Investing

What is dollar cost averaging? Does it increase or decrease someones risk?

The practice of putting a fixed amount into an investment over a period of time, regardless of the price of that investment. It decreases someone's risk

What is social security?

A federal program that provides monthly benefits to millions of Americans, including retirees, military families, surviving families of deceased workers, and disabled individuals. Government program, it is funded by people who are working. Got to work for 10 years in order to get it.

What is a bond?

A loan made to a corporation or government is a fixed-income investment that represents a loan made by an investor to a borrower usually corporate or governmental. A bond is a security in which the investor loans money to a company or government, which then pays regular interest to the bondholder and returns the principal on the bond's maturity date. One company. They are not riskier than stocks and are individual bonds. Changes in interest rates can cause a bonds value to rise or fall but this only matters if you sell your bond before maturity. Some people may not have the funds to purchase a bond because they are sold in denominations. The minimum for a denomination can be as low as $5,000. Overall this type of bond has regular interest payments and return of principle

What are the characteristics of an actively managed mutual fund?

A person has a portfolio manager managing your investment, who wants to outperform the index. They use your money to buy shares in companies they think will do well. Cost more money. Willing to risk more to gain more. There is no minimum to invest. The types of investments for this fund include bonds and stocks. You make money by selling stocks, bonds, and dividends. You can buy and sell anytime the market is open. There is no required holding period. Active fund managers tend to make investment decisions regularly because their goal is to do better than the market.

What are the benefits of putting money into a savings account?

A savings account is an effective way to store your money in a secure location where it can earn interest. With a savings account, you can maintain your savings in a liquid state — meaning you can access your funds whenever you want — while also putting some space between your savings and your daily spending needs. In addition to earning interest, money in a deposit savings account is readily available. One of the biggest advantages of a savings account is that your money is fully accessible to you. You have access to your money through an ATM, online banking, our mobile app, or a transaction with a teller at one of our branches.

What is a target date fund? Why are they a good option for younger people?

A type of investment fund that rebalances its asset mix over time based on a projected retirement year. They are low maintenance, there is a long term growth potential, it is a hands free investment that are professionally managed, and there is diversification.

What is a 401K? How can the company you work for make it worthwhile?

An employer-sponsored retirement plan where you contribute some of your paychecks, and is tax-advantaged. It allows employees to contribute a portion of their pre-tax income to the plan through stocks, bonds, and/or mutual funds. It is worthwhile because companies can match your contributions. This means that the more you contribute from your own salary, the more your employer will contribute towards your 401k

What behaviors prevent people from making smart investing decisions and what are the bad decisions?

Behaviors such as overconfidence, confirmation bias, lack of education. The bad decisions include, not diversifying in stocks, timing the market, and ignoring the risk tolerance.

What is an exchange traded fund and how often are they traded?

Exchange-traded funds are a collection of stocks and/or bonds that are traded on securities exchanges. Unlike mutual funds, they can be traded throughout the day like an individual stock. You can buy and sell anytime during the day. It is both passively and actively managed. May charge a commission to buy and sell them, but many are commission free today. The types of investments within this fund include, stocks, bonds, and securities. You can buy this fund through a brokerage account. There is no required holding period.

What is the relationship between risks and returns?

Higher the risk of investing, the higher potential return you get. The lower the risk you take while investing, the lower potential return you get.

What is the difference between a bond and a stock?

In a bond there is less risk, while a stock has a higher risk. When you buy a stock you are purchasing ownership of a company. In a bond you are lending money to a corporation or a government. In return the issuer promises to repay the principle amount (the bonds face value) in the future and pays interest (coupon) to the bondholder. The only risk for bonds is the credit risk which is the issuer having trouble paying the investor back. A bond is a security in which the investor loans money to a company or government, which then pays regular interest to the bondholder and returns the principal on the bond's maturity date. A stock is a share of the value of a company, which can be bought, sold, or traded as an investment and which gives the investor small partial ownership of the company.

Why are index funds a popular investing option?

Index funds have lower expenses and fees than actively managed funds. Index funds follow a passive investment strategy. Index funds seek to match the risk and return of the market based on the theory that in the long term, the market will outperform any single investment.

