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Questions and Answers
Define what is meant by 'saving' in terms of income.
Define what is meant by 'saving' in terms of income.
Saving is the portion of income that is not spent on current expenditures.
What is the primary goal of 'investment'?
What is the primary goal of 'investment'?
The primary goal of investment is to generate income.
Saving entails no risk, while investment always involves some level of risk.
Saving entails no risk, while investment always involves some level of risk.
True
What are the three main categories of investment objectives?
What are the three main categories of investment objectives?
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Which of these options is NOT a type of investment?
Which of these options is NOT a type of investment?
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What does a stock represent?
What does a stock represent?
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Preferred stocks typically offer voting rights, but no fixed dividends.
Preferred stocks typically offer voting rights, but no fixed dividends.
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What is a bond, in simple terms?
What is a bond, in simple terms?
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Which type of bond is sold at a discount and does not pay regular interest?
Which type of bond is sold at a discount and does not pay regular interest?
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Describe what a 'mutual fund' is and its purpose.
Describe what a 'mutual fund' is and its purpose.
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What are the key activities involved in real estate investing?
What are the key activities involved in real estate investing?
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Residential real estate refers to properties used for business purposes, such as offices or shops.
Residential real estate refers to properties used for business purposes, such as offices or shops.
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What are commodities, and what are some examples?
What are commodities, and what are some examples?
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Which of these options is NOT a type of commodity?
Which of these options is NOT a type of commodity?
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What is cryptocurrency, and how does it function?
What is cryptocurrency, and how does it function?
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Litecoin is an example of a cryptocurrency.
Litecoin is an example of a cryptocurrency.
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What is the first step in creating an investment plan?
What is the first step in creating an investment plan?
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What is the key purpose of determining investment goals?
What is the key purpose of determining investment goals?
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Risk tolerance refers to an investor's willingness to accept potential losses in exchange for the possibility of higher returns.
Risk tolerance refers to an investor's willingness to accept potential losses in exchange for the possibility of higher returns.
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Why is diversification important in investment planning?
Why is diversification important in investment planning?
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What is the role of a financial advisor in investment planning?
What is the role of a financial advisor in investment planning?
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Study Notes
Saving & Investment - G12 Business Studies
- Learning Objectives: Define saving and investment, evaluate saving options to meet short and long-term goals, evaluate investment options to meet short and long-term goals.
What is Saving?
- Saving is the portion of income not spent on current expenses.
- It's the money set aside for future use.
What is Investment?
- Investment is acquiring assets to generate income.
- The goal isn't immediate consumption but future wealth creation.
Investing vs. Saving
- Saving involves accumulating money with no risk.
- Investing leverages money for potential future gain; it entails some risk.
- Both aim for future capital, but their growth methods differ significantly.
- Saving for a down payment illustrates this difference. Many advisors recommend parking cash in safer investments like savings accounts when saving for a large purchase.
Investing vs. Saving (Continued)
- Savings accounts usually have federal insurance coverage on balances up to $250,000.
- This kind of financial guarantee is often absent in investment accounts.
Types of Savings
- Savings Account
- Money Market Account
- Certificate of Deposit
Types of Savings (Details)
- Savings Account: Earns interest and offers quick access to funds.
- Money Market Account: Earns interest and may provide check-writing and ATM privileges.
- Certificate of Deposit: Typically has the highest interest rate among savings but restricts access to funds.
Types of Investment
- Stocks
- Bonds
- Mutual Funds
- Real Estate
- Commodities (e.g., gold)
- Cryptocurrency
Stocks
- Stocks represent ownership in a company, including claims on earnings and assets.
- Stockholders are partial owners. Stock value rises or falls with the company's value.
- Types include common stocks (allowing voting and dividends) and preferred stocks (fixed dividends but no voting).
Bonds
- Bonds are issued by governments and corporations to raise money.
- Bond buyers essentially loan money, and the issuer agrees to repay the face value plus periodic interest payments at a future date.
- Bonds are often considered a lower-risk investment compared to stocks, but they often yield lower returns.
Types of Bonds
- Government bonds: Issued by national governments (e.g., Canada ,US).
- Corporate bonds: Issued by public or private companies.
- Municipal bonds: Issued by local or state governments to fund projects.
- Zero-coupon bonds: Sold at a discount and don't pay regular interest, instead appreciating in value over time.
Mutual Funds
- Mutual funds are pools of investor money managed by a professional fund manager.
- Investors share investment goals. Funds invest in equities, bonds, money market instruments, etc.
Real Estate
- Real estate investment involves purchasing, managing, and selling or renting real estate for profit.
- Actively involved investors are entrepreneurs or real estate investors.
Real Estate (Types)
- Residential: Houses, apartments, condos
- Commercial: Offices, shops, hotels, factories
Commodities
- Commodity funds invest in raw materials (e.g., oil, wheat) and/or precious metals (e.g., gold, silver).
Cryptocurrency
- Cryptocurrency is a digital currency (e.g. Bitcoin).
- It serves as an alternative payment method or speculative investment.
How to Make an Investment Plan
- Step 1: Evaluate your current financial situation (how much you can afford to invest).
- Step 2: Determine your financial investment goals (objectives, timeline).
- Step 3: Identify your risk tolerance (how much risk you're willing to take).
- Step 4: Make your investment decisions (diversify portfolio, consider advice).
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Description
This quiz covers the key concepts of saving and investment, distinguishing between the two, and their importance in achieving financial goals. You'll explore various saving options for short-term and long-term objectives, as well as investment strategies to build wealth over time. Test your understanding of these essential financial principles.
