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Investment
| Question | Answer |
|---|---|
| Compound interest | Interest earned on both your original investment and past interest. |
| Why is the concept of compound interest so important in investing? | Your money grows faster over time (exponential growth). |
| Who are the owners of a corporation? | Shareholders (people who own stock). |
| Why does a company sell stock? | To raise money for growth and operations. |
| What are the two primary ways to make money by investing in stock? | Stock price increases Dividends |
| What is the difference between buying a stock and buying a bond? | Stock = you have ownership in a company Bond = loan you give to a company/government. Safer/less riskier than stock. |
| What is a dividend? | Portion of a company's profit they give you for owning stock. |
| List three reasons why a stock price would increase. | Strong company performance High demand for stock Positive news --> increases investor confidence |
| List three reasons why a stock price would decrease. | Poor performance Bad news Low demand |
| Explain the concept of diversification in investing. | Spreading money across different investments to reduce risk. |
| Define liquidity. | How easily you can turn an investment into cash. |
| What is the purpose of a corporation’s Board of Directors? | Makes major decisions and oversees the company. |
| List three indexes people look at to give them an overview of how the stock market is doing. | S&P 500 Dow Jones Industrial Average NASDAQ Composite |
| Why would a company split its stock? | To make shares more affordable for investors. |
| Define PE ratio. | Price of stock compared to earnings. (Price of stock/earnings per share). Measure of how risky a stock earning could be. |
| Define Yield. | The income you earn from an investment, shown as a percentage of its price. |
| Explain what a mutual fund is. | Pool of money from many investors managed by professionals. Expense ratio in mutual funds is usually higher. Professionals chose stocks they think will be the best. |
| Explain what an index fund is. | Fund that tracks a market index (like S&P 500). Trying to match market rather than beat market. |
| Explain what an ETF is. | Fund traded like a stock that holds many investments. Can only invest during the day. |
| Explain the difference between actively and passively managed funds | Active = managed by people Passive = follows an index. Trying to match the market. |
| What is an expense ratio? | Fee you pay to own a fund. Percentage of value of your fund. Higher %= less profit over time. |
| List three things you should consider when choosing a mutual fund, index fund, or ETF. | Expense ratio The historical rate of return (how well does this fund do over time) What stocks the fund invests in. |
| Explain what a 401(K) is. | Employer-sponsored retirement savings plan. Allows employees to automatically deduct a portion of their paycheck to invest for retirement. Contributions are often invested in stocks, bonds, or mutual funds, with options on how taxation will work for you. |
| Explain what a Traditional IRA is. | You get a tax break now, but pay taxes when you take money out later. |
| Explain what a Roth IRA is. | You pay taxes now, but take the money out later tax-free. Up to 7k a year, no tax deduction, and all the money you take out= tax free. |
| Explain why a 529 plan is good for investing for a child’s education. | A savings account for education where your money grows tax-free and can be used for things like college tuition, books, and housing. Put money into an investment and take it out tax-free to pay for kid’s education in the future. |
| Explain why you should not sell your investments every time you see the stock market go down. | Prices usually recover over time; selling locks in losses. You don’t want to buy high and sell low. |
| When should you begin investing? (most important question) | You should start investing as early as possible, ideally after college. |
| Assume someone knows nothing about investing and wants to start to invest their money. Please give them five tips on what they should do. | Start early Invest regularly Diversify (Invest in risky stocks too). Think long-term Don’t panic if market dips. |
| Nvidia’s stock price has gone up 2600% in the past five years. Explain why you should not invest all of your money in Nvidia. | You shouldn't invest all your money into one stock incase the stock dips, because if it does you lose all your money. It's not diverse enough. |
| When do you actually make or lose money in the stock market? | You only make or lose money when you sell your investment. Until then, gains or losses are just “on paper” (not real yet). |
| What is the difference between putting your money in a bank and investing in the stock market? | Bank = safe, not making a profit Stocks = risky, higher growth potential |
| Warren Buffet, one of the most famous investors in the world, refused to invest in cryptocurrency. Why do you think he won’t invest in it when many people have become rich from investing in it? | Warren Buffett doesn’t invest in crypto because it doesn’t generate income, is highly unpredictable, and its value depends mostly on what others are willing to pay—not on actual business performance. |
| Most Americans do not have enough money to retire comfortably. Why is this true? | Not enough saving/investing early enough |
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