Investing Basics and Key Concepts

Investing Basics

• Investing involves using long-term savings to generate financial returns.
• Investment risk refers to the probability of loss in the value of an investment.
• Diversification spreads risk across various investment types, reducing potential losses.

Key Financial Concepts

• Inflation signifies a general increase in prices, affecting purchasing power.
• The Rule of 72 helps estimate how quickly an investment will double by dividing 72 by the annual rate of return.
• A portfolio is a collection of different investments held by an individual or entity.

Types of Investments

• Temporary investments are evaluated annually, while permanent investments are held for five years or more.
• Bonds are debt securities issued by corporations or governments, obligating them to repay the face value.
• Stocks represent ownership shares in a corporation, fluctuating in value based on company performance.
• Mutual funds combine money from multiple investors to purchase a diverse range of securities.

Investment Vehicles

• Annuities provide regular payments, typically after retirement, as a form of income.
• Futures contracts involve agreeing to buy or sell an asset at a future date for a predetermined price.
• Options give investors the right, but not the obligation, to buy or sell a security at a specified price within a certain timeframe.

Investment Stages

• The Put-and-Take account is the initial stage of investing, emphasizing principal safety.
• Initial Investing involves conservative strategies with low risk.
• Systematic Investing includes regular, planned contributions to investments.
• Strategic Investing focuses on maximizing portfolio growth over five to ten years.
• Speculative Investing entails high-risk decisions aiming for significant returns.

Investment Risks

• Interest-rate risk arises when inflation increases faster than investment returns.
• Political risk pertains to government actions that may diminish investment value.
• Market risk is influenced by economic cycles, including periods of expansion and contraction.
• Nonmarket risk includes unpredictable factors unrelated to market trends.

Specific Investment Types

• Series EE Savings Bonds are discount bonds sold for half their maturity value.
• Series I Savings Bonds are bought at face value and offer inflation protection.
• U.S. Treasury Bills are short-term securities with maturities from a few days to one year.
• U.S. Treasury Notes have maturities of 2, 5, or 10 years, with a minimum investment of $100.
• U.S. Treasury Bonds are long-term securities with a maturity of 30 years and typically higher interest rates.

This quiz covers essential investing principles, including risk management, key financial concepts like inflation and portfolio diversification, and various types of investments such as stocks, bonds, and mutual funds. Test your knowledge of how to make informed financial decisions and manage your investments effectively.