Difference Between Investing and Savings
Are savings or investments better for emergency funds?
Savings
What is the relationship between risk and reward?
Expectation is that low risk has low reward; high risk has high reward
What does owning a stock actually mean?
Partial ownership in a company
What is a brokerage account?
An account where you can buy/sell stocks, bonds, and other investments.
What does a "bull" market mean?
Stock are rising and investors are generally optimistic about continued growth.
1-2%
What is diversification?
Having several stocks across different sectors of the market. (Not having all of your eggs in one basket.)
What is a mutual fund?
A pool of money from investors to invest in a diversified portfolio of stocks and bonds.
What is the biggest drawback of a financial advisor?
They cost money
What does a "bearish" market mean?
Stock prices are falling and investors are pessimistic about the stock going back up anytime soon - typically at least a 20% decline.
What is the primary advantage of investing?
Investing typically has a higher potential for returns over time.
Index funds are passive; Mutual funds are active.
What is an index fund?
Investment funds that aim to replicate the performance of a specific index.
What does a financial advisor do?
A professional that provides advice on investments, retirement, and other financial matters (ie. college savings)
How can you profit from stocks?
Sell the stock for a higher price than what you bought it for and/or receive dividends.
Savings has lower risk; Investing has higher risk.
What are the 3 ways to mitigate risk, that we talked about.
1. Time
2. Diversification
3. Dollar Cost Average - Invest over time
What is a government bond?
A loan you give to the government for a guaranteed rate of return.
E*Trade, Robinhood, and Fidelity are all examples of what?
Brokerage firms.
What is a dividend?
Payments a corporation makes to it's shareholders. (Often paid out quarterly)
What is the average historical return on investments after inflation?
6%
How does dollar cost averaging work?
Buying incremental shares over time to bring down the average amount spent on the stock.
What are the S&P 500, Nasdaq 100, and Dow Jones examples of?
Index funds
What is a benefit of a brokerage account?
Flexibility and accessibility.
No contribution limits or withdrawal penalties (still taxable though)
What is capital gain?
The profit from the sale of a stock (or asset).