Investing

which is NOT a good reason to buy a stock fund like the S&P 500?

"You want to beat the market". So the right answers are have a diversified portfolio, have an investment with low fees, don't have to monitor as closely as active managed account.

What are Target Date Funds?

- a collective investment scheme, often a mutual fund of a collective trust fund, designed to provide a simple investment solution through a portfolio whose asset allocation mix becomes more conservative as the target date approaches.

What is Social Security?

- a government run retirement program - designed to pay retired workers age 65 or older a continuing income after retirement.

dollar cost averaging

-a strategy to manage price risk when you're buying stocks, exchange-traded funds (ETFs) or mutual funds. -instead of purchasing shares at a single price point, with dollar cost averaging you buy in smaller amounts at regular intervals, regardless of price.

What's the different between a bond and a stock?

A bond is a loan given to an organization while a stock is partial ownership in the company.

An account that is used to buy and sell stocks, bonds, and funds called

Brokerage Account

How can you make money on stocks?

Dividends (and selling for more than you bought the stock for)

What is compound interest?

Earning interest on interest

What are ETFs?

Exchange-Traded Funds: funds traded on stock exchanges (look more like stocks, but are mutual funds); similar goals as regular mutual funds

If Jon is earning 2% on an investment and inflation is increasing by 3%, what is happening to his purchasing power?

It's decreasing

This is a characteristic of human investment managers have that robo-advisors do not:

Personal touch

what benefits do you get from owning a stock/being a shareholder?

Potential capital gains from owning a stock that grows in value over time Potential income from dividends paid by the company Lower tax rates in long-term capital gains Shareholder: the potential to profit from a rising share price and the potential to earn an income from dividend payments.

Andy bought 5 shares of a company for $10 a share. Later, he sold all 5 shares of $15. What was his profit/loss on the stock?

Profit of $25

What's the main different between a Roth IRA and a Traditional IRA?

Roth IRAs have you pay taxes upfront.

Which would be considered the highest risk investment type?

Stocks

What is the benefit of a target date fund (TDF)?

TDFs adjust asset allocation automatically based on retirement age.

What is the main appeal of an index fund?

They are typically low cost and diversified investments.

What is the purpose of investing for retirement?

To ensure that you have enough money to enjoy a comfortable standard of living when you stop or reduce the amount of hours you work.

Why is it important to start investing as soon as possible?

You have more time for your money to compound.

Why is compound interest more beneficial than simple interest?

Your money grows faster when it is compounded.

401ks

a tax-advantaged retirement account offered by many employers -an employee sets a percentage of their income to be automatically taken out of each paycheck and invested in their account - age 59 1/2

Putting regular amounts of money into an investment account at specific time is...

dollar cost averaging

Expense ratios/annual fee

expense ratios are annual fees that investors pay to cover a fund's expenses, such as management and marketing. If you invest in a fund with a 1% expense ratio, you'll pay $10 annually for every $1,000 invested. Are subtracted automatically.

The relationship between risk and return can be stated as...

higher risk indicates higher return

A diversified portfolio is desirable because ...

it decreases risk

What are index funds?

mutual funds that buy all the stocks in a given stock index

A key difference between saving and investing is...

saving is emergencies and goals; investing is long term wealth

What's a brokerage account for?

-an investment account that allows you to buy and sell a variety of investments such as stocks, bonds, mutual funds, and ETFs. -Whether you're setting aside money for the future or saving up for a big purchase, you can use your funds whenever and however you want.

Making smart investment decisions

1. Don't delay current section 2. Asset Allocation 3. Diversify Your Portfolio 4. Rebalance Periodically 5. Keep an Eye on Fees 6. Consider Tax-alias Harvesting 7. Simplify Your Investing 8. Key Takeaways

What are mutual funds?

an investment program funded by shareholders that trades in diversified holdings and is professionally managed.

Diversification

apportioning funds among various assets. If one asset takes a loss, the money invested in the others won't be affected.

How to make money in the stock market

buy low, sell high

How do you get started investing?

choose an investment account, set a budget, open an investment account, pick an investment strategy, and understand your investment options.