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Questions and Answers
What is a key benefit of investing in bonds?
What is a key benefit of investing in bonds?
Which of the following is a risk associated with bonds?
Which of the following is a risk associated with bonds?
What is a defining characteristic of collectibles?
What is a defining characteristic of collectibles?
How are Non-Fungible Tokens (NFTs) defined?
How are Non-Fungible Tokens (NFTs) defined?
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Which of the following is NOT considered a risk of investing in bonds?
Which of the following is NOT considered a risk of investing in bonds?
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Cryptocurrency relies on which technology for security?
Cryptocurrency relies on which technology for security?
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What differentiates cryptocurrencies from national currencies?
What differentiates cryptocurrencies from national currencies?
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Which of the following is NOT an example of a commodity?
Which of the following is NOT an example of a commodity?
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What does net worth measure?
What does net worth measure?
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Which of the following is NOT a common way to build wealth?
Which of the following is NOT a common way to build wealth?
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Why is it important not to keep all money in savings?
Why is it important not to keep all money in savings?
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Which principle is emphasized for managing wealth effectively?
Which principle is emphasized for managing wealth effectively?
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What is the average inflation rate over the past 30 years?
What is the average inflation rate over the past 30 years?
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What is a primary reason for someone wanting to be wealthy?
What is a primary reason for someone wanting to be wealthy?
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Which of the following reflects a misconception about net worth?
Which of the following reflects a misconception about net worth?
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What should individuals avoid in order to manage their wealth wisely?
What should individuals avoid in order to manage their wealth wisely?
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What is the primary purpose of investing?
What is the primary purpose of investing?
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Which of the following best describes a share?
Which of the following best describes a share?
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What two methods can investors use to make money from shares?
What two methods can investors use to make money from shares?
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What is the Australian Securities Exchange (ASX) primarily used for?
What is the Australian Securities Exchange (ASX) primarily used for?
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How does demand affect share prices in the market?
How does demand affect share prices in the market?
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What is a dividend?
What is a dividend?
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What term describes the increase in value of an asset over time?
What term describes the increase in value of an asset over time?
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Which factor is NOT a common reason for investing?
Which factor is NOT a common reason for investing?
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What is a potential disadvantage of investing in property?
What is a potential disadvantage of investing in property?
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Which of the following is NOT listed as an ongoing cost of investment properties?
Which of the following is NOT listed as an ongoing cost of investment properties?
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What were the average gross returns from residential property in Australia from 1995-2015?
What were the average gross returns from residential property in Australia from 1995-2015?
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Which factor is considered most impactful on property prices?
Which factor is considered most impactful on property prices?
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What should you NOT rely on to cover mortgage payments when investing in property?
What should you NOT rely on to cover mortgage payments when investing in property?
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What financial instrument allows governments and companies to borrow from investors?
What financial instrument allows governments and companies to borrow from investors?
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Which of the following represents a factor that does NOT affect a property's value?
Which of the following represents a factor that does NOT affect a property's value?
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Which cost is associated with managing investment properties?
Which cost is associated with managing investment properties?
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What is capital gain in real estate?
What is capital gain in real estate?
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Which of the following is NOT a common way to invest directly in property?
Which of the following is NOT a common way to invest directly in property?
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What does net rental yield represent?
What does net rental yield represent?
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If a property is bought for $300,000 and sold for $400,000, what is the capital gain?
If a property is bought for $300,000 and sold for $400,000, what is the capital gain?
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What are mutual funds and ETFs primarily designed to provide?
What are mutual funds and ETFs primarily designed to provide?
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What risk is typically associated with mutual funds and ETFs?
What risk is typically associated with mutual funds and ETFs?
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Which method measures the income received from an investment property as a percentage of its value?
Which method measures the income received from an investment property as a percentage of its value?
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Which of the following describes property in general?
Which of the following describes property in general?
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Study Notes
Unit 2: Investing and Wealth Creation
- Unit overview covers understanding wealth and investing
- Common methods to build wealth include shares, property, bonds, commodities, collectors items, cryptocurrencies, and non-fungible tokens (NFTs)
- Assessment: Stock pitch
What is Wealth?
- The value of all resources and possessions a person owns
- A relative measure, comparing wealth levels between people
Why be Wealthy?
- To have a good life and standard of living
- To afford better things
- To support oneself, family, and community as one ages
- To generate passive income (particularly later in life)
How to Measure Wealth?
