Investing Basics
This type of financial activity is used to build long-term wealth for goals like retirement, while saving is better for short-term needs.
What is investing?
This investment represents partial ownership in a company.
What is a stock?
Spreading your investments across many assets helps lower overall risk, which is known as this.
What is diversification?
When choosing between a Roth and Traditional IRA, the key question is whether you want to pay these now or later.
What are taxes?
Investors can profit from stocks in two ways: selling for more than they paid and receiving these periodic payments.
What are dividends?
This type of interest lets you earn interest on both your original amount and on previously earned interest.
What is compound interest?
This investment is a loan made to a company or government in exchange for regular interest payments.
What is a bond?
This investing technique involves investing a fixed amount at regular intervals to reduce timing risk.
What is dollar-cost averaging?
This federal program provides retirement income to eligible workers, funded by payroll taxes.
What is Social Security?
An automated investing service that manages your portfolio but offers limited access to human advice.
What is a robo-advisor?
Investors who panic and sell during a market downturn often fall victim to this poor investing behavior.
What is herd mentality?
This pooled investment trades throughout the day on the stock market and typically tracks an index.
What is an ETF (Exchange-Traded Fund)?
Before investing, you should know how much risk you’re comfortable taking, also known as your ___.
What is risk tolerance?
This kind of mutual fund is run by a professional manager who actively selects investments and charges a higher fee.
What is an actively managed fund?
A new investor who tries to pick “winning” stocks instead of investing broadly is attempting to do this.
What is beat the market?
If your savings account earns 0.5% interest but inflation averages 2%, this happens to your purchasing power.
What is it decreases?
This type of account lets you buy and sell investments such as stocks, bonds, and mutual funds.
What is a brokerage account?
These passively managed funds mirror a market index like the S&P 500 and usually have very low fees.
What are index funds?
This type of retirement fund automatically adjusts its mix of stocks and bonds as you near your target retirement year.
What is a target date fund (TDF)?
When the stock market temporarily drops in value, long-term investors are usually advised to do this instead of selling their investments in a panic.
What is stay invested (or hold)?
This principle states that higher potential rewards generally come with higher levels of uncertainty.
What is the risk-return relationship?
When new bonds offer lower interest rates than yours, the value of your bond does this.
What is it increases?
If one mutual fund earns 7% but charges 1% in fees, while another earns 6.5% with only 0.1% in fees, this factor determines the better deal.
What are net returns (after fees)?
If your employer matches 401(k) contributions, you should contribute enough to get this.
What is the full company match?
This government-mandated program requires publicly traded companies to share information about their finances, helping protect everyday investors.
What is the Securities and Exchange Commission (SEC)?