What are the benefits of investing money into stocks?

Investing in the stock market can provide you with several benefits, including earning returns on your investment, building wealth over time, achieving your long term goals, diversifying your portfolio, and reducing your risk. Potential capital gains from owning an stock that grows in value over time. Potential income from dividends paid by the company. Lower tax rates on long-term capital gains.

Why is it important to know your risk tolerance?

Investments with the potential for higher returns often come with a higher potential for sudden downdrafts or outright loss. With an understanding of your risk tolerance, you can create a strategy for your investments that will help you balance the worries of volatility with the potential for bigger returns. Asset allocation such as bonds or stocks. If you have a low risk tolerance then you might want to invest in safer investments like bonds. The right asset allocation will help you with your financial goals.

How can purchasing power increase and decrease?

It can increase when earning higher than historical inflation rate and decrease when earning lower than historical inflation rate

What is a bond fund?

More than one company that you are diversifying your money into. Invested primarily in bonds (government, corporate, municipal, convertible) and other debt instruments to generate monthly income. Group of funds, allows an investor to diversify their bond investments because the fund has ownership of several bonds. An investment that pulls money together from many investors to purchase a variety of bonds. Investors buy shares of the fund and receive dividends paid by the fund. Investors are entitled to funds for future earnings. Buying a share in a bond fund tends to be much cheaper. Has built-in diversification. This fund pays dividends. Overall this fund offers lower initial investment payment and more diversification.

Why do people diversify their portfolio?

People diversify their portfolios to invest in a large variety of stocks, bonds, and/or funds as a way to as a way to reduce their overall risk.

How do you find profit or loss

Profit= selling price-cost price

What is compound interest?

Reinvesting earned interest back into the principal to allow money to grow exponentially over time. Earning interest on interest.

What are the differences between putting money into a savings account versus investing in stocks?

Saving means putting away money for later use in a secure place, such as a bank account. Investing means taking some risk and buying assets that will ideally increase in value and provide you with more money than you put in, over the long term.

What are the disadvantages from using a robo-advisor?

Some disadvantages include, little to no human interaction, lack of personalization, limited investment options, and security concerns.disadvantages of using a robo advisor include If you want options on an existing portfolio or buy individual stocks, most robo-advisors won't be able to help you. There are sound investment strategies that go beyond an investing algorithm. Since robo-advisors rely on algorithms to make investment decisions, there is a possibility for errors, biases, or overfitting that could lead to suboptimal performance.

By the end of a bond's maturity, the investor will have received...

The face value of the bond issued and interest payments

What are the benefits of being a shareholder in a company?

The potential to profit from a rising share price and the potential to earn an income from dividend payments. Capital gains when the market value of their shares increase. Dividends, these payments provide regular income for shareholders...

What is default risk?

The risk that the company or government is not able to make interest payments.

Funds have fees and you need to subtract that from the return you get

They are important because.... Investment fees are fees charged to use financial products, such as broker fees, trading fees, and expense ratios. Investment fees are one of the most important determinants of investment performance and are something on which every investor should focus. Over time, minimizing fees tends to maximize performance.

What is a brokerage account and what is it used for?

This account is used to make investments, such as stocks, bonds, mutual funds, and ETFs. An account that lets individual investors trade stocks, bonds, mutual funds, and other investments. Planning to save for about 5 years.

What is the difference between a traditional Roth IRA and a traditional IRA?

Traditional IRA is an individual retirement account that allows a person to set aside pre-tax income up to a specified amount each year. Traditional Roth IRA is an individual retirement account that allows a person to set aside after-tax income up to a specified amount each year

Bonds with a higher fixed rate __________________________________

are worth more than lower

What are the different ways people can make money from investing in stocks?

dividends and capital grain. A dividend is money from the profits of a company that is paid out to its shareholders, typically on a quarterly basis. Capital grain is stocks that are bought and sold constantly throughout each trading day, and their prices change all the time.

What should a beginner not do while investing

don't time the market, don't put your money in a single investment, and don't be overconfident