Personal Finance Investment/Retirement Quiz

What does it mean to own an individual stock?

it means you own a “share” or part of a company

What can you do if you own an individual stock?

You can vote on major company issues, such as electing the board of directors and the right to receive dividends (money) if the board declares them

What are two ways you can make money from investing in the stock market?

if the company has a good earnings report, usually the stock will go up and you can make money

You can make money if the company issues dividends

What risks are you taking when you invest your money in the stock market?

it’s a gamble, you can’t predict whether the market will go up or down

Why do shares go up and down?

based on how stockholders (market) thinks company is doing

What is the stock exchange?

a centralized, regulated marketplace where buyers and sellers trade shares of publicly held companies, bonds, and other financial instruments

It acts as a platform for companies to raise capital by issuing shares (primary market) and for investors to buy and sell existing shares (secondary market)

If the price of a share grows, how does buying shares in a company benefit an investor?

an investor will be able to sell these shares for a higher price and make a profit

How does selling shares on the stock exchange benefit companies?

they receive funds to further expand their company

As an investor, what is the risk involved when investing in companies on the stock exchange?

the price of stocks can decrease. For example, when the company receives bad press

What is the abbreviated name for a company on stocks?

the ticker symbol, a 1-5 letter code

What is a bond?

a loan given to a company/government by an investor. The investor makes interest on the loan paid at regular intervals

What is the rate the investor makes on a bond?

the coupon rate

Why is it a good idea to invest in both bonds and stocks?

diversifies your portfolio. Mixes high risk with lower risk

What is the risk you are taking when investing in bonds?

you can still lose money if the issuer of bond fails to pay the principal (default risk)

How can you minimize the risk of investing in bonds?

by diversifying your portfolio

What is a mutual fund?

type of fund that pools the money of a lot of people to buy a diverse variety of investments

Who manages mutual funds?

fund managers

What does a mutual fund allow you to do?

diversify your portfolio and make your investing less risky

What does diversified mean?

it means you have a lot of different types of investments

How is investing in a fund a more diversified approach than investing in a single stock or bond?

own a “part” of the fund. Diversifying makes it less risky because you have a mix of risk

Dow Jones Industrial Average (DOW/DJIA)

oldest/most well-known stock money index. Tracks 30 large, publicly owned companies in the US. They are established, well-known, and financially secure, called “blue chip” stocks

What are examples of DOW/DJIA companies?

Apple, Home Depot, Amazon

Nasdaq Composite Index (Nasdaq)

heavily associated with technology sector and provider a view into growth/innovation stocks

What are examples of NASDAQ companies?

Google, Meta, Oracle

Standards and Poors 500 (S & P 500)

a widely considered best single indicator of overall health of American stock market. Tracks performance of 500 largest publicly traded companies in the US

What are fees associated with shares for?

sales charges/commissions you might pay when building/selling shares

Front End Load

pay when you purchase the investment. Deducted directly from your initial investment (less money actually put to work in intended way)

Back End Load

when you sell/redeem your shares. Fees often decrease the longer you hold the investment, eventually reaching 0 if you keep the fund for a certain number of years

No Load

do not charge sales commission for buying/selling shares. 100% of money invested on day one

How do you use real estate to invest?

buy houses/commercial properties (office buildings and restaurants)

Why is investing in real estate risky?

because real estate can increase/decrease in value. Have to sell property before you can earn money, unless you get a loan/line of credit based on value of the property (home equity loan/line of credit), but you have to pay it back

Why is investing in real estate non liquid?

because it’s not easy to get money out of it

How much might we need to retire?

1 million

What is an index fund?

a type of mutual fund

What does saving for retirement at a younger age allow you to take advantage of?

compound interest

What age should you start saving for retirement?

as young as possible (around 25 is a good benchmark)

What is the goal of retirement savings?

to live comfortably and not have to work when you’re older, and be able to enjoy life

IRA

a retirement savings account that anyone with earned income can open at a brokerage or bank. Owned and managed by you, not your job

What happens if you take money out of an IRA early?

there is a 10% penalty

Roth IRA

you pay taxes when you buy it, never taxed on income you make. Tax rate will be lower when you open it than at retirement, making it better for young people. Can contribute to it from your bank account. 10% penalty if you withdraw before age 59/before account open for 5 years

Traditional IRA

better for people in the prime of their earning years—tax rate will be lower when you are older, and you take out the money and pay taxes on it. 10% penalty when you take it out early (with exceptions)

What is a 401k?

a retirement plan sponsored by an employer, typically offered by for-profit companies. Owned/managed by your job. Contributions come from your paycheck. You pay taxes when you sell it. Employer might offer matching

What is matching by an employer?

if you put a certain amount of your income into your 401k, the employer will put the same amount in. Only offer by certain companies and only after you’ve been at the company for a while (vesting)

What happens to the 401k when an employee quits their job?

if you change jobs, you can keep the money there or transfer to your new job or a new account

Who can pay into a traditional IRA?

only your job

Who can pay into Roth IRA?

your job and you from your bank account

Who can pay into a 401k?

comes from your paycheck and your employer

At what age can people retire?

67

Pension

a monthly payment from a former employer (or labor union) after you’re retired. Not all employer offer it

Who manages a pension?

your job, you don’t have a say in it

What is the pension benefit based on?

funded by employers through their contributions and investments made by the pension fund and contributions taken from your paycheck. Also the number of years you are vested and how much money the employer puts into it

What are the pension funds tut of when paid to the retirees?

pension fund that the employer manages

What jobs have pensions?

police officers, firefighters, congressmen, teachers

Can a person leaving a job take their pensions with them?

no, you lose the pension but you can get back how much money you put into it. You can only get the pension when you are “vested” after a specific age or number of years worked

How can you get money out of a pension?

can only access money once you reach a certain age

What kinds of accounts are affected by how long you work with a given company?

pension and traditional 401k (only matching)

What types of accounts don’t change when you switch jobs?

traditional IRA and Roth IRA

What types of retirement accounts do you pay taxes first with?

Roth IRA

What types of retirement accounts do you pay taxes with after?

Pension, traditional 401k, traditional IRA

What kinds of retirement accounts do your company contribute toward?

pension and 401k

What kinds of retirement accounts do you contribute toward with your paycheck?

pension and 401k

What kinds of retirement accounts do you contribute to from your bank account?

traditional IRA and Roth IRA

What type of retirement accounts do your employer have some say in?

pension and 401k

What type of retirement accounts do you have some choice in?

401k (maybe), traditional IRA, roth IRA

What types of retirement account totals depend on the risk level of the investments you choose?

401k (maybe), traditional IRA, Roth IRA

What types of retirement account promise you a certain amount each month, which may increase with inflation?

pension