Investing

What is a brokerage account used for?

It's what you use to buy and sell investments through a brokerage firm.

How is a bond different from a stock?

A bond is a loan you give to an organization while a stock is something you purchase.

What is the difference between compound interest and simple interest? Which gives a better return?

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

How does diversification minimize risk?

Diversifying your portfolio helps reduce risk because it provides a variety of investment strategies to balance out the ups and downs of the market (market fluctuations)

What is THE question an investor should ask before investing in a Roth IRA or a Traditional IRA?

Do I want to pay taxes now (Roth IRA) or later (Traditional IRA)?

What are some characteristics of an ETF?

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

What kinds of beliefs and behaviors can prevent people from making smart investing decisions?

Exiting the market because that's what everyone else is doing Buying because you heard rumors Buying because stock it going up.

If I only have $1000 to start investing, what might be some good investments?

Invest $800 in a stock index fund and $200 in a bond index fund

What would you recommend to a beginner level investor:

Invest in a low cost index fund Estimate how much you will need for retirement to determine how much she needs to invest each month Invest in a diversified portfolio Do not worry about beating the stock market

What is an actively managed mutual fund?

It Is managed by a fund manager who charges a fee for their services.

What are dividends?

Money that a company pays out to stockholders when the company is performing well and making a profit. Typically quarterly.

Why are Target Date Funds (TDFs) becoming an increasingly popular option to invest in?

Target Date Funds automatically adjust the allocation between stocks and bonds as you age. They are set for every 5 years and you choose the one that makes sense for you regarding your retirement age.

What is a vesting period?

The period of time it takes for shares in an employer retirement plan to be owned fully by the employee

Why are Index Funds such a popular investing option?

They include all of the stocks in an index and thus, can guarantee the overall average rate of return of that index

How can someone make money from investing in a stock?

They receive dividends from the company they bought the stock in 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 a company. You do not get FREE stuff from them.

If your company offers a 401(k) match, how much money should you contribute to that?

You should always put aside as much as you can towards it because you will double your money every month. It is essentially free money that the company will add toward your retirement.

What is a ROBO Adviser? What are some benefits & drawbacks?

A computer software system that adjusts a portfolio based on client preferences. A disadvantage is that you may not be able to get advice from a human financial advisor when you want it.

Why invest money in the stock market?

Investing allows you to accumulate wealth for retirement. It is best used for retirement because time is what is needed to accumulate wealth and weather the ups and downs of the stock market.

Describe 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 like stock in a small company

What do you need to do to open a brokerage account?

Must be able to transfer money from a checking or savings account. Must be at least 18 years of age or have a parent to open with you.

What 3 types of brokerage accounts are there and how are they different?

Online Brokerage Account-You Manage Managed Brokerage Account-Human Managers & Robo Retirement Brokerage Account-Tax Advantaged Investors

How can I calculate my gains or losses?

Remember that if you get a gain, you are not including the amount of your original investment or purchase price.

Why is it important to have some money set aside in a savings account?

Savings is best for short term purchases or emergencies. You need to have savings because that money is able to be accessed quickly.

What can affect the prices of individual stocks?

Unforeseen company events can have an impact on stock prices. An example could be Chipotle and the e-Coli outbreak. Saw a dramatic drop in stocks. It could be natural disasters, weather fluctuations, politics. Large purchases or sales of stocks

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.