Q2 L2: investments (INCLUDED) Flashcards
An investment is an asset or item acquired with the goal of ______________________ or ________________.
- generating income
- appreciation
refers to an increase in the value of an asset over time
appreciation
When an individual purchases a good as an investment, the intent is?
not to consume the good but rather to use it in the future to create wealth.
It lways concerns the outlay of some asset today like _________, ___________, or ___________ in hopes of a greater payoff in the future than what was originally put in.
An investment
- time, money, or effort
____________________ is an ___________ or item that is purchased with the hope that it will generate income or appreciate in value at some point in the future.
- An investment
- asset
An investment can refer to?
any mechanism used for generating future income, including:
- bonds,
- stocks,
- real estate property,
- or a business, among other examples.
Additionally, purchasing a property that can be used to produce goods can be considered an investment.
has the goal of generating income and increasing value over time.
investing
In general, any action that is taken in the hopes of raising future revenue can also be considered an?
investment
why is there always a certain level of risk associated with an investment?
Because investing is oriented toward the potential for future growth or income, but investment may not generate any income, or may actually lose value over time.
For example, it’s also a possibility that you will invest in a company that ends up going bankrupt or a project that fails to materialize.
saving vs. investing
saving
- is accumulating money for future use and entails no risk
investing
- is the act of leveraging money for a potential future gain and it entails some risk.
Types of Investments?
(11) (EISBMECRACC)
1. Economic Investments
2. Investment Vehicles
3. Stocks
4. Bonds
5. Mutual Funds
6. Exchange-Traded Funds
7. Certificates of Deposit
8. Retirement Plans
9. Annuities
10. Cryptocurrencies
11. Commodities
Within a country or a nation, ____________________ is related to investments.
economic growth
- When companies and other entities engage in sound business investment practices, it typically results in economic growth.
what type of investments?
For example, if an entity is engaged in the production of goods, it may manufacture or acquire a new piece of equipment that allows it to produce more goods in a shorter period of time. This would raise the total output of goods for the business.
- Economic Investments
Taken in combination with the activities of many other entities, this increase in production could cause the nation’s __________________________________to rise.
gross domestic product (GDP)
__________________________ provides a variety of services to individuals and businesses, including many services that are designed to assist individuals and businesses in the process of increasing their wealth.
- Investment Vehicles
- An investment bank
may also refer to a specific division of banking related to the creation of capital for other companies, governments, and other entities.
- Investment Vehicles
- Investment banking
what do Investment banks do?
- underwrite new debt and equity securities for all types of corporations,
- aid in the sale of securities, and
- help to facilitate mergers and acquisitions, reorganizations, and broker trades for both institutions and private investors.
(HAU)
Investment banks may also provide guidance to companies that are?
- Investment Vehicles
- considering issuing shares publicly for the first time, such as with an initial public offering (IPO).
most well-known and simple type of investment.
- Stocks
When you buy stock, you’re buying an?
ownership share in a publicly traded company.
Many of the biggest companies are publicly traded, meaning you can buy stock in them. for example?
- General Motors
- Apple
When you buy it, you’re hoping that the price will go up so you can then sell it for a profit.
- Stocks
The risk of buying stocks?
- the price of the stock could go down, in which case you’d lose money. (since the stock market fluctuates)
they sell stocks to investors.
Brokers
- You can either opt for an online brokerage firm or work face-to-face with a broker.
you’re essentially lending money to an entity.
- Bonds
Generally, this is a business or a government entity.
- Bonds
what bonds do each issues?
Companies =
Local governments =
The U.S. Treasury =
Companies = corporate bonds,
Local governments = municipal bonds
The U.S. Treasury = treasury bonds.
not a question
After the bond matures — that is, you’ve held it for a predetermined amount of time — you earn back the principal you spent on the bond, plus a determined rate of interest.
The rate of return for bonds is typically much lower than it is for stocks, but bonds also tend to be _______________.
lower risk.
what risk/s is/are involved in buying bonds?
- The company you buy a bond from could fold, or the government could default.
are especially considered a very safe investment.
Treasury bonds
a _________ of many investors’ money that is invested broadly in a number of companies.
