Personal Finance - Topic 3
Why is diversification a recommended investment strategy?
Diversifying your portfolio helps reduce 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
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 a company
All of the following are true about bonds EXCEPT...
Bonds are considered a riskier investment option than stocks.
Define the difference between a brokerage account and a regular online/savings account.
Brokerage is managed for you
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
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?
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
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
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 and inflation
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
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
Explain why it is important to start saving for retirement when you're young, even though retirement is likely decades away.
You save more and you earn interest on more