Investing Terms Flashcards
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Questions and Answers

What is a commodity?

An economic good or material, such as those produced in agriculture or mining.

What is diversification?

The practice of putting money into more than one kind of investment at a time.

What is liquidity?

The ability to quickly convert to cash.

What is retirement?

<p>The period of time after people end their working careers.</p> Signup and view all the answers

What is return?

<p>The money earned on an investment in a certain time period.</p> Signup and view all the answers

What is risk?

<p>The chance or possibility of loss.</p> Signup and view all the answers

How is a savings account most useful?

<p>For using money in the near future but not right away.</p> Signup and view all the answers

What does the information demonstrate about Alex's investments?

<p>He most likely would have benefited by diversifying.</p> Signup and view all the answers

Which best describes stocks and mutual funds?

<p>They are an investment in a company's progress and profits.</p> Signup and view all the answers

What does the information demonstrate about Gale's investments?

<p>If she had diversified her investments further, her profits would have been considerably larger.</p> Signup and view all the answers

Long-term investments are most commonly used to save money for ____________.

<p>retirement.</p> Signup and view all the answers

Which investment is best for someone who is likely to need cash soon?

<p>Savings account</p> Signup and view all the answers

What might convince an investor to buy stock or mutual funds?

<p>Belief that a small number of investors have bought the stock so far.</p> Signup and view all the answers

What is the definition of risk?

<p>Possibility of losing money on an investment.</p> Signup and view all the answers

What is the relationship between risk and return?

<p>A higher risk often means a higher return.</p> Signup and view all the answers

Someone who diversifies investments is more likely to....

<p>Offset their losses with gains.</p> Signup and view all the answers

Study Notes

Investment Concepts

  • Commodity: Economic goods or materials produced through agriculture or mining.
  • Diversification: Strategy of spreading investments across different types to reduce risk.
  • Liquidity: Measure of how quickly an asset can be converted into cash without losing value.
  • Retirement: Life stage following the end of one’s working career, requiring financial planning.
  • Return: Financial gain earned from an investment over a specific period, often expressed as a percentage.
  • Risk: Possibility of financial loss associated with an investment choice.

Savings and Investment Strategies

  • Savings accounts are ideal for clients needing to access funds relatively soon but not immediately.
  • Long-term investments primarily focus on building a retirement fund.
  • Choosing a savings account is recommended for individuals who may require cash in the near future.

Investment Evaluation

  • Diversifying investments, as shown through Alex's example, can lead to improved financial outcomes.
  • Stocks and mutual funds represent investments in a company's growth and profitability.
  • Gale's case illustrates that lacking diversification can significantly limit profit potential from investments.

Investor Behavior and Principles

  • Belief in the performance of stocks or mutual funds is essential for an investor's decision to purchase them—merely observing the actions of a small number of investors is insufficient.
  • In investing, there is generally a direct relationship between risk and return; increased risk often equates to greater potential returns.
  • Diversification helps investors mitigate losses by balancing out adverse performance with gains in other areas.

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Description

Test your knowledge of key investing concepts with these flashcards. Each card presents an essential term along with its definition, helping you grasp important investment vocabulary. Perfect for beginners or anyone looking to improve their financial literacy.

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