Personal Finance Investing Review

Dividends

An amount of money by a company to its shareholders out of its profits.

A savings account with an insurance company, usually they're not recommended.

Annuities

How do you want your financial adviser to be paid?

Based on Commission

What are 2 questions you should ask before hiring a brokerage firm?

1. Does the firm have a history of positive reviews and success? 2. How does the firm rank in comparison to other firms?

3 examples on how investing is different than saving.

1. Investing has a higher risk factor. 2. Investing is for long-term goals. 3. Investing helps build net worth.

When investing, you should always check the ____ track record.

5-10 year

What is the difference between a full-service brokerage firm and a discount brokerage firm?

A discount brokerage firm only does orders that you give them to buy and sell and they don't give you advice on what to do. A full-service firm also give financial advice and a financial advisor.

Rent

A fee charged for the use of property or land.

What type of return is received when you sell your investment?

Capital Gains

A full service general brokerage firm usually charges lower commission fees than a discount broker.

False

Individuals with an aggressive investment philosophy are not willing to take on risk for the potential of higher returns (T or F).

False

Portfolio diversification is a method that helps an individual receive the highest return on investment.

False

The most basic type of return and usually has the lowest rate of return.

Interest

What is the best option if you begin losing money in your mutual fund?

Leave it alone, but stop investing money to the fund.

Interest

Money paid for using someone's money.

How can investors pool their money to create a diversified portfolio?

Mutual Funds

What type of company would be in the aggressive growth category (high risk, high reward)?

New, small-cap companies

What are the 2 things that tax advantaged investments are typically used for?

Retirement and Education

What is the riskiest type of investment?

Speculative

Highest Risk to Lowest Risk investments?

Speculative, Stocks and Real Estate, Mutual (index) funds, Bonds

Inflation Risk

The danger that money won't be worth as much in the future as it is today.

Investment Risk

The possibility that an investment will fail to pay the expected return or fail to pay a return at all.

Describe the concept of investment philosophy and how it relates to portfolio diversification.

The potential for higher returns can be what motivates you to take on higher investment risk. Everyone has their own personal tolerance regarding the investment risk they want to take. With portfolio diversification, you can have an acceptable return and an acceptable risk.

Inflation

The rise in the general level of prices.

Risk

The uncertainity regarding the outcome of a situation of event.

What is true about investing in single stocks?

There is a high degree of risk

What is the main purpose of investing?

To build wealth.

An individual's investment philosophy changes throughout their lifetime (T or F).

True

In order to buy and sell investments (except for real estate and certain speculative investments), an individual needs to utilize a brokerage firm.

True

Taxes are paid on the profits you earn from investing (T or F).

True

Taxes must be paid on ALL investments profits in the year the unearned income is received (T or F).

True

When focusing on wealth accumulation, the rate of return earned on an investment should be higher than the rate of inflation (T or F).

True

Capital Gains

Unearned income received from the sale of an asset above its purchase price.

What is the risk return ratio?

When the risk goes up, the return will generally go up.

What are 2 benefits of a tax-advantaged account? What is a tradeoff?

You can reduce, defer or adjust tax liability and no taxes are paid when the money is withdrawn. A tradeoff is that there's more money to invest but taxes are paid when the money is withdrawn.

A _______ is a debt instrument where a company owes you money.

bond

Oil and gold are examples of

commodities