Personal finance investing

Active Trading

Buying and selling investments - typically individual stocks and funds - within a short time frame (from seconds/minutes to days/weeks) in hopes of making quick profits from the small price changes. Research shows that 95% of active traders lose money

Asset Allocation

Dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash

Bond

A security in which the investor loans money to a company or government, which then pays regular interest to the bondholder and returns the principal on the bond's maturity

Compound Return

The growth of an investment where earnings, such as dividends or interest, are reinvested to generate additional earnings over time

Coupon

The annual interest payment on a bond, usually expressed as a percentage of its face value

Diversification

The practice of investing in a large variety of stocks, bonds, and/or funds as a way to reduce your overall risk

Dividend

Money from the profits of a company that is paid out to its shareholders, typically on a quarterly basis

Dollar Cost Averaging

The practice of putting a fixed amount into an investment over a period of time, regardless of the price of that investment

Exchange-Traded Fund (ETF)

A collection of stocks and/or bonds that are traded on securities exchanges. Unlike mutual funds, they can be traded throughout the day like an individual stock. 

Index Fund

A low-fee portfolio of stocks chosen to track or mimic a stock market index, thereby removing the human element of investing because no one is choosing the individual stocks

Individual Retirement

An investing tool for individuals to earmark funds specifically for their retirement

Account (IRA)

An Individual Retirement Arrangement (IRA) is a tax-advantaged personal savings account designed to help individuals save for retirement.

Inflation

The rate at which the price of goods increases and consumer purchasing power decreases over time

Investing

The process of setting money aside to increase wealth over time for long-term financial goals such as retirement

Investment

An asset or item that is acquired with the goal of making a profit 

Mutual Fund

A collection of stocks and/or bonds combined into one fund which will be traded as a unit, typically chosen and actively managed by an "expert" in exchange for a fee from each investor

Passive Investing

A long-term strategy for building wealth by buying investments - typically index funds - and holding them for many years to minimize trading and costs. Research shows that 85-95% of passively managed funds perform better than actively managed funds over the long run.

Pension

A retirement account, offered in some job sectors or companies, that an employer maintains to give an employee a fixed payout at retirement

Portfolio

A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including mutual funds and ETFs

Purchasing Power

The number of goods and services that money can buy. It can weaken in time due to inflation.

Rate of Return

The ratio of money gained or lost on an investment relative to the amount of money invested; also known as return on investment (ROI)

Risk

Degree of uncertainty on how likely the investor is to make money on an investment

Roth IRA

An individual retirement account that allows a person to set aside after-tax income up to a specified amount each year

S&P 500

An index of 500 large cap companies chosen based on their size, industry, and other factors, used to represent the entire market

Shareholder

A shareholder (or stockholder) is an individual, company, or institution that owns at least one share of a corporation’s stock, making them a partial owner.

Social Security

A federal program that provides monthly benefits to millions of Americans, including retirees, military families, surviving families of deceased workers, and disabled individuals

Stock

A share of the value of a company, which can be bought, sold, or traded as an investment and which gives the investor small partial ownership of the company

Target Date Fund (TDF)

A type of investment fund that rebalances its asset mix over time based on a projected retirement year

Traditional IRA

An individual retirement account that allows a person to set aside pre-tax income up to a specified amount each year

Traditional 401(k) Plan

A retirement savings plan, sponsored through your employer who will often match your contributions, that allows an individual to save for retirement and have the savings grow while deferring taxes until funds are withdrawn

As an investor, when you purchase a(n) __________________________ from a company, you are lending the company money which it promises to repay with interest by a certain date. 

bond

As ___________________________ increases, the purchasing power of the dollar decreases, which impacts how much you can buy in goods and services. 

inflation

Investors can purchase shares in an actively managed ___________________________, which pools money from many people to buy a diversified portfolio of stocks, bonds, or other securities.

mutual fund

When you buy a company’s _________________________, you become a part-owner, sharing in its profits and losses.

stock

A retirement savings option that automatically adjusts the asset mix as your retirement date approaches is known as a(n) _________________________

Target date Fund

Mike uses the strategy of ___________________________ to minimize the impact of the market’s ups and downs. He invests the same amount of money at regular intervals over time.

Dollar cost averaging

The interest calculated on both the money you’ve invested and the accumulated interest from previous periods is known as  ___________________________

compound interest

To reduce risk in her investment portfolio, Emily uses the strategy of ___________________________, making sure she invests in a variety of assets like stocks,

diversification

In a(n) ___________________________, employees can contribute a portion of their salary on a pre-tax basis, which is then invested for retirement savings.

401K plan

When a company makes a profit, it may choose to pay part of those profits back to its shareholders in the form of a(n) _____dividend______________________. 

dividend

A collection of all your different investments—stocks, bonds, and funds—is known as a _________________________.

portfolio

interest

The process of setting money aside to increase wealth over time for long-term financial goals, such as retirement

Saving

The portion of disposable income not spent on current consumption acts as a secure, liquid pool of money set aside for future needs, emergencies, or goals.

Trading

The active buying or selling of assets, like stocks or bonds, to profit from price changes.

