Questions and Answers
What is a 401k?
A retirement savings plan offered by a corporation to its employees
What is an investment?
Account or arrangement in which one would put their money for long term growth
What does investing involve?
Process of setting money aside to increase wealth over time
What is an IRA?
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What does liquidity mean?
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What is a mutual fund?
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What is a portfolio?
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What does risk refer to in investing?
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What is a share?
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What does a 457 plan refer to?
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What is the Rule of 72?
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What is a 403(B) plan?
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What is diversification?
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What is a pre-tax contributor?
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What is an after-tax contributor?
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A single stock would be a good place to keep your emergency fund.
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Diversification lowers risk with investing.
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What are some examples of long term investments that are properly diversified?
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What is a good investment option?
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What is true about liquidity?
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Why should you never invest using borrowed money?
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Explain the risk-return ratio.
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Why do single stocks carry a high degree of risk compared to mutual funds?
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Is real estate a liquid investment?
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Study Notes
Retirement Plans and Savings
- A 401k is a retirement savings plan provided by corporations for employees.
- An IRA (Individual Retirement Account) allows tax-deferred savings for individuals with earned income.
Investment Concepts
- Investing involves setting aside money with the aim of increasing wealth over time.
- Mutual funds pool money from various investors to invest in a diverse range of companies.
- A portfolio is a compilation of all your investments, showcasing what assets you currently hold.
Financial Terms
- Liquidity refers to how quickly an asset can be converted to cash without losing value.
- Risk indicates the uncertainty regarding the return on an investment.
- Shares signify ownership in a company or investment fund.
Investment Strategies
- Diversification reduces risk by spreading investments across different asset types.
- The Rule of 72 is a formula used to estimate the time required for an investment to double in value.
Contribution Types
- A pre-tax contributor invests money before taxes are deducted, while an after-tax contributor invests money post-tax.
Investment Risk and Transparency
- A single stock is not a suitable option for holding an emergency fund due to its volatile nature.
- Long-term investments should be properly diversified, including various mutual funds such as growth, income, and aggressive growth funds.
Investment Tips
- It's advisable to avoid investing with borrowed money due to the need for repayment.
- Mutual funds are considered a safer investment option compared to single stocks, as they typically involve lower risk through diversification.
- Liquidity impacts return; generally, the less liquid an investment is, the lower its return potential.
Real Estate and Liquidity
- Real estate is classified as a non-liquid investment; it typically takes significant time to sell and convert to cash. Larger properties often reflect even lower liquidity.
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Description
Enhance your understanding of essential financial terms with these flashcards from Money in Review Chapter 8. This quiz covers key concepts such as 401k, investment strategies, and the importance of IRAs for retirement savings. Perfect for anyone looking to boost their financial literacy skills.