INVESTING
BASICS
BASICS
Putting money into assets with the goal of growing your money over time is called what?
Investing- Investing means putting money into assets with the goal that the money will grow in value over time.
When you purchase stock in a company, what do you become?
A shareholder- A stock represents ownership in a company. Someone who owns shares of that company's stock is called a shareholder.
What is the ability to borrow money or receive something now and pay for it later?
Credit- Credit allows someone to borrow money or obtain something now with the agreement that they will pay for it later.
What important habit can help someone build and maintain good credit?
Paying bills on time- Consistently paying bills on time demonstrates responsible credit management and is especially important for maintaining credit.
Sophia has $5,000 to invest. Instead of investing all $5,000 in one company, she divides it among several investments. What strategy is she using?
Diversification- Sophia is spreading her money across multiple investments rather than relying on one investment.
What term describes the money you gain or lose from an investment?
Return- Return is the amount of money an investment gains or loses. A positive return means you gained money; a negative return means you lost money.
What do we call a payment that some companies distribute to their shareholders?
Dividend- A dividend is a payment that some companies make to people who own their stock.
What is the cost you pay for borrowing money?
Interest- Interest is the cost of borrowing money. It is an additional amount the borrower pays to the lender.
What document contains information about your history of borrowing and managing credit?
Credit report- A credit report contains information about your credit history. Think of it as the record of how you have managed credit.
Marcus takes out an auto loan. His car is used to guarantee the loan if he fails to repay it. Is this secured or unsecured credit?
Secured credit- The loan is secured because the car serves as collateral for the loan.
What is the possibility that an investment could lose value or perform differently than expected?
Risk- Risk is the possibility that an investment may lose value or not perform as expected. Investments are not guaranteed to make money.
When you purchase a bond, are you generally becoming an owner or lending money?
Lending money- Buying a bond generally means you are lending money to a government or company rather than purchasing ownership in it.
What do we call something valuable that a borrower pledges to secure a loan?
Collateral- Collateral is something valuable that helps secure a loan. For example, a car can serve as collateral for an auto loan.
What number helps lenders estimate how likely a borrower is to repay borrowed money?
Credit score- A credit score helps lenders estimate the likelihood that someone will repay borrowed money. Generally, a higher score suggests lower estimated lending risk.
Ava has two credit cards with the same balance. One has a 15% APR and the other has a 27% APR. If she carries the balance, which one will generally cost her more?
The card with the 27% APR- APR stands for Annual Percentage Rate. With the same balance, the card with the higher APR will generally have a higher borrowing cost.
What strategy involves spreading your money across different investments instead of putting everything in one place?
Diversification- Diversification means spreading money among different investments. This reduces the impact if one particular investment performs poorly.
What investment strategy involves purchasing investments and keeping them for a long period rather than frequently buying and selling?
Buy and hold- The buy-and-hold strategy means purchasing investments and keeping them for a long period of time instead of frequently trading them.
A credit card is an example of what type of credit that can be repeatedly used up to a limit?
Revolving credit- Revolving credit allows you to borrow repeatedly up to an approved credit limit as you borrow and repay money.
What term compares how much revolving credit you are currently using with the amount available to you?
Credit utilization- Credit utilization compares your revolving balances with your available credit limits.
Daniel wants to eliminate several debts. He decides to focus extra payments on the debt with the highest interest rate first. What debt-repayment strategy is he using?
Debt avalanche- The debt avalanche method prioritizes the debt with the highest interest rate first, which targets the most expensive debt.
What is the term for deciding how your investment money will be divided among different types of assets?
Asset allocation- Asset allocation describes how your investment money is divided among different types of assets.
What type of retirement plan is commonly offered through an employer?
401(k)- A 401(k) is a retirement plan offered by many employers that allows employees to put money aside for retirement.
A car loan requires you to borrow a set amount and make scheduled payments. What type of credit is this?
Installment credit- Installment credit involves borrowing a set amount and paying it back through scheduled payments over time.
In the 5 C’s of Credit, which “C” considers whether a borrower’s income can reasonably support the new debt?
Capacity- Capacity focuses on whether a borrower has enough income to reasonably handle and repay the debt.
A lender advertises a loan without clearly explaining extremely high costs and uses deceptive practices that make repayment difficult to understand. What type of lending does this describe?
Predatory lending- Predatory lending involves unfair, deceptive, or abusive lending practices that can make the true borrowing costs or repayment terms difficult to understand.