A ____________ (bull/bear) market is when more investors are buying stocks, which causes stock values to increase.

bull

A ____________ (bull/bear) market is when investors are selling stocks, which causes stock values to decrease. 

bear

What is an advantage of using a robo-advisor to invest?

is a digital platform that provides automated, algorithm-driven financial planning services with minimal human supervision

The main advantage is it provides low-cost, automated investment management. 

Social security is a government program that pools contributions from current workers to then provide retirement support benefits to those who are eligible. True or false

True

You will need slightly LESS income in each year of retirement

true or false

false

The longer your retirement the MORE money you need to have saved t or f

t

The longer your retirement, the MORE money you’ll be able to withdraw each year, True or False

False

Identify 3 things that can impact a stock’s price. 

Company performance (earnings, profits, growth)

For example, Amazon earnings show record growth in 2025. 

Economic conditions (inflation, interest rates, recession)

For example, a pandemic sweeps the globe, causing people to be nervous about investing in smaller companies that may go out of business. 

Investor demand & news (positive/negative news, hype, market sentiment)

For example, Apple announces their new flip phone, and all high school students are super excited to buy their latest product.

Stock

An investment option that allows you to own a small piece of a company

Stock Quote

The price of a stock that is listed on an exchange 

Stock Split

 An action where a company increases the number of shares outstanding and lowers the individual value of each share

The higher the risk associated with a bond, the ______ (more/less) likely a corporation might default on paying the investor. Interest rates for riskier bonds tend to be ______ (higher/lower) so that investors are ______ (more/less) willing to take on that risk.

more, higher and more

When overall interest rates rise (to 10%), the bond you already own (with 5% coupon rate) becomes ______ (more/less) valuable to potential buyers, so its price will ______ (increase/decrease).

less and decrease

When overall interest rates fall (to 2%), the bond you already own (with 5% coupon rate) becomes ______ (more/less) valuable to potential buyers, so its price will ______ (increase/decrease).

more and increase

Active investing

 is a hands-on strategy where portfolio managers or investors actively buy, hold, and sell assets, aiming to outperform a specific benchmark index.

Involves frequently buying and selling investments

Goal is to beat the market

Requires research, time, and skill

Typically has higher risk

Passive investing

is a long-term strategy aimed at maximizing returns by minimizing buying and selling, typically by mirroring a market index

Involves buying and holding investments long-term

Goal is to match the market’s performance (ex: index funds, like S&P500)

Requires less time and effort

Typically has lower risk

What is one difference between an IRA and a 401(k)?

One difference is that 401(k) plans are employer-sponsored, while IRAs are individual accounts. 

Mutual Fund

Pools money from many investors to buy a diversified portfolio of stocks, bonds, and other securities, managed by a professional for a fee 

Index Fund

Aims to mirror the performance of a specific index, like the S&P 500, by holding all or most of the securities in the index. 

Exchange-Traded Fund (ETF)

Can be bought and sold on the stock market, just like individual stocks.

Target-Date Fund (TDF)

Adjusts its asset allocation and risk level over time based on a specific retirement goal date. 

In your own words, explain what a brokerage account is and how it is different from a bank account.

Brokerage Account

• Used to buy and sell investments (stocks, bonds, ETFs, mutual funds)

• Value can go up or down depending on the market

• Helps grow wealth over time

• Not primarily for everyday spending

• Bank Account

  • Used to store and manage money safely (like a checking or savings account)

  • Value is stable (doesn’t fluctuate with the market), but may lose value due to inflationo

  • Used for spending, bills, and short-term savings

  • Usually earns low interest, sometimes so offensively low that it will earn you absolutely nothing.

How is a bond different from a bond fund?

A bond is a single loan that an investor makes with a company or a government, while a bond fund is a collection of bonds that is typically managed by a brokerage. 

How does an investor make a profit from investing in a stock?

Investors make profit in two primary ways:

By selling the stock for a higher price than they paid (capital gain)

By earning dividends (payments from company profits)

Why is it important to invest for retirement?

It is important to invest for retirement because it will help build wealth over time so that you are not relying solely on social security, which is not enough income to survive into your retirement. You don’t want to earn the bare minimum because life would not be that much fun into your old age if you were living off $24,000/yr. 

True or False?: Roth IRAs are a good option for people who have relatively lower incomes - and tax rates - compared to what they expect to have in the future.

truee

Explain the benefit of starting to invest early.

Consistently investing early helps your earnings grow. This is called compound interest. Allowing your investments to grow over time is important, but having your interest and gains grow over time is also important! If you invest $1000 and that $1000 makes $50, then that $50 can also be reinvested to make $5. Think of it like planting a tree. If that tree drops 10 seeds, those 10 seeds can also grow and make more trees. 

How can diversification help lower your investment portfolio’s risk? 

Diversification helps spread your investments across many different assets. If one asset does poorly, then it’s okay! You have many others that have the potential to do well. Nervous about which ones to pick? Don’t pick! There are indexes of high-performing companies where the “picking” is already done for you. Why not the… oh, I don’t know… the S&P500? I think I’ve said this… 500 times!