Savings/Investment Part 3 Flashcards
Rank the types of common investment in order of high risk to low risk?
Share market, managed funds, superannuation funds, property, bank accounts
If you have $100 in a savings account, earning 2% fixed interest per year, how much money would you have in total after 5 years?
More than $110
If you earn 10% simple interest per year, how many years will it take for you to double your money?
10 years
Which type of return may purchasing a piece of artwork and displaying it in your own home hoping it will increase in value provide?
Capital gain
What percentage of your income should you aim to save?
10%
What will be a consequence of increasing interest rates?
Savings will increase
What does ASX stand for?
Australian Stock Exchange
What benefits would a government gain from investing in health, infrastructure and education?
Jobs will be created, employees will pay income tax, less welfare paid to unemployed, increased spending may occur and increased GST paid
What are the benefits to society of government investment?
A return of the budget to surplus, more jobs being created, lower taxes and a guarantee of essential services
What is inflation?
A general increase in prices and fall in the purchasing value of money
How does inflation affect savings?
The value of savings decreases over time, and people are better off investing or spending their money rather than saving it, in order to keep up with inflation
What type of interest loan does a graph with a straight horizontal line demonstrate?
An interest only loan, because you do not pay off any principle until the end end of the loan term
What does a credit limit on a credit card statement imply?
The most you can spend on a credit card and you will not be allowed to go over the limit
What is an interest only loan?
Where you only pay interest and do not decrease the principle
What is an interest and principle loan?
When you repay some of the principle along with interest on the outstanding amount?
What is the difference between an interest only loan and an interest and principle loan?
An interest only loan has lower repayments, but will cost you more overall, whereas an interest and principle loan has higher repayments, but will be cheaper overall
What are some factors which have led to a decrease in housing affordability?
The prices of houses have increased at a greater rate than incomes and lower income rates have led to more people borrowing money. This means that people are giving up a greater portion of their income to pay off mortgages.
Why would a growth option superannuation fund not suit a 56 year old who is close to retiring, and what would a more suitable investment option be?
A person who is about to retire cannot afford to take financial risks as they cannot recuperate any losses. They could invest in a savings or term deposit account instead.
In relation to the share market, what is the difference between capital gain and dividends?
Capital gain is when the value of the share has increased since it was purchased, whereas dividends are when the company pays you a percentage of their profit
If machinery tends to lose value over time and provides no capital gain, why is it classified as an investment by some?
It can be used in the production process to manufacture items that can be later sold for a profit, therefore it can be classed as an investment, such a machine in a factory
What does being asset rich and income poor mean, and provide an example?
Someone who earns little to no income, but owns a lot of assets such as investments and properties. A retired person who owns their own homes is asset rich, income poor
