Podcast
Questions and Answers
When would it be a good idea to put your money in a savings account instead of investing it?
When would it be a good idea to put your money in a savings account instead of investing it?
When you're looking to maintain the value of your money with a little bit of growth.
When would it be a good idea to invest your money instead of putting it in a savings account?
When would it be a good idea to invest your money instead of putting it in a savings account?
When you won't need the money for a long time.
Which of the following statements about investing is FALSE?
Which of the following statements about investing is FALSE?
Why might an investor want to invest in the stock market?
Why might an investor want to invest in the stock market?
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People invest in the stock market because:
People invest in the stock market because:
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Which of the following is NOT a reason why people invest in the stock market?
Which of the following is NOT a reason why people invest in the stock market?
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Historically, long-term returns of the stock market have been negative.
Historically, long-term returns of the stock market have been negative.
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In the past 90 years, the stock market has had positive returns, averaging 10% annually.
In the past 90 years, the stock market has had positive returns, averaging 10% annually.
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A ______ is a fixed income investment that represents a loan from an investor to a borrower.
A ______ is a fixed income investment that represents a loan from an investor to a borrower.
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A _____ is a short-term investment that is considered highly liquid.
A _____ is a short-term investment that is considered highly liquid.
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A _____ is a share of ownership in a company.
A _____ is a share of ownership in a company.
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Which of the following statements about stocks is FALSE?
Which of the following statements about stocks is FALSE?
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Which of the following statements about bonds is TRUE?
Which of the following statements about bonds is TRUE?
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Which of the following statements about cash equivalents is FALSE?
Which of the following statements about cash equivalents is FALSE?
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Which of the following is NOT a consideration when determining your asset allocation?
Which of the following is NOT a consideration when determining your asset allocation?
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How comfortable you feel taking the risk of losing your money refers to:
How comfortable you feel taking the risk of losing your money refers to:
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How long you plan to keep your investments in your portfolio refers to:
How long you plan to keep your investments in your portfolio refers to:
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Miguel is 25 years old, has low financial health, a long time horizon and a high risk tolerance. Which asset allocation would you recommend?
Miguel is 25 years old, has low financial health, a long time horizon and a high risk tolerance. Which asset allocation would you recommend?
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Yena is 38 years old, has average financial health, an intermediate time horizon, and an average risk tolerance. Which asset allocation would you recommend?
Yena is 38 years old, has average financial health, an intermediate time horizon, and an average risk tolerance. Which asset allocation would you recommend?
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Jason is 58 years old, has strong financial health, a short time horizon, and an average risk tolerance. Which asset allocation would you recommend?
Jason is 58 years old, has strong financial health, a short time horizon, and an average risk tolerance. Which asset allocation would you recommend?
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What is diversification?
What is diversification?
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___________ is an investment strategy that mixes a wide variety of investments from different categories within a portfolio.
___________ is an investment strategy that mixes a wide variety of investments from different categories within a portfolio.
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A well diversified portfolio needs about 3 to 5 stocks from different categories.
A well diversified portfolio needs about 3 to 5 stocks from different categories.
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You can diversify your portfolio by investing all your money in one industry.
You can diversify your portfolio by investing all your money in one industry.
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A well-diversified portfolio needs about 20-25 stocks from different categories.
A well-diversified portfolio needs about 20-25 stocks from different categories.
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How is a mutual fund different than an index fund?
How is a mutual fund different than an index fund?
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How is an index fund different than an exchange-traded fund?
How is an index fund different than an exchange-traded fund?
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Study Notes
Savings vs. Investment
- Savings accounts are ideal for maintaining value with minimal growth, suitable for short-term needs.
- Investing is preferable when the money can be set aside for a long period, allowing for potentially higher returns.
Misconceptions about Investing
- A common misconception is that investing aims solely at preserving money's value with slight growth.
- Investing is not a guaranteed way to make money; it involves risks.
Stock Market Fundamentals
- Investing in the stock market allows individuals to share in company profits and typically offers higher returns than savings accounts.
- The time value of money emphasizes that current funds hold greater value due to their growth potential.
Historical Stock Market Performance
- Long-term stock market returns have been positive, averaging 10% annually over the past 90 years.
Financial Instruments
- Bonds represent fixed-income investments where investors lend money to borrowers, receiving the principal plus interest upon maturity.
- Cash equivalents are highly liquid, short-term investments, while stocks represent ownership shares in companies.
Bonds and Cash Equivalents
- Bonds return the initial loan amount along with interest upon maturity.
- Misconceptions about cash equivalents include their perceived riskiness; they are considered low risk.
Asset Allocation Considerations
- Important factors for asset allocation include risk tolerance (the ability to endure losses) and time horizon (the duration for holding investments).
- Portfolio diversification is crucial, but it shouldn't confuse with individual asset allocations.
Recommended Asset Allocations
- For a 25-year-old with high risk tolerance and a long time horizon, an allocation of 85% stocks to 15% bonds/cash equivalents is advisable.
- A 38-year-old with average financial health and risk tolerance may benefit from a 65% stock to 35% bonds/cash equivalents ratio.
- A 58-year-old with strong financial health and a short time horizon should consider a 45% stock to 55% bonds/cash equivalents allocation.
Diversification Strategy
- Diversification involves mixing various investments from different categories within a portfolio, critical for risk management.
- A well-diversified portfolio typically requires 20-25 stocks across different sectors, contrary to the belief that 3-5 stocks suffice.
Fund Management Styles
- Mutual funds are actively managed by professionals, while index funds follow a passive management strategy.
- Exchange-traded funds (ETFs) are traded directly on stock exchanges, differing from index funds which do not trade in this manner.
Entrepreneurial Definition
- An entrepreneur is an individual who initiates a new business and assumes all associated risks and rewards.
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Description
This flashcard set focuses on financial decision-making, particularly the choice between savings accounts and investments. It covers scenarios where each option is most beneficial, enhancing understanding of personal finance concepts.
