Chapter 7 Flashcards
What are three reasons to invest?
Build Wealth, beat inflation, Passive income.
what is the advantage of investing early for retirement?
More time to grow, because of compound interest the longer you stay invested, the faster your money grows.
Why put money in saving instead of investing?
low return - Low risk
good for short term - larger purchase/ emergency fund
3 tips for first time investor
- keep your money diverse.
- don’t invest in anything too risky.
- keep your money invested for a long period of time.
compound
base amount PLUS the money you made in interest in previous years
Simple
only on the base amout
does compound interest have more of an impact for short-term or long-term investments? Why?
Long-term investments - because time is necessary for the money made from interest to increase.
What is impacted by inflation?
Everything
(price of goods, wages, savings, debts, interest)
When price levels increase, purchasing power______
decrease
if you put money in savings account earning a rate of return of 1% and inflation is currently at a rate of 2% will your money be
A) more in the future
b) Less in the future
c) exactly the same
b) less in the future
considering the impact of inflation, why is investing important?
- inflation causes your money to lose value over time purchasing power decreases as price increases
- investments grow faster then inflation money won’t lose value over time
- investing is important for long-term goals.
what is IPO
initial public offering
when you purchase shares of a company in the market, who are you buys those shares from?
another shareholder
how does selling shares on the stock exchange benefit companies?
companies receive funds to further expand their company.
how does buying shares a company in the market, who are you buying those shares from.
The company grows, the price of shares grows, investors can sell these shares for a higher price to make profit.
as an investor, what is the risk involved in investing in companies on the stock exchange
price of stocks can also decrease
buying a share of company
-riskier
-higher-return
-can make money by selling it as a higher price.
Stocks
loaning money to an organization you are paid back interest
bonds
where you allocate your money (stock ,bonds, cash)
asset allocation
reduces your rsik - behave differently in different market conditions
diversification
rank in order the most time consuming to least consuming ways to invest
- picking stocks - individually
- picking index funds
- picking managers
- finance planner
type of mutual fund that tracks components of a financial market index
index funds
ETF means
exchange traded fund
what are two factors to consider when choosing which target date fund is best for you?
- when you are planning to retire
- invest more conservatively or aggressively
Time it takes for shares in an employer retirement plan to be owned fully by the employee
Vesting Period
Index Funds vs Mutual Funds
Index funds are passive investments while mutual funds
are active (managed by a fund manager). Index funds
generally have lower fees than mutual funds because there
is no fund manager.
already taxed you wouldn’t have to pay taxes while taking it money out of it because it has already been paid for by you beforehand.
Roth IRA
you would pay less taxes in the year you contribute because of Tax-deferred money put in previously.
Traditional IRA
what is a TDF
fund offered by an investment company that seeks to grow assets over a specified period of time for a targeted goal. usually based more on age.