- The most common way is to calculate net worth
- Formula: Assets - Liabilities = Net Worth
- Assets: Examples include owned property
- Liabilities: Examples include car loans
- Net worth is a snapshot in time, changing as a person ages, earns, and buys/sells items
The Simple Rules of Wealth
- Earn more money than you spend
- Avoid bad debt
- Invest savings wisely
Inflation
- The general increase in prices of goods/services in an economy
- Over the past 30 years, the average inflation rate has been approximately 2-3% per year.
- Example: Items costing $20 in 2016 could cost $20.50 in 2017, and $30 could cost $31.41.
- It's not recommended to keep money in a savings account without investing, since the amount will lose purchasing power
Inflation Exercise
- Use an online inflation calculator
- Choose a time frame (1966 onwards) and a "basket" of goods
- Note down the total cost change and annual average inflation rate
- Do this twice
What is Investing?
- Purchasing a financial product/item of value, hoping its value increases over time, creating a profit
What is the Purpose of Investing?
- Grow your money and wealth to improve financial well-being
- Grow money faster than inflation and create real wealth
- Earn passive income later in life
- Take advantage of compound interest
Shares
- A share represents a unit of ownership in a company
- A share owner (shareholder) becomes a partial owner of the business
- Also called stock, equity, or security
- People buy shares in public companies, traded on a stock exchange/share market
- Public companies' names usually end with 'Ltd' (e.g., Nike Ltd)
Share Market
- There are over 2000 publicly listed companies in Australia
- Their shares are traded through the Australian Securities Exchange (ASX)
- ASX is a large market where buyers and sellers can trade shares
Share Price
- Represents what the market believes the share (and company) is worth
- Prices change dramatically based on investor perceptions of company performance
- Prices fluctuate daily based on supply and demand
Dividends
- As a part owner, investors receive a percentage of company profits
- Usually paid once or twice a year, depending on ownership
Capital Gains
- Profit from selling shares/property for more than the purchase price
- Example: Buying property for $500,000 and selling it for $650,000
Mutual Funds and Exchange-Traded Funds (ETFs)
- Pools of money invested by an investment company in shares, bonds, or other securities
- Benefits: diversification, professional management, affordability
- Risks: generally the same as the underlying investments
Property
- Any item a person/business legally owns, often refers to real estate (land, buildings, houses)
- Often considered assets because of current or potential monetary value
- Can be invested in directly (e.g., buying a home, rental property) or indirectly (e.g. real estate investment trust)
Investing in Property
- Common ways include homeownership, rental properties, and house flipping
Growing Wealth Using Property
- Two main ways people make money from property investment:
- Rental yield: Income from rent or leases
- Capital gains: Appreciation of real estate value
Rental Yield
- Annual income from a tenant in your investment property, measured as a percentage of the property's value
- Gross rental yield: Total rent
- Net rental yield: Income after costs (management, maintenance, rates, water, insurance)
Capital Gains
- Difference between selling price and purchase price of a property (profit)
- Excludes expenses
Collectors Items
- Relatively rare items with potential to increase value (e.g., art, sports memorabilia)
Non-Fungible Tokens (NFTs)
- Unique digital items, not replaceable
- Recorded on the Ethereum blockchain
- Can be bought/sold like commodities
- Ownership is an important part of NFTs
Cryptocurrency
- Digital currency enabling direct payments
- Relies on cryptography and technology like blockchain for security
- Value is based on market demand, not on legal tender
Bonds
- Instruments used by governments/companies to raise money through borrowing from investors
- Similar to mini-loans with fixed interest over a specific time
- Bond types: government, corporate, municipal, bond funds, and others
Bonds (Benefits/Risks)
- Benefits: Receive regular interest payments, offer a safe and predictable income stream
- Risks: Generally low returns compared to other investments, do not typically outperform inflation, risk of issuer bankruptcy, although unlikely
Comparing Bonds and Stocks
-
Bonds: Loans to companies/governments
- More stable short-term
- Tend to underperform long-term
- Earn money through interest
-
Stocks: Ownership of a business
- More volatile short-term
- Better performers long-term
- Earn money through dividends
Commodities
- Basic good in commerce, interchangeable with other goods of the same type
- Examples include Energy (crude oil, gasoline, heating oil, natural gas), Grains and oilseeds (corn, soybeans, soybean meal, soybean oil, wheat), Livestock/meats (feeder cattle, live cattle, lean hogs), Metals (copper, gold, palladium, platinum, silver), "Softs" (cocoa, coffee, cotton, orange juice, sugar), other (lumber, dairy products)
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Description
Explore the fundamentals of wealth and investing in this quiz covering various methods of wealth accumulation, including stocks, real estate, and cryptocurrencies. Understand the importance of measuring net worth and the simple rules that govern financial health. Test your knowledge to enhance your investing skills and wealth-building strategies.
