Ch. 6 & 7 Review Investing & Retirement

Front

What is investing?

Back

Investing is the act of allocating resources, usually money, in order to generate income or profit. It involves purchasing assets like stocks, bonds, or real estate with the expectation that they will increase in value over time.

Front

What is a retirement plan?

Back

A retirement plan is a financial arrangement designed to replace income when an individual is no longer earning a regular paycheck, typically after reaching a certain age.

Front

What is the purpose of a 401(k) plan?

Back

A 401(k) plan is a retirement savings plan sponsored by an employer that allows employees to save and invest a portion of their paycheck before taxes are taken out.

Front

What does 'liquidity' mean in investing?

Back

Liquidity refers to how quickly and easily an asset can be converted into cash without significantly affecting its price.

Front

What is the 'rate of return'?

Back

The rate of return is the gain or loss made on an investment relative to the amount invested, usually expressed as a percentage.

Front

What is 'inflation'?

Back

Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.

Front

What is 'risk tolerance'?

Back

Risk tolerance is the degree of variability in investment returns that an individual is willing to withstand in their investment portfolio.

Front

What is 'diversification' in an investment portfolio?

Back

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

Front

What is a 'mutual fund'?

Back

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

Front

What is 'compound interest'?

Back

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.