Podcast
Questions and Answers
Which of the following best describes 'risk tolerance' in the context of investing?
Which of the following best describes 'risk tolerance' in the context of investing?
- An investor's capacity to withstand potential losses during investment. (correct)
- Awareness of market complexities.
- The period an investor waits before getting returns from investments.
- The projected future value of an investment portfolio.
How can investments help with financial planning for retirement?
How can investments help with financial planning for retirement?
- By ensuring a fixed rate of return.
- By offering diverse avenues to grow wealth and achieve financial targets, despite market instability. (correct)
- By removing all the volatility associated with conventional savings accounts.
- By guaranteeing consistent and high returns irrespective of market conditions, making retirement planning easier.
In what way do dividends contribute to generating passive income through investments?
In what way do dividends contribute to generating passive income through investments?
- Dividends allow money to move out of a company's accounts.
- Dividends represent a guaranteed profit irrespective of the company's performance.
- Dividends increase the risk of investment.
- Dividends represent a share of a company's profits distributed to its investors. (correct)
What is the significance of understanding the long-term average annual inflation rate when making investment decisions?
What is the significance of understanding the long-term average annual inflation rate when making investment decisions?
How does the ability to automate investment payments and utilize 'Stop-Loss' tools benefit investors?
How does the ability to automate investment payments and utilize 'Stop-Loss' tools benefit investors?
Why might an investor choose to invest in fractional shares of a company such as Apple Inc.?
Why might an investor choose to invest in fractional shares of a company such as Apple Inc.?
What is the primary advantage of investing through a demo account, such as on eToro, for new investors?
What is the primary advantage of investing through a demo account, such as on eToro, for new investors?
How do tax-advantaged investment schemes, like Stocks and Shares ISA accounts, benefit investors?
How do tax-advantaged investment schemes, like Stocks and Shares ISA accounts, benefit investors?
What role does compounding play in successful investing?
What role does compounding play in successful investing?
How can investing contribute to improved wealth management and financial discipline?
How can investing contribute to improved wealth management and financial discipline?
What key factor should investors remember with respect to risks?
What key factor should investors remember with respect to risks?
Why is it essential to consider the risks associated with investing, even when the potential returns seem promising?
Why is it essential to consider the risks associated with investing, even when the potential returns seem promising?
How does 'market risk' specifically impact investment performance?
How does 'market risk' specifically impact investment performance?
What characterizes 'systematic risk' in the context of investment?
What characterizes 'systematic risk' in the context of investment?
What does 'specific (unsystematic) risk' refer to in the context of investments?
What does 'specific (unsystematic) risk' refer to in the context of investments?
Which factor determines 'liquidity risk' in investments?
Which factor determines 'liquidity risk' in investments?
What is the recommendation regarding portfolio risk?
What is the recommendation regarding portfolio risk?
Apart from investing, what is another primary use of income?
Apart from investing, what is another primary use of income?
Investing money is a variable that is influenced by what factor?
Investing money is a variable that is influenced by what factor?
What can careful financial planning enable you to achieve?
What can careful financial planning enable you to achieve?
Flashcards
What is Investing?
What is Investing?
Committing money to the capital market with the expectation of future profit.
Target rate of return
Target rate of return
The rate of return an investor hopes to achieve from an investment.
Risk Tolerance
Risk Tolerance
The amount an investor is prepared to lose while making investment decisions.
Reduce inflation burden
Reduce inflation burden
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Dividends
Dividends
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Cashflow
Cashflow
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Automated Investment
Automated Investment
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Fractional Shares
Fractional Shares
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Tax advantages
Tax advantages
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Compound Returns
Compound Returns
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Investing Improves Wealth Management
Investing Improves Wealth Management
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Systematic Risk
Systematic Risk
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Specific (Unsystematic) Risk
Specific (Unsystematic) Risk
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Liquidity Risk
Liquidity Risk
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Market Risk
Market Risk
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Study Notes
What is Investing?
- Investing is a method of putting money into the capital market with the expectation of future gains
- When investing, how long you can wait for returns, desired rate of return, and how much to invest should be considered
- Risk tolerance and understanding of the markets will also affect investment decisions
Benefits of Investing
- Investing may reduce the burden of inflation because many investments grow faster than inflation
- Cash held in bank accounts loses buying power over time and leads to increased interest rates in savings accounts
- Investing helps with financial planning for the future
- Long-term investing can handle short-term market volatility
- Volatility refers to how much the price of a stock, derivative, or index is decreasing
Passive Income
- Investments like stocks pay out regular returns in the form of dividends to investors
- Dividends can be reinvested or used to boost current lifestyle
- Cash flow refers to the movement of money in and out of a company’s accounts
- Long-term average annual inflation is about 3% in America, while the US stock market has an average annual return of 11%
- Reasons and investments can change as personal circumstances change
Additional Reasons to Invest
- Increased income can lead to more investments into riskier assets
- Investments can be accessed earlier than intended, such as with an emergency fund
- Investment accounts can be set up with automated payments using risk management tools like "Stop-Loss" and "Take Profit"
- Portfolio returns are important to monitor, but the investment process itself can be automated
- Purchasing fractional shares allows investment with limited cash reserves
- Some government-supported schemes and products offer tax advantages, like Stocks and Shares ISA accounts
- Compounding is a key to successful investing
- Reinvesting interim returns may rapidly grow investments
- Investing makes you disciplined and conscious of your spending, improving wealth management
Investment Risks
- Investment outcomes aren't guaranteed and prices can fluctuate
- Market risk can impact financial market performance such as changes in interest rates
- Systematic risk can shock the entire market as a result of geopolitical changes
- Specific (unsystematic) risk - Impacts companies/sectors caused by weather or material shortages
- Liquidity risk refers to a company having insufficient funds for financial obligations
Final Thoughts
- Your income can either be saved or invested
- Investing is a variable influenced by external forces
- Careful planning allows investment, inflation control, creation of an extra income stream, and achievement of financial targets
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