personal finance investing unit

Why is diversification a recommended investment strategy?

Diversifying your portfolio helps reduce risk

What is one question an investor should ask when deciding whether or not they would like to open a Roth IRA or a Traditional IRA?

Do I want to pay taxes now or later?

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

Dollar-cost averaging is a way to decrease your risk

Which of the following statements about Exchange Traded Funds (ETFs) is TRUE?

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

What kinds of behaviors can PREVENT people from making smart investing decisions?

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

As a shareholder in a public company, what are the benefits available to you?

You may receive dividends from the company, if the company pays them, and you have ownership of a portion of the company

Why is it important for you to understand your risk tolerance before you start investing?

You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with

How is a bond different from a stock?

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

You bought 10 shares of stock in StreamingVideoCo for $45 per share. Two months later you sold the 10 shares of stock for $80 per share. What was your pro t 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.)

b. Profit of $350

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

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

Sam is 22, just started his first full-time job, and is selecting his investments through his company's 401(k) plan. Why might a target date fund (TDF) be a good option for Sam?

A TDF will automatically adjust his asset allocation based on the retirement year he has chosen

Which of the following accurately describes a difference between an individual bond compared to a bond fund?

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

Which of the following statements is TRUE about compound interest?

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

Katrina works for Penny's Pickles, which offers a 401(k) match for up to 3% of her salary, which is $65,000 per year. In her budget, she only has $150 per month available to save for retirement. What should she do?

Contribute the full $150/mo to the 401(k) because her company will match that full amount, "doubling" her investment every month

Daniel has saved $2,000 in a savings account that earns 0.5% interest annually. What will most likely happen to the purchasing power of his savings over time?

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

Which of the statements below BEST describes the relationship between risk and return when considering an investment?

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

An actively managed mutual fund...

Is managed by a fund manager who charges a fee

What is a brokerage account used for?

It's a type of account used to buy and sell stocks, bonds, and funds

Geraldo reviews his brokerage statement and sees the following two mutual fund investments that he made a year ago. ActiveFund20 had an average return (before fees) of 7.0% per year and an annual fee of 1%. PassiveFund500 had an average return (before fees) of 6.5% per year and an annual fee of 0.1%. Which investment had a better return for Geraldo (net of fees)?

PassiveFund500: It had an overall return of 6.4% while ActiveFund20 had an overall return of 6.0%

Nancy is new to investing and is eager to get started. All of the following are things she should do EXCEPT...

Pick individual stocks to see if she can beat the market

Sanjana is explaining what Social Security is to her younger brother. Which of the following descriptions should she use?

Social Security is a government program that pools contributions from current workers to fund retirement support benefits to those who are eligible

Identify two factors that can influence an individual company's stock price.

Supply and demand News about the company (e.g. executives leaving/being hired, strategy changes, new products, etc.) Anticipation about upcoming events (e.g. changes in legislation, regulations, natural disasters, etc.) Stock splits (does not change the value of the company but impacts the price of each share of stock)

You buy a bond with a fixed coupon rate of 5%. A year later, similar bonds that are issued have a coupon rate of 3%. Which of the following is TRUE?

The price of your bond will increase

Why are Index Funds such a popular investing option?

They provide a low-cost, diversified investment option that closely matches the overall return of a given index, such as the S&P 500

How can someone make money from investing in a stock?

They receive dividends or they sell the stock at a higher price than what they bought it for

Josie is trying to figure out how to implement her investing strategy. She wants to compare online brokers, financial advisors and robo-advisors. What are 2 questions that she should consider during her research? Note: You don't need to answer the questions, only ask them.

What fees come with this service and how much are they? What level of support does this service offer me?

Explain why it is important to start saving for retirement when you're young, even though retirement is likely decades away.

You build a habit of saving for retirement early on Starting early allows you to take advantage of the power of compound interest You have more time to ride the highs and lows of the stock market You can take more risk earlier on The longer you wait to start saving for retirement, the more you'd have to put aside each month to get to your retirement savings goal. Doing this can be harder as you get older because you will likely have more financial obligations, such as a mortgage, etc.

A disadvantage of using a robo-adviser might be that...

You may not be able to get advice from a human financial advisor when you want it