Chapter 7 Flashcards

1
Q

What are three reasons to invest?

A

Build Wealth, beat inflation, Passive income.

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2
Q

what is the advantage of investing early for retirement?

A

More time to grow, because of compound interest the longer you stay invested, the faster your money grows.

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3
Q

Why put money in saving instead of investing?

A

low return - Low risk
good for short term - larger purchase/ emergency fund

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4
Q

3 tips for first time investor

A
  • keep your money diverse.
  • don’t invest in anything too risky.
  • keep your money invested for a long period of time.
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5
Q

compound

A

base amount PLUS the money you made in interest in previous years

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6
Q

Simple

A

only on the base amout

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7
Q

does compound interest have more of an impact for short-term or long-term investments? Why?

A

Long-term investments - because time is necessary for the money made from interest to increase.

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8
Q

What is impacted by inflation?

A

Everything
(price of goods, wages, savings, debts, interest)

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9
Q

When price levels increase, purchasing power______

A

decrease

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10
Q

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

A

b) less in the future

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11
Q

considering the impact of inflation, why is investing important?

A
  • 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.
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12
Q

what is IPO

A

initial public offering

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13
Q

when you purchase shares of a company in the market, who are you buys those shares from?

A

another shareholder

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14
Q

how does selling shares on the stock exchange benefit companies?

A

companies receive funds to further expand their company.

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15
Q

how does buying shares a company in the market, who are you buying those shares from.

A

The company grows, the price of shares grows, investors can sell these shares for a higher price to make profit.

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16
Q

as an investor, what is the risk involved in investing in companies on the stock exchange

A

price of stocks can also decrease

17
Q

buying a share of company
-riskier
-higher-return
-can make money by selling it as a higher price.

A

Stocks

18
Q

loaning money to an organization you are paid back interest

A

bonds

19
Q

where you allocate your money (stock ,bonds, cash)

A

asset allocation

20
Q

reduces your rsik - behave differently in different market conditions

A

diversification

21
Q

rank in order the most time consuming to least consuming ways to invest

A
  1. picking stocks - individually
  2. picking index funds
  3. picking managers
  4. finance planner
22
Q

type of mutual fund that tracks components of a financial market index

A

index funds

23
Q

ETF means

A

exchange traded fund

24
Q

what are two factors to consider when choosing which target date fund is best for you?

A
  • when you are planning to retire
  • invest more conservatively or aggressively
25
Q

Time it takes for shares in an employer retirement plan to be owned fully by the employee

A

Vesting Period

26
Q

Index Funds vs Mutual Funds

A

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.

27
Q

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.

A

Roth IRA

28
Q

you would pay less taxes in the year you contribute because of Tax-deferred money put in previously.

A

Traditional IRA

29
Q

what is a TDF

A

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.