AGLS Exam 3- FLASHCARDS - Investments part 1 done
What is investing?
How you make your money grow or appreciate for long term financial goals
What is the first and most important question you should ask yourself about investing?
Why should I or anyone choose to invest their money?
What are reasons to invest your money?
Retirement, large future purchase, and education
What is the rule of 72?
The number of years it takes for a certain amount to double in value is equal to 72 divided by its annual rate of interest
What are different types of investments?
Stocks, bonds, funds, real assets, commodities, alternatives, and collectibles
What is a bond?
A loan to an entity with the promise to pay interest for a specified amount of time. You recieve coupons and/or the face value of the bond at maturity
What do bonds differ by?
Issuers, ratings, and coupons
Who had the biggest ponzi scheme in financial history?
Bernie Madoff at 65 billion
What are you getting when you invest in stocks?
A piece of the company, voting rights, and dividends
What are types of bond risk?
Default risk, interest rate risk, reinvestment risk, liquidity risk, and inflation risk
What are mutual funds?
A basket of investments that has an active management style
What do stocks pay out?
May pay out dividends
What do bonds pay out?
May pay out coupons
What is unsystematic risk?
The risk associated with specific securities (can diversify away)
What is systematic risk?
The risk all securities are subject to (always present)
What are index funds?
A basket of investments that has a passive management style
What is diversification?
A type of Risk Management
What do speculators do?
Make investments (bets) on the movement of prices in the market. Typically little sound or defensible research is made with the actions of the speculator. Based heavily on belief rather than data or logic
What is correlation?
How an asset moves in relation to the movements of other assets. As long as the asset purchased has a correlation less than 1 to the other assets owned, there is a diversification benefit
What is risk capacity?
How much risk you are capable of taking with your money
What is risk tolerance?
How much risk you are willing to take with your money
Does risk tolerance help determine asset allocation?
Your tolerance for risk is the most important factor in determining an appropriate asset allocation.
How long does it take for an account to double?
12 years
What is the 3 legged stool of retirement?
Savings, pensions, and social security
