones, Industrial Average, the Nasdaq)
What typically lasts longer, a bear or a bull market?
Bull market.
Bonds are typically considered a safe investment and offer a higher income than cash investments. There are times when an issuer defaults on a bond. What is that called?
Credit Risk
The value of a mutual fund is determined a the end of each day by calculating the net assets and dividing that by the number of shares outstanding. What is the acronym used?
NAV; Net Asset Value
Some financial advisors recommend subtracting an investor's age from 100 to determine how much should be invested in _________.
stocks
As a person gets older a greater percentage of their investments should be in more conservative investments to protect assets that have accumulated.
How does inflation impact the stock market?
When prices increase (companies make less money due to lower consumer purchasing power and an increase in costs) the companies' earnings decrease causing stock prices to drop.
What is the rule of 72?
How long it will take to double your investment.
Divide the number 72 by your interest rate.
Call Risk. Not all bonds are callable.