Investing and Financial Markets Flashcard (W!se 7:1)

Front

What is the long term value of investing?

Back

Building wealth and achieving goals

Answer explanation

The purpose of investing is increase assets and wealth over time.

Front

To buy an investment fund (like a mutual fund), you must buy it through...

Back

Brokerage Account

Answer explanation

• A brokerage account is an investment account used to trade assets such as stocks, bonds, mutual funds and ETFs.

• There are two brokerage account options that meet the needs of most investors: online brokers and robo-advisors.

• Brokerage accounts are good for saving for short-term goals, while tax-advantaged accounts are better for retirement savings.

Front

What are the historical results of stocks compared to other investments? In other words, how has the stock market performed overall in comparison to say investing in real estate or coins?

Back

Outperformed other investments

Answer explanation

Historically, the stock market has gone up more years than it has gone down.

The S&P 500 gained value in 40 of the past 50 years, generating an average annualized return of 9.4%.

In general, when people say "the stock market," they mean the S&P 500 index. The S&P 500 is a collection -- referred to as a stock market index -- of just over 500 of the largest publicly traded U.S. companies.

SOURCE: https://www.fool.com/investing/how-to-invest/stocks/average-stock-market-return/

Front

What is the difference between a broker and a financial planner?

Back

Brokers execute trades, financial planners provide overall financial advice

Answer explanation

A stockbrokers' primary duty is to execute trades, achieving best execution, on behalf of clients.

Financial advisors give out general and specific financial advice for a fee and may manage client assets and portfolio construction.

Front

What is the purpose of a stock exchange?

Back

To trade stocks and bonds

Answer explanation

• A stock exchange is a centralized location that brings corporations and governments so that investors can buy and sell equities.

• Auction-based exchanges such as the New York Stock Exchange allow traders and brokers to physically and verbally communicate buy and sell orders.

• Electronic exchanges take place on electronic platforms, so they don't require a centralized physical location for trades.

Front

What does a bear market indicate?

Back

Declining stock prices

Answer explanation

Front

What does a bull market indicate?

Back

Rising stock prices

Answer explanation

Front

What is the main purpose of a mutual fund?

Back

Pooling investor deposits to purchase a basket of securities

Answer explanation

Front

What are the 3 major types of bonds?

Back

Corporate, Municipal and Government

Answer explanation

If you buy a bond, you are lending the corporation, town or government money that will be paid back to you with interest at a later time.

Front

What is the impact of higher risk in an investment?

Back

Higher potential return and higher potential loss

Answer explanation

When an investment vehicle offers a high rate of return in a short period of time, investors know this means the investment is risky.

Given enough time, many investments have the potential to double the initial principal amount, but many investors are instead attracted to the lure of high yields in short periods of time despite the possibility of unattractive losses.