Investing Flashcards
As a shareholder in a public company, what are the benefits available to you?
Common shareholders are granted six rights: voting power, ownership, the right to transfer ownership, a claim to dividends, the right to inspect corporate documents, and the right to sue for wrongful acts
How can someone make money from investing in a stock?
If the stock goes up in value and you sell it, you make a profit
How does investing in the stock market differ from putting money in a savings account in a bank?
A savings account has low risk but low interest, while stocks have higher risk and chance for better interest/profit.
How is a bond different from a stock?
Stocks are owned shares of a company and bonds are loans from investors to a company or government.
New to investing, what should you do?
You should know your risk tolerance, and decide if you want to actively manage your own stocks or if you want an advisor.
Situation: You buy 100 shares at $5 and you sell 100 shares at $2. What is your profit or loss?
Loss of $300
What is a 401K?
A 401K is a retirement savings plan in which employees can set aside chunks of their paychecks towards individual accounts. You can later cash these accounts out when you are of retirement age.
What is a brokerage account used for?
A brokerage account is an investment account that allows you to buy and sell a variety of investments, such as stocks, bonds, mutual funds, and ETFs.
What is a brokerage statement?
Your brokerage account statement is the official document for complete information pertaining to your account’s value, holdings, and activity. It tells you everything that’s going on in your account.
What is a target date fund? Why might a target date fund be a good option
A target date fund is an age-based retirement investment that helps you take more risk when you’re young and gets more conservative over time.
They may benefit investors who want to take a hands-off approach to their retirement
What is an actively managed mutual fund?
These are funds with portfolio managers that select investments that seek to outperform a benchmark
What is an advantage and disadvantage to using a robo-advisor?
Robo-advisors are often cheaper, have unbiased opinions, and are automatic.
However they have limited flexibility, and offer no human contact.
What is an exchange traded funds? (ETF)
An exchange-traded fund (ETF) is a basket of investments like stocks or bonds. ETFs let you invest in many securities all at once.
What is compound interest?
Compound interest is interest accumulated from a principal sum and previously accumulated interest.
What is purchasing power and how does it decrease over time?
Purchasing power is the value of a currency in terms of the goods or services one unit of it can buy. It is decreased by inflation, the rising in prices.
What is Social Security?
Social Security provides retirement income for people, and is part of the taxes you pay.
What is the difference between an individual bond compared to a bond fund?
Individual bonds may be suitable for investors with a long-term investment horizon, a higher risk tolerance and the desire to actively manage their investments. Bond funds are generally more appropriate for investors seeking diversification, professional management and easier liquidity.
What is the relationship between risk and return when considering an investment?
High risk high reward
What kinds of behaviors can prevent people from making smart investing decisions?
Cognitive biases such as loss aversion, herd mentality, and confirmation bias. Overall we may make decisions based on our emotions and biases.
What question should an investor ask when deciding whether or not the would like to open a Roth IRA or a traditional IRA?
Roth IRA allows you to pay the taxes on the money you deposit immediately, whereas in a traditional IRA you pay taxes later when you start withdrawing money.
Which of the following is a characteristic of dollar-cost averaging?
Dollar-cost averaging is the practice of investing a fixed dollar amount on a regular basis, regardless of the share price.
Why are index funds such a popular investing option?
Their low costs, diversification, and consistent performance
Why is diversification recommended investment strategy?
By spreading your investments across different assets, diversification is used to reduce your chances of experiencing large losses.
Why is it important for you to understand your risk tolerance before you start investing?
You can create a strategy for your investments that will help you balance the worries of volatility with the potential for bigger returns.
