Investing and Compound Interest Flashcard

Front

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

Back

Investing allows you to accumulate wealth for retirement while saving is best for shorter-term goals or emergencies.

Front

Which of the following statements is TRUE about compound interest? Compound interest is difficult to calculate, so those who use it earn higher profits for their efforts, Compound interest means you have a fund manager who is compounding your returns without charging a fee, Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned, Compound interest directly impacts how much you will be charged in fees

Back

Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned.

Front

What kinds of behaviors can PREVENT people from making smart investing decisions? Options: Staying calm when the market is experiencing a downturn, Buying stocks when prices are low and selling them when they’re high, Exiting the market because that’s what everyone else is doing, Investing in a diversified portfolio instead of trying to beat the market

Back

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

Front

What will most likely happen to the purchasing power of Daniel's $2,000 savings over time if it earns 0.5% interest annually?

Back

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

Front

Which of the following accurately describes a difference between an individual bond compared to a bond fund? A bond pays you dividends while a bond fund pays you regular interest, A bond guarantees you a higher rate of return than a bond fund, A bond is issued by a company while bond funds only invest in government bonds, A bond is considered to be a less diversified investment than a bond fund

Back

A bond is considered to be a less diversified investment than a bond fund

Front

Which of the following statements about Exchange Traded Funds (ETFs) is TRUE? ETFs are traded once a day after the market closes, An ETF is a single stock that you can buy in the stock market, Actively managed ETFs have very low fees, ETF prices can change throughout the day as they are exchanged on the market

Back

ETF prices can change throughout the day as they are exchanged on the market

Front

Which of the statements below BEST describes the relationship between risk and return when considering an investment? Investors expect to earn a lower return when they invest in a high risk asset, Investors expect to earn a higher return when they invest in a low risk asset, Investors expect to earn a higher return when they invest in a high risk asset, Investors expect to earn zero return when investing in a low risk asset

Back

Investors expect to earn a higher return when they invest in a high risk asset

Front

Why is diversification a recommended investment strategy?

Back

Diversifying your portfolio helps reduce risk.

Front

Which of the following is a characteristic of dollar-cost averaging?

Back

Dollar-cost averaging is a way to decrease your risk

Front

How is a bond different from a stock?

Back

A bond is a loan you give to an organization while a stock is partial ownership in a company.