- Mutual Funds
- pool
can be actively managed or passively managed.
- Mutual Funds
has a fund manager who picks companies and other instruments in which to put investors’ money.
An actively managed fund
they try to beat the market by choosing investments that will increase in value.
Fund managers
simply tracks a major stock market index like the Dow Jones Industrial Average or the S&P 500.
A passively managed fund
Some mutual funds invest only in, etc?
Some mutual funds invest only in stocks, others only in bonds and some in a mixture of the two.
carry many of the same risks as stocks and bonds, depending on what they are invested in.
- Mutual Funds
The risk is lesser, though, because the investments are inherently diversified.
- Mutual Funds
are similar to mutual funds in that they are a collection of investments that tracks a market index.
- Exchange-Traded Funds(ETFs)
Unlike mutual funds, which are purchased through a fund company, ETFs are?
bought and sold on the stock markets.
Their price fluctuates throughout the trading day, whereas mutual funds’ value is simply the net value of your investments.
- Exchange-Traded Funds(ETFs)
are often recommended to new investors because they’re more diversified than individual stocks.
- Exchange-Traded Funds(ETFs)
You can further minimize risk by choosing an ETF that?
You can further minimize risk by choosing an ETF that tracks a broad index.
is a very low-risk investment.
- Certificates of Deposit
You give a bank a certain amount of money for a predetermined amount of time. When that time period is over, ___________________________________________________. The longer the loan period, the higher your interest rate.
- Certificates of Deposit
- you get your principal back, plus a predetermined amount of interest
The risk of investing in Certificates of Deposits?
There are no major risks to CDs.
- They are FDIC-insured up to 250,000, which would cover your money even if your bank were to collapse.
That said, you have to make sure you won’t need the money during the term of this investment, since?
That said, you have to make sure you won’t need the money during the term of CD, as there are major penalties for early withdrawals.
There are a number of types of retirement plans. give one and elaborate.
Workplace retirement plans
- sponsored by your employer, include 401(k) plans and 403(b) plans.
If you don’t have access to a retirement plan, you could get an?
If you don’t have access to a retirement plan, you could get an individual retirement plan (IRA), of either the traditional or Roth variety.
It isn’t a separate category of investment, per se, but a vehicle for making investments, including purchasing stocks, bonds, and funds.
- Retirement Plans
The biggest advantage for retirement plans?
other than Roth IRA plans is that you put in pre-tax dollars.
You won’t pay taxes on the money until you withdraw it in retirement, when you will presumably be in a lower tax bracket.
- Retirement Plans
The risks for the investment in a retirement plan?
The risks are the same as if you were buying the investments outside of a
Many people use this as part of their retirement savings plan.
- Annuities
When you buy an annuity, you?
you purchase a contract with an insurance company and, in return, you get periodic payments.
When you purchase a contract with an insurance company and, in return, you get periodic payments.
- Annuities
The payments may begin right away or at a specified future date. They may last until death or only for a predetermined period of time.
- Annuities
are fairly low risk, they aren’t high-growth.
- Annuities
They make a good supplement to retirement savings, rather than an integral source of funding.
- Annuities
are a fairly new investment option.
- Cryptocurrencies
____________ is the most famous cryptocurrency, but there are countless others.
Bitcoin
are digital currencies that don’t have any government backing.
- Cryptocurrencies
How do you buy cryptocurrencies?
You can buy and sell them on cryptocurrency exchanges. Some retailers will even let you make purchases with them.
The risks for cryptos?
Cryptos often have wild fluctuations, making them a very risky investment.
are physical products you can buy.
- Commodities
They could be agricultural products like wheat, barley and corn, or energy products like oil, coal or solar power.
- Commodities
some of the most common commodities are
Precious metals like gold and silver
The risks for invessting in commodities?
Commodities investing runs the risk that the price of the product will go down quickly.
For instance, political actions can greatly change the value of something like oil, while weather can impact the value of agricultural products.
- Commodities
4 ways to reduce your investment risk
- Have a diversified portfolio of investments
- Know your investment goals
- Keep a close eye on your investments
- Watch out for scammers
