Personal Finance, Stocks, Mutual Funds, and GDP Overview

What is a security?

A financial asset that can be traded on an exchange to raise capital, such as stocks, bonds, mutual funds, and ETFs.

What is a 401(k) plan?

A tax-advantaged retirement savings plan provided by an employer where employees can contribute money

What is a mutual fund?

A single portfolio of stocks, bonds, and/or cash managed by an investment company on behalf of many investors, allowing for diversified ownership.

Advantages of buying a mutual fund?

1. Low initial investment required (as little as $25). 2. Diversification across several companies. 3. Liquidity to convert investment to cash. 4. Generally safer than individual stocks.

Disadvantages of buying a mutual fund?

1. Lack of control over investment choices. 2. Limited to buying/selling once a day at 4 PM. 3. Management costs, fees, and potential sales loads.

What should you consider when choosing mutual funds?

Look for no-load funds, low expense ratios under 1%, and avoid 12b-1 charges.

What is Gross Domestic Product (GDP)?

The total monetary or market value of all finished goods and services produced within a country's borders in a specific time period, usually a year.

Why is GDP important?

It measures economic performance; declining GDP can indicate economic trouble and instability.

What does utility mean in economic terms?

Utility refers to satisfaction or pleasure derived from consuming goods or services.

What is an IPO?

Initial Public Offering, the first time a company sells its stock to the public.

What is the Dow Jones Industrial Average?

An index of 30 major companies that represent the American economy; its performance reflects the overall economic health.

Criteria for inclusion in the Dow?

Stocks must exemplify important sectors of the U.S. economy, have a strong growth track record, and attract significant investor interest.

What is the primary rule in buying stock?

Buy stock at a low price and sell it at a higher price.

What is diversification in investing?

The practice of spreading investments across various assets to limit exposure to any one type of asset and reduce portfolio volatility.

How do investors make money with stocks?

By buying stocks at a low price and selling them at a higher price, as well as receiving dividends.

What are dividends?

Regular payments of profit made to investors who own a company's stock, paid per share.

What is personal finance?

The practice of determining and managing a person's financial needs and goals for the present and future through budgeting, spending, and saving.

What is the most important principle of personal finance?

Spend less than you earn.

What are the five principles of personal finance everyone should follow?

1. Spend less than you earn. 2. Maximize your income. 3. Plan for emergencies. 4. Build your credit. 5. Save for retirement.

What does the saying 'It's not how much you earn, but how you manage what you have' imply?

Effective management of finances is more crucial than the amount of income earned.

What is the right money attitude?

Balance is key; savings should be a means to an end, not an obsession.