Investing Flashcards
If the rate of inflation is higher than the rate of return on your investments, then you are ____ _____.
Losing money
What is a fund?
A bundle of investments
3 main asset classes (types)
Bonds, stocks, cash
What is a bond?
A contract w/a company or the government where we loan them our money. They pay us interest for the loan.
What is another way to refer to bonds? (Hint: “investing in___” or “owning ___” and “____ income”)
investing in debt; owning debt; fixed income
What is a stock?
a share of company ownership
What is “price appreciation” for a stock
as the company grows over time, so does our tiny piece of the pie
What are dividends?
cash payments made by the company to shareholders
___ _______ + ______ = a stock’s total return
price appreciation + dividends
3 components of diversification
- Investing in more than 1 asset class (aka having both stocks and bonds)
- Investing in more than one country and sector (industry)
- Investing in more than 1 company
^funds take care of #2 and #3
For short-term money goals, you should keep your money in ______
cash
As you get older, you shift your asset allocation from ____ to _____
Stocks to bonds
(so you’re invested in more stocks when you’re younger)
What are bull and bear markets?
Bull market = a positive market that’s expanding, has an upward trajectory
Bear market = a negative market that’s losing value, contracting (more than 20% of value for a prolonged period)
True or False: The market is more often up than it is down.
True. It’s up about 70% of the time and down 30% of the time. Bull markets last between 5-10 years. Bear markets last between 1-3 years
A contraction in the economy 2 quarters in a row is called a ______
Recession
Buying –> stocks go ____
Selling –> stocks go ____
up
down
Demand determines value
Events don’t directly cause the stock market to go up/down. _______’s ________ do.
Consumer’s reactions
The stock market is like a giant mood ring because ____
It’s reflective of our outlook
Why is the stock market also called an “anticipation market”?
B/c the stock market moves first, then the economy follows
What are the 3 keys to stock investing success?
- Do NOT sell when your stocks are down
- Keep adding money in regularly over time (without looking at the market)
- Wait a really, really long time (10-50 years)
Active management is…
A managed portfolio where you pick out the best stocks or hire someone to do so. You try to beat the market
Passive management is
An unmanaged portfolio. Aka Index Investing. Riding the market waves by buying into your small piece of the market and letting it go
What is an “index”?
a measure of stock market performance on average (it’s not an investment)
Dow Jones measures the top ___ companies
30
When you buy or sell individual stocks, there is often a _____ fee added on.
Transaction fee (like $10 for Apple stock)
True or False: ETFs and Mutual funds can be index or actively managed
True
Index funds outperform actively managed funds __% of the time.
99%
1 fund made up of other funds (the crockpot, the whole diversified portfolio) as part of your 401k or 403b is called a ____ _____-_____ fund.
Retirement Target-Date Fund (or Lifecycle Fund)
Some Retirement Target-Date Funds are indexed some are managed. This is why you need to _________
Check the funds it’s investing in before signing on
Major con of robo-advisors
Their fee
Mutual fund tickers end in what letter?
X (like VFIAX)
ETF funds are “tax-____” and therefore better for _____ accounts
tax-efficient
brokerage
