Saving Questions Flashcards
Why is inflation an important thing to think about when planning your investments and savings?
Because you want to make sure the interest rate of your money is higher than the rate of inflation so you don’t lose value on your money
Advantages and disadvantages of bonds
Advantages: safe investment
Raise money for government projects
Get paid before stockholders
Disadvantages: can’t take money before time is up
Bad for short time horizons
The money you paid is gone until time is up
Advantages and disadvantages of stocks
Advantages: own a share of a company
Gain a lot if market value goes up
Money is easily accessible
Disadvantages: can lose a lot if market goes down
Need to study to manage stock
Need the help of a good brokerage firm
Good advice to give to people about investing
Understand your investments
Diversify your investments
Keep inflation rate in mind
Invest in small amounts
Don’t panic if things don’t go well
How do investment strategies change when considering long and short term goals
You can invest in more volatile and risky stocks when you have a lot of time because you’ll give them the chance to grow by the end you should have made money
Invest in safe, low risk investments if you have a short time horizon so you don’t lose money
Difference between saving, investing, and spectating
Saving: slow growth, savings accounts, money market accounts, and certificates of deposits
Investing: increased risk, stocks, bonds, real estate
Spectating: very high risk, day trading, crypto, sports betting
Three asset classes
Ownership: own an asset that has the potential to generate income of appreciate in value over time
Lending: lend money to an entity in exchange for interest payments and repayment of the principal
Cash equivalents: highly liquid, low-risk investments that are easily converted into cash and provide minimal returns
If you want to have almost no risk in investing, where should you put your money
Government bonds because the government won’t run out of money to pay you back so it’s a safe option to make some money
If you want to make a lot of money quickly, where should you invest
Speculative stocks like crypto because the market is risky and volatile so you can lose or make a lot of money (but chances are that you’ll lose a lot more than you gain)
What is the recommended percentage to put into savings
20% of income
How large should someone’s emergency fund be
3 months of income
Ten savings tips
- Save before you spend
- Shop for best prices
- Put change in a jar
- Don’t carry much cash
- Look for cheaper ways of transportation
- Eat out less
- Set online purchases limit
- Don’t waste money on extra phone charges
- Cut back on bad habits- smoking
- Avoid impulse buying
- Take advantage of deals
- Avoid fads and quick trends
Difference between TFSA and RRSP
TFSA is flexible and can be used for everything- no specific requirements and withdrawals not taxed
RRSP reduce taxable income and can lower your tax bracket but will be taxed when withdrawn and need to use it for retirement
Why might you pick an Index ETF over a mutual fund
ETFs have good diversification, good liquidity, and are usually cheaper than other investments
Investment vehicles vs investment types
Investment types: broad categories of investments based on risk level, purpose, and return potential
Investment vehicles: tools or methods used to channel funds into investments
