Financial Literacy - Investing Review

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

• Investing is always a less risky option than saving

• Investing is best for short-term situations like emergency funds; saving is best for the long-term

• Investing typically earns between 1-2% while saving generally earns between 5-7%

• Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies

Why is compound interest more advantageous than simple interest?

• Compound interest is harder 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 has lower fees than simple interest

How is a bond different from a stock?

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

• Bonds are typically riskier than stocks but have the potential to earn higher returns.

• A bond is usually issued by smaller, startup companies while stocks are with well established organizations.

• Bonds are best for earning high returns while stocks are best for providing a stable source of income.

What is a brokerage account used for?

• It’s an online portal that allows you to set up appointments with a fund manager.

• It’s the account you use to pay any taxes you owe on money you earned in your investments.

• It’s a type of account used to buy and sell stocks, bonds, and mutual funds.

• It’s a special type of 401(k) plan that only some employers offer.

What is the benefit of investing in an Exchange Traded Fund (ETF)?

• ETFs guarantee a higher return than mutual funds.

• You have more control and flexibility because you can trade ETFs anytime while the market is open.

• An ETF allows you to pick which stocks and bonds you want in the fund.

• You can trade before the market closes for the day for a fee - usually 1%.

What is a financial advisor?

• Someone who works at the stock market.

• A trained professional that helps people make investing decisions.

• Someone who invests in real estate.

• A trained professional that sells antiques.

You bought 10 shares of stock in StreamingVideoCo for $20 per share. Two months later you sold the 10 shares of stock for $40 per share. What was your profit or loss on StreamingVideoCo stock? Assume that StreamingVideoCo didn't pay a dividend and that you didn't incur any trading fees during that period.

• Loss of $200

• Gain of $200

Which is a benefit of working with an employer who offers a 401(k) match?

• There is no benefit.

• The company will match the employee's contribution potentially "doubling" your investment every month.