What's the point?
The purpose of retirement accounts is __________, while the purpose of saving accounts is __________.
building wealth for retirement, short term goals or emergencies
How is investing in the stock market different than putting money into a savings account?
Risk/Reward
Your company matches 4% of your salary for 401K contributions. You can only afford to invest 2%. What do you do?
Invest all of the the 2% to take advantage of as much of the company match as you can and double your contribution.
Risk Aversion
Staying calm when the market is experiencing a downturn
Buying stocks when prices are low and selling them when they’re high
Investing in a diversified portfolio instead of trying to beat the market
True or False
Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned
True
True or False. When investing in a high risk stock or other asset, you would expect a lower return.
False. "No risk it, no biscuit"
Which of the statements below BEST describes the relationship between risk and return
Higher Return for Higher Risk
You like the idea of receiving dividends from a company. You also feel like you'd enjoy part ownership in a company. What should you do?
Buy stock in a company that pays dividends.
Nancy is new to investing and is eager to get started. All of the following are things she should do EXCEPT...
Invest in a low cost index fund
Estimate how much she will need for retirement to determine how much she needs to invest each month
Pick individual stocks to see if she can beat the market
Invest in a diversified portfolio
Pick individual stocks to see if she can beat the market
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. What was your profit or loss on StreamingVideoCo stock? (Assume that StreamingVideoCo didn't pay a dividend and that you didn't incur any trading fees during that period.
Loss of $800
Profit of $350
Loss of $450
Profit of $800
Profit of $350
What is the point of diversification?
Lowering your risk
This term can be the difference between investments you are comfortable with, and investments you are not comfortable with.
Risk Tolerance.
Daniel has saved $2,000 in a savings account that earns 0.5% interest annually. What will most likely happen to the purchasing power of his savings over time?
His purchasing power will DECREASE because the interest rate is lower than the historical rate of inflation
Describe in your own words what Social Security is.
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
The point of investing is to build wealth and make money. What are the two ways you do this?
Receive dividends. Sell stocks for more than what you bought them for.
Double Jeopardy
Identify two factors that can influence an individual company’s stock price.
Vary
401K Match
Health Insurance
Which of the following is an example of insider trading?
Purchasing stocks based on the general trend in the stock market
Buying or selling stocks based on information that is not available to the public
Investing in a diversified portfolio to spread out the risk of investment
Selling stocks because of publicly released financial news and company earnings
Buying or selling stocks based on information that is not available to the public
A disadvantage of using a robo-adviser might be that…
You are charged higher fees than if a human fund manager adjusted your portfolio
You may not be able to get advice from a human financial advisor when you want it
You don’t have any input as to how your portfolio is invested
You’ll be put on a waitlist to use the robo-adviser since there are only a handful of them to choose from
You may not be able to get advice from a human financial advisor when you want it
How can someone make money from investing in a stock?
They receive dividends or they sell the stock at a higher price than what they bought it for
Why is it important for you to understand your risk tolerance before you start investing?
You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with
DAILY DOUBLE
You have a test in Financial Literacy tomorrow. You think you know it pretty well, but want to get a good grade. What should you do?
STUDY
Double Jeopardy
Explain why it is important to start saving for retirement when you’re young, even though retirement is likely decades away.
Vary
Sam is 22, just started his first full-time job, and is selecting his investments through his company's 401(k) plan. Why might a target date fund (TDF) be a good option for Sam?
A TDF is actively managed by a fund manager but comes with low fees
A TDF buys a single stock and bond so that beginner investors can practice day trading
A TDF is insured by the federal government, so Sam's money is protected even if the fund performs poorly
A TDF will automatically adjust his asset allocation based on the retirement year he has chosen
A TDF will automatically adjust his asset allocation based on the retirement year he has chosen