Investing/Retirement Flashcard3

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What is a Traditional IRA?

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A Traditional IRA (Individual Retirement Account) is a type of retirement savings account where contributions may be tax-deductible, and taxes are paid on withdrawals during retirement.

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What is a Roth IRA?

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A Roth IRA is a retirement savings account where contributions are made with after-tax dollars, allowing for tax-free withdrawals in retirement.

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What is a 401(k) plan?

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

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What is a brokerage account?

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A brokerage account is an investment account that allows individuals to buy and sell various financial assets such as stocks, bonds, and mutual funds.

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What does it mean to invest?

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To invest means to allocate money into financial assets or ventures with the expectation of generating a profit or increasing wealth over time.

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What is the difference between a bond and a stock?

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A bond is a loan made to an organization, while a stock represents partial ownership in a company.

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What is diversification in investing?

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Diversification is the practice of spreading investments across various asset classes to reduce risk.

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What is the primary advantage of a diversified portfolio?

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The primary advantage of a diversified portfolio is that it reduces risk by spreading investments across different asset classes.

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What is a mutual fund?

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

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What is the purpose of an index fund?

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An index fund is designed to track the performance of a specific market index, providing broad market exposure with lower fees.