What does it mean to practice diversification in an investment context?

Spreading investments across different asset types to reduce risk

Which investment account offers tax advantages for retirement savings in the United States?

Individual Retirement Account (IRA)

What is TRUE about the magical power of compound interest?

Compound interest allows you to earn interest on both the initial principal and the accumulated interest over time.

What kind of behavior should you avoid to ensure you don't make a blunder in a bustling marketplace?

Exiting the market because that’s what everyone else is doing

What will happen to Benjamin's purchasing power if his savings account earns 0.5% interest annually?

His purchasing power will DECREASE because the interest rate is lower than the historical rate of inflation

Relationship between risk and return in treasure hunting.

Higher potential treasures usually come with higher risks.

What is the primary difference between a stock and a fund in the context of investments?

A stock represents ownership in a single company, while a fund pools money from multiple investors to invest in a diversified portfolio.

How do bonds and stocks differ?

A bond is a loan made to a company or government, while a stock represents ownership in a company.

How can you make money from investing in a stock?

By selling the stock at a higher price than the purchase price.

What is risk tolerance in the world of investing?

The level of fluctuation (ups and downs) in investment returns that an investor is willing to accept.

What is Social Security and how does it work?

Social Security is a government program that provides financial assistance to retired individuals and is funded through payroll taxes.

What should Nancy avoid doing on her investment journey?

Invest all her savings in a single high-risk stock to maximize returns.

Why do Liam, Benjamin, and Nora find Index Funds to be such a popular investing option?

They provide a low-cost, diversified investment option that closely matches the overall return of a given index, such as the S&P 500.

What is the best definition of a bond?

A bond is a loan to a company or government given by an investor.

Imagine you're in a magical world where prices of goods and services start to rise mysteriously. What is this phenomenon called?

It's the rate at which the general level of prices for goods and services rises, eroding purchasing power.

What is a 'commodity' in the world of commerce?

A commodity is a basic good used in commerce such as oil, gold, and wheat.

What are the two main types of bonds?

Government bonds and corporate bonds

What is a digital asset in the vast world of the internet?

A digital item that you can own but will never exist outside of the internet.

How are user identities kept secret in blockchain technology?

User identities are anonymous and protected by keys.

What two features make cryptocurrency super secure?

Blockchain technology and cryptography

What role does your age play in deciding how much risk you should take on a financial journey?

Generally, younger investors can afford to take on more risk because they have more time to recover from potential losses.

What's the key difference between speculation and investing?

Speculation involves taking higher risks for potentially greater short-term profits, while investing focuses on long-term growth with lower risk.

What is a mutual fund?

A mutual fund is an investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities.

What is the primary benefit of diversification in investing?

Diversification helps to spread risk across different asset classes, reducing the impact of a poor performance in any single investment.

What is an ETF and how does it differ from a mutual fund?

An ETF, or Exchange-Traded Fund, is similar to a mutual fund but trades on stock exchanges like a stock, offering more flexibility in buying and selling.

How does inflation impact the purchasing power of money over time?

Inflation decreases the purchasing power of money, meaning you can buy less with the same amount of money in the future.

What is the significance of a company's market capitalization?

Market capitalization represents the total market value of a company's outstanding shares and is used to determine its size and investment risk.

In the world of finance, what is diversification?

Diversification is the strategy of spreading investments across various financial instruments, industries, and other categories to reduce risk.

What is the primary purpose of a stock market index?

A stock market index measures the performance of a specific group of stocks, representing a particular market or sector.

What is the role of a financial advisor in personal investing?

A financial advisor provides guidance on investment strategies, financial planning, and portfolio management to help individuals achieve their financial goals.

How does dollar-cost averaging benefit investors?

Dollar-cost averaging involves regularly investing a fixed amount of money, which can reduce the impact of market volatility and lower the average cost per share over time.

What is the significance of a stock's P/E ratio?

The P/E ratio, or price-to-earnings ratio, measures a company's current share price relative to its per-share earnings, indicating how much investors are willing to pay for a dollar of earnings.

What is the benefit of investing in index funds?

Index funds offer broad market exposure, low operating expenses, and low portfolio turnover.

How does inflation impact your investments?

Inflation erodes the purchasing power of money, meaning your investments need to grow at a rate higher than inflation to maintain value.

INVESTING FINAL Flashcards

Student preview

59 questions

Show all answers

1.

FLASHCARD QUESTION

Front

What is the term for the unique series of letters that represent a company's stock on the stock exchange?

Back

Ticker symbol

2.

FLASHCARD QUESTION

Front

House edge

Back

The house edge is the mathematical advantage that a casino has over players, ensuring the casino makes a profit over time.

3.

FLASHCARD QUESTION

Front

How does investing in the stock market differ from putting money in a savings account at a bank?

Back

Stock market investments can grow or lose value, while savings accounts have guaranteed interest.

4.

FLASHCARD QUESTION

Front

What is a stock in the New York Stock Exchange?

Back

A share of ownership in a company

5.

FLASHCARD QUESTION

Front

Emma and Aiden are discussing their future financial plans. Which statement is true about investing?

Back

Investing can involve risk, but it also offers the potential for higher returns over time.

6.

FLASHCARD QUESTION

Front

What is the relationship between when Maya and Elijah start saving for retirement and how much they will need to save per month?

Back

The earlier they start saving, the less they will need to save each month to reach their goal.

7.

FLASHCARD QUESTION

Front

What's the ultimate treasure you're all seeking through investing?

Back

To grow your wealth over time by earning returns

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