Investment Basics & Strategies

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Why is compound interest more advantageous than simple interest?

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In compound interest, you earn interest on not only your principal, but also on the interest you’ve already made.

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The chance of loss is known as ?

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Risk

Front

Why shouldn’t Justin invest his $700 in stock for a vacation?

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Investing in one company’s stock is quite risky; investing your whole savings in the stock market is a bad financial move; one year probably isn’t enough time for one stock to turn $700 into a month’s vacation.

Front

Which of the following statements are true? Options: Between cash, stocks, and bonds, bonds are typically considered the riskiest., Stocks are the riskiest investments out there., Putting money into a savings account with interest is the ideal way for a young adult to invest., Historically, stocks have had far greater annual returns than cash, government bonds, and savings

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Historically, stocks have had far greater annual returns than cash, government bonds, and savings

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You deposit $1,000 into a five year certificate of deposit (a type of savings account with a fixed rate of interest) earning 1% per year that compounds interest annually. After five years, the balance in your account will be…

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More than $1050

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True or False: A 401K is a tax deferred account and does not tax your earnings until you are 89.5 years old

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False

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The main benefits of a 401k account are

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that it's contribution is taken out pre-tax and that employers may match a portion of the contribution

Front

Which best describes the meaning of "inflation" when related to finance?

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a general increase in prices and fall in the purchasing value or power of money

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Why is it important to consider the rate of inflation when investing?

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If your rate of your return on your investment is lower than the rate of inflation then you are basically losing money.

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A savings account that is post tax on annual contributions but does not tax on earnings.

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Roth IRA