Why Invest?
How does investing in the stock market differ from putting money in a savings account at a bank?
Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies
What kinds of behaviors can PREVENT people from making smart investing decisions?
- Staying calm when the market is experiencing a downturn
- Buying stocks when prices are low and selling them when they’re high
- Exiting the market because that’s what everyone else is doing
- Investing in a diversified portfolio instead of trying to beat the market
Exiting the market because that’s what everyone else is doing
Which of the following statements about Exchange Traded Funds (ETFs) is TRUE?
- ETFs are traded once a day after the market closes
- An ETF is a single stock that you can buy in the stock market
- Actively managed ETFs have very low fees
- ETF prices can change throughout the day as they are exchanged on the market
ETF prices can change throughout the day as they are exchanged on the market
How is a bond different from a stock?
- A bond is a loan you give to an organization while a stock is partial ownership in a company
- Bonds are typically riskier than stocks but have the potential to earn higher returns
- Bonds are usually issued by smaller startup companies while stocks are issued by well established organizations
- Bonds are best for earning high returns while stocks are best for providing a stable source of income
A bond is a loan you give to an organization while a stock is partial ownership in a company
Which of the statements below BEST describes the relationship between risk and return when considering an investment?
- Investors expect to earn a lower return when they invest in a high risk asset
- Investors expect to earn a higher return when they invest in a low risk asset
- Investors expect to earn a higher return when they invest in a high risk asset
- Investors expect to earn zero return when investing in a low risk asset
Investors expect to earn a higher return when they invest in a high risk asset
Which of the following statements is TRUE about compound interest?
- Compound interest is difficult to calculate, so those who use it earn higher profits for their efforts
- Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned
- Compound interest directly impacts how much you will be charged in fees
Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned
You bought 10 shares of stock in StreamingVideoCo for $45 per share. Two months later you sold the 10 shares of stock for $80 per share. Did you profit or lose money off your shares?
Profit
An actively managed mutual fund…
- Generally has lower fees than a passively managed index fund
- Is managed by a fund manager who charges a fee
- Always performs better than an index fund
- Is a mix of two types of stocks and two types of bonds to diversify your portfolio
Is managed by a fund manager who charges a fee
Which of the following accurately describes a difference between an individual bond compared to a bond fund?
- Compound interest is difficult to calculate, so those who use it earn higher profits for their efforts
- Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned
- Compound interest directly impacts how much you will be charged in fees
Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned
Why is diversification a recommended investment strategy?
Diversifying your portfolio helps reduce risk
Nancy is new to investing and is eager to get started. All of the following are things she should do EXCEPT...
Pick individual stocks to see if she can beat the market
How can someone make money from investing in a stock?
- They sell the stock for a lower price than what they bought it for
- They receive dividends or they sell the stock at a higher price than what they bought it for
- The stock loses value but the overall market experiences a positive return
- They sell the stock for the same price they bought it for
They receive dividends or they sell the stock at a higher price than what they bought it for
Katrina works for Penny's Pickles, which offers a 401(k) match for up to 3% of her salary, which is $65,000 per year. In her budget, she only has $150 per month available to save for retirement. What should she do?
Contribute the full $150/mo to the 401(k) because her company will match that full amount, "doubling" her investment every month
Sanjana is explaining what Social Security is to her younger brother. Which of the following descriptions should she use?
Social Security is a government program that pools contributions from current workers to fund retirement support benefits to those who are eligible
What is a brokerage account used for?
It’s a type of account used to buy and sell stocks, bonds, and funds
What is a disadvantage of putting your money into savings accounts, compared to investing?
Savings accounts have lower rates of return than investing.
As a shareholder in a public company, what are the benefits available to you?
You may receive dividends from the company, if the company pays them, and you have ownership of a portion of the company
A disadvantage of using a robo-adviser might be that…
You may not be able to get advice from a human financial advisor when you want it
Which of the following statements about Exchange Traded Funds (ETFs) is TRUE?
ETF prices can change throughout the day as they are exchanged on the market
Why is it important for you to understand your risk tolerance before you start investing?
You should tailor your investment portfolio so that you are ok with the amount that you are putting into your investments