Investing Unit Review

Dollar Cost Averaging

The practice of putting a fixed amount into an investment over a period of time

Dividend

Money from the profits of a company paid out to its shareholders on a quarterly basis

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

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

Security

A financial asset, such as a stock or a bond, that can be bought and sold in a financial market

Stock Exchange

A market where shares in corporations are bought and sold through an organized system

Bond Rating

A measurement of the likelihood that a bondholder will be paid back

401(K) Plan

A retirement savings plan, sponsored through your employer

Bond

A security in which you loan money to a government, pays interest and returns the principal

Is managed by a fund manager who charges a fee

An actively managed mutual fund...

S&P 500

An index of 500 large cap companies chosen to represent the entire market

Individual Retirement Account (IRA)

An investing tool for individuals to earmark funds specifically for their retirement

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

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

Investors expect to earn a higher return when they invest in a high risk asset like stock in a small company

BEST describes the relationship between risk and return when considering an investment?

Risk

Degree of uncertainty on how likely the investor is to make money on an investment

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

How can someone make money from investing in a stock?

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

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

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

How is a bond different from a stock?

Traditional IRA

Individual retirement account a person to sets aside pre-tax income up to a specified amount

Capital Gain

Profit from the sale of an asset, calculated by: price sold - price paid

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

TRUE about Exchange Traded Funds (ETFs)

Coupon

The annual interest payment on a bond, usually expressed as a percentage of its face value

Initial Public Offering (IPO)

The first time a company becomes publicly traded by issuing stock that may be bought and sold

Rate Of Return

The ratio of money gained or lost on an investment relative to the amount of money invested.

Must be able to transfer money from a checking or savings account.

To open a brokerage account, you...

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

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

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

What is a brokerage account used for?

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

What is a vesting period?

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

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

Unforeseen company events can have a dramatic impact on the stock price for a company

When investing in individual stocks, you should expect that...

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

Why are Index Funds such a popular investing option?

Target Date Funds automatically adjust the allocation between stocks and bonds as you age

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

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

Why is compound interest more advantageous than simple interest?

Diversifying your portfolio helps reduce risk.

Why is diversification a recommended investment strategy?

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

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

The brokerage firm uses a physical robot to manage her portfolio.

Your friend Jenny wants to use a robo-adviser to manage her portfolio. What does this mean?