Investing vs Saving and Compound Interest
9 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

How does investing in the stock market differ from putting money in a savings account at a bank?

  • Investing is always a less risky option than saving
  • Investing is best for short-term situations like emergency funds; saving is best for the long-term
  • Investing typically earns between 1-2% while saving generally earns between 5-7%
  • Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies (correct)

    • Which of the following statements is TRUE about compound interest?

  • Compound interest means you have a fund manager who is compounding your returns without charging a fee
  • Compound interest directly impacts how much you will be charged in fees
  • Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned (correct)
  • Compound interest is difficult to calculate, so those who use it earn higher profits for their efforts

    • What kinds of behaviors can PREVENT people from making smart investing decisions?

  • Buying stocks when prices are low and selling them when they’re high
  • Investing in a diversified portfolio instead of trying to beat the market
  • Exiting the market because that’s what everyone else is doing (correct)
  • Staying calm when the market is experiencing a downturn

    • Daniel has saved $2,000 in a savings account that earns 0.5% interest annually. What will most likely happen to the purchasing power of his savings over time?

    <p>His purchasing power will DECREASE because the interest rate is lower than the historical rate of inflation</p> Signup and view all the answers

    Which of the following accurately describes a difference between an individual bond compared to a bond fund?

    <p>A bond is considered to be a less diversified investment than a bond fund</p> Signup and view all the answers

    Which of the statements below BEST describes the relationship between risk and return when considering an investment?

    <p>Investors expect to earn a higher return when they invest in a high risk asset</p> Signup and view all the answers

    Why is diversification a recommended investment strategy?

    <p>Diversifying your portfolio helps reduce risk</p> Signup and view all the answers

    Which of the following is a characteristic of dollar-cost averaging?

    <p>Dollar-cost averaging is a way to decrease your risk</p> Signup and view all the answers

    How is a bond different from a stock?

    <p>A bond is a loan you give to an organization while a stock is partial ownership in a company</p> Signup and view all the answers

    Study Notes

    Investing vs Saving

    • Investing in the stock market allows you to accumulate wealth for retirement
    • Saving is best for short-term purchases or emergencies
    • Saving typically earns between 1-2% interest annually
    • Investing can earn a higher return than saving, but carries more risk

    Compound Interest

    • Compound interest allows you to earn interest on both the principal amount and the interest you have already earned
    • This means your money grows faster over time

    Investment Mistakes

    • Exiting the market because others are doing so can lead to poor investment decisions
    • Staying calm during market downturns is important for sound investment

    Purchasing Power

    • Inflation can decrease the purchasing power of your savings
    • Investing in a diversified portfolio can help mitigate the impact of inflation
    • A savings account with a low interest rate may not keep up with inflation

    Bonds vs Bond Funds

    • Bonds are a loan you give to an organization
    • Bond funds are a diversified investment that invests in a variety of bonds
    • Bond funds are less risky than individual bonds because they are diversified

    Risk and Return

    • Investors typically expect to earn a higher return for investing in high-risk assets
    • Investors expect to earn a lower return for investing in low-risk assets

    Diversification

    • Diversification helps reduce risk by spreading your investments across different assets
    • A diversified portfolio can help mitigate losses if one investment performs poorly

    Dollar-Cost Averaging

    • Dollar-cost averaging is an investment strategy where you invest a set amount of money at regular intervals
    • This strategy can help reduce risk by averaging out the price you pay for your investments

    Stocks vs Bonds

    • Stocks represent partial ownership in a company
    • Bonds represent a loan you give to an organization
    • Stocks are typically considered riskier than bonds, but have the potential for higher returns

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    Investing Unit Test PDF

    Description

    Explore the key differences between investing and saving, and learn about the importance of compound interest in growing wealth. Understand common investment mistakes and the impact of inflation on purchasing power. This quiz will equip you with essential financial knowledge for better decision-making.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser