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?
