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Unit 5 Fin. Lit.

QuestionAnswer
What is the primary time frame difference between investing and saving? Investing is for long-term goals (5+ years), while saving is for short-term needs.
How do the risk and reward compare between investing and saving? Investments carry higher risk but offer greater potential rewards. Savings are low-risk with lower returns.
What does "using money to make money" mean in investing? It refers to generating additional income or growth through investments like stocks, bonds, or other financial products.
What is Return on Investment (ROI) or Rate of Return (RoR)? ROI/RoR measures the profitability or growth of an investment relative to its cost.
What is an investment portfolio? A collection of financial investments, such as stocks, bonds, and other assets.
What is diversification in investing? Spreading investments across various assets to reduce risk.
Why is diversification important? It minimizes the impact of poor performance in any single investment.
What is compound interest? Earning interest on both the principal and previously earned interest.
How does compound interest work in investing? Reinvested earnings grow the investment faster over time.
What is the impact of compound interest over time? It leads to exponential growth; the longer the time, the more significant the effect.
What are the characteristics of stocks? Stocks represent ownership in a company.
What are the pros and cons of investing in stocks? pros: high potential returns, dividends Cons: high risk, volatility
How do stocks fit in a diversified portfolio? They are suitable for growth-oriented portfolios.
What are the characteristics of bonds? Bonds are loans to entities like governments or corporations.
What are the pros and cons of investing in bonds? Pros- stable income, lower risk Cons- lower returns compared to stocks
How do bonds fit in a diversified portfolio? Bonds provide stability and income generation.
What are the characteristics of mutual funds? Mutual funds are pools of investments managed by professionals.
What are the pros and cons of mutual funds? Pros- diversification, professionally managed Cons- fees, market risk
How do mutual funds fit in a diversified portfolio? They provide balanced diversification.
How can a financial professional help with investing? They can provide tailored advice on portfolio building, risk management, and investment planning.
What is inflation? Inflation is the rise in prices over time, which reduces purchasing power.
Why is inflation important to consider in investing? Investments should outpace inflation to maintain or grow wealth.
What are the main types of qualified retirement plans? 401(k) 403(b) IRA Roth IRA Pensions
What is a 401(k)? An employer-sponsored retirement plan where contributions are tax-deferred.
What is a 403(b)? A retirement plan similar to a 401(k), typically for employees of non-profits.
What is an IRA? An individual retirement account with tax-deferred contributions.
What is a Roth IRA? A retirement account where contributions are taxed upfront, but withdrawals are tax-free.
What is a pension? A retirement income plan provided by an employer.
How do employer contributions benefit retirement plans? Some employers match contributions, boosting savings.
When are contributions taxed in traditional accounts? Upon withdrawal.
When are contributions taxed in Roth accounts? Upon contribution.
What are the key goals of retirement planning? To secure income and maintain a desired lifestyle in retirement.
What factors should be considered when planning for retirement? Current income Average ROI Retirement age Projected costs Inflation Lifespan
What is dollar-cost averaging (DCA)? Investing a fixed amount regularly, regardless of market conditions, to reduce the impact of volatility.
Created by: lilahbehounek
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