Bonds, 401(k)s, IRAs

All the following are true about bonds except…

Bonds are considered a riskier investment option than stocks

By the end of bonds maturity, the investor will have received…

The face value of the bond issued and interest payments

What is default risk?

The risk that the company or government is unable to pay back the investor

What will you do if you want to sell you bond before its maturity date, while interest rates are higher than when you bought the bond?

Sell it for a discounted price

Inverse Relationship

When interest rats go up, existing bond prices go down

When overall interest rates rise, the bond you already own becomes __ valuable to potential buyers, so it’s price will __

less, decrease

When overall interest rates fall, the bond you already own becomes __ valuable to potential buyers, so its price will __

more, increase

Generally, the longer the duration of the bond, the __ the chance the bond price may change due to changes in yield

higher

What are 3 recommended tips for when investing in bonds and stocks

• Hold for at least 5 years

• Buy multiple asset classes and multiple industries and companies

• Buy small amounts over longer periods of time

What is a bond?

An investment in which an investor lends money to a corporation or government with the expectation that it will be paid back with interest

One difference between a bond and bond funds is…

A bond fund can help you diversify your investment portfolio

What does not reduce risks of investing?

Hiring an investment manager who you think can beat the market

How does leaving your investment in the stock market alone for at least 5 years reduce risks

It keeps you from reacting to dips in the market and selling at too low of a price

Diversification

Purchasing shares of stock in a variety of companies and industries

What is not a common source of income to rely on in retirement?

Government Loan

What is true about the state of retirement in the U.S.

Many people may need to invest to build wealth and to support themselves retirement

What shouldn’t you consider when determining how much you’ll need in retirement

The current balance in your checking account

401(k)s and IRAs are both…

Investment accounts that you can open to help you invest for retirement

What is NOT an advantage of a 401(k)

You can invest you 401(k) into a wider variety of asset types than you can with an IRA

Which type of retirement account is an investment option for any young person

Traditional IRA

An IRA is…

A tax-advantaged investing tool set up by individuals for retirement savings

What are 2 characteristics of a traditional IRA?

• Any money you save into a traditional IRA is tax deductible

• You are taxed on the money in your traditional IRA when you withdraw it in retirement (it is taxed as ordinary income)

Characteristics of a Roth IRA

The capital gains, interest & growth of a Roth IRA can be withdrawn tax-free in retirement

Can you only have one IRA account?

No - you can have both traditional and Roth IRA accounts

A 401(k) plan is a…

Benefit that helps workers invest for retirement

How much more does money grow when it’s invested rather than deposited in a traditional savings account?

100 times more

How can you invest for retirement if your employer does not offer 401(k) plan?

Open an individual retirement account

What is one example of a “brokerage” service

Allowing customers to buy/sell stocks

How much of your income do excerpts recommend investing in a 401(k) account?

10%