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*102BF > Lesson 1: Types of Investments > Flashcards

Lesson 1: Types of Investments Flashcards

1
Q

refers to the act of allocating money or resources with the expectation of generating income or profit in the future.

A

investment

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2
Q

It involves committing funds to an asset, project, or venture with the goal of earning a return on the investment over time.

A

investment

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3
Q

the primary objective of investment

A

generate a positive return on the capital investment

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4
Q

key points to remember to understand about investments

A

ROI; risk and reward; time horizon; diversification; research and knowledge

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5
Q

the gain or loss generated on an investment relative to the amount of money invested.

A

ROI

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6
Q

ROI stands for

A

return on investment

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7
Q

The time period you are willing to invest your money determines the investment strategy you should adopt.

A

time horizon

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8
Q

spreading your investments across different asset classes can help mitigate risk.

A

diversification

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9
Q

different types of investments

A

stocks; bonds; mutual funds; real estate; exchange-traded funds; commodities; cryptocurrencies; certificates of deposit (CDs); retirement accounts; peer-to-peer lending; precious metals; annuities; collectibles

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10
Q

represent ownership shares in a company.

A

stocks

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11
Q

advantages of stocks

A

potential for high returns; liquidity; ability to own a stock in successful companies

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12
Q

disadvantages of stocks

A

volatility; risk of losing money; dependence on market conditions

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13
Q

risks of stocks

A

flunctuations of stock prices in marker (market risk); not being able to buy/sell stocks (liquidity risk); stock issuer defaults on obligations (credit risk); risk of losing purchasing power because of rising prices (inflation risk)

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14
Q

are debt securities where investors lend money to governments, municipalities, or corporations in exchange for regular interest payments and the return of the principal amount at maturity.

A

bonds

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15
Q

advantages of bonds

A

steady income, lower risk compared to stocks, fixed maturity dates

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16
Q

disadvantages of bonds

A

lower potential returns; interest rate risk; inflation risk

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17
Q

risks of bonds

A

bond’s issuer defaults before bond’s maturity (credit risk); fluctuating value of bonds in the market (market risk); risk that a bond’s price will fall with rising interest rates (interest rate risk); return on a bond won’t grow fast enough to keep up with inflation (inflation risk)

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18
Q

pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. They are managed by professionals.

A

mutual funds

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19
Q

advantages of mutual funds

A

diversification, professional management, accessibility for small investors

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20
Q

disadvantages of mutaul funds

A

management fees, potential for underperformance, lack of control over individual investments

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21
Q

risks of mutual funds

A

changes in the PEST environment (general market risk); risks in the individual securities (specific security risk); security cannot be sold at fair value easily (liquidity risk); loss of purchasing power due to increasing prices (inflation risk)

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22
Q

involves purchasing properties for rental income or capital appreciation.

A

real estate

23
Q

advantages of real estate

A

potential for rental income and capital appreciation; tangible asset; tax benefits

24
Q

disadvantages of real estate

A

high upfront costs; property management responsibilities; liquidity

25
Q

risks of real estate

A

unpredictability of market (market); structural problems or damages (structural)

26
Q

similar to mutual funds but trade on stock exchanges like individual stocks. They offer diversification and can track various indexes, sectors, or asset classes.

A

exchange-traded funds

27
Q

advantages of ETFs

A

diversification; liquidity; lower expense ratios compared to mutual funds

28
Q

disadvantages of ETFs

A

brokerage commissions; potential tracking error; market volatility

29
Q

physical goods like gold, oil, or agricultural products that can be traded on exchanges.

A

commodities

30
Q

advantages of commodities

A

portfolio diversification; potential against inflation; potential for profit during market volatility

31
Q

disadvantages of commodities

A

price volatility; storage costs for physical goods; dependence on supply and demand factors

32
Q

digital currencies that operate on blockchain technology. They can be bought, sold, and used for various purposes.

A

cryptocurrencies

33
Q

advantages of cryptocurrencies

A

potential for high returns, decentralized nature, technological innovation

34
Q

disadvantages of cryptocurrencies

A

high volatility; regulatory risks; cybersecurity threats

35
Q

time deposits offered by banks with fixed interest rates and maturity dates.

A

certificates of deposits

36
Q

advantages of certificates of deposits

A

low risk; guaranteed returns; FDIC insurance for U.S. citizens

37
Q

disadvantages of certificate of deposits

A

lower returns compared to other investments; limited access to funds before maturity (you cant easily access ur money until the maturity date); potential risk for inflation

38
Q

IRAS stand for

A

Individual retirement arrangements

39
Q

advantages of retirement accounts

A

tax benefits, long-term growth potential, automatic contributions

40
Q

disadvantages of retirement accounts

A

early withdrawal penalities; contribution limits; limited access to funds before retirement age

41
Q

connect borrowers with individual lenders, allowing investors to lend money and earn interest.

A

peer-to-peer lending

42
Q

advantages of peer-to-peer lending

A

potentially higher returns compared to traditional savings accounts; diversification; direct lending to individuals/businesses

43
Q

disadvantages of peer-to-peer lending

A

default risk, lack of liquidity, platform fees

44
Q

differences of stocks and bonds

A

stocks offer higher returns but higher risk, bonds provide lower risks and steady income; stocks have no fixed maturity, bonds have them

45
Q

differences between real estate and commodities

A

real estate offers tangible assets, potential for rental income and tax benefits, commodities provide diversification and protection against inflation; real estate has a lot of upfront cost and mgmt responsisbilities while commodities face more price volatility and storage costs

46
Q

differences between cryptocurrencies and certificate of deposits

A

crypto has potential for high returns but have high volatility and regulatory risks, CDs have low risks, guaranteed returns, and FDIC insurance; crypto is decentralized and offers tech innovation; CDs have fixed interest rates and limited access to funds until maturity

47
Q

the best type of investment is

A

having a diversified portfolio (stocks, bonds, real estate, commodities); retirement accounts for long-term wise strategies

48
Q

difference between ETFs and mutual funds

A

ETFs are bought and sold on stock exchanges throughout the day like individual stocks (and their prices fluctuate throughout the day), while mutual funds are traded only once a day after the market closes.

49
Q

have been used as a form of currency for centuries.

A

precious metals

50
Q

examples of precious metals

A

gold and silver

51
Q

often considered to be a safe haven asset, meaning that they tend to hold their value when other asset classes are volatile.

A

precious metals

52
Q

are contracts with insurance companies that pay you a regular income stream in exchange for a lump sum payment or a series of payments.

A

annuities

53
Q

what do annuities mean

A

a contract between a buyer and an insurance company that provides the buyer with a regular series of payments in return for a lump-sum payment.

*102BF (2 decks)

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