Investing

What is investing?

The act of allocating resources (usually money) with the expectation of generating income or profit over time.

What is the main purpose of investing?

To achieve long-term financial goals and build wealth.

What are key aspects of investing?

Growth of capital, generating passive income, beating inflation, and securing your financial future.

How does saving differ from investing in terms of risk and return?

Saving = low risk, low return

Investing = higher risk, higher potential return.

What’s the typical time frame for saving vs. investing?

Saving: short to medium term; Investing: long term.

Give examples of saving and investing options.

• Saving: savings accounts, CDs

• Investing: stocks, bonds, real estate

What are stocks?

Ownership in a company; high return potential but higher risk.

What are bonds?

Loans to companies or governments; lower risk and more stable returns.

What are mutual funds?

Professionally managed portfolios of stocks, bonds, or other securities; offer diversification benefits.

What are ETFs (Exchange-Traded Funds)?

Similar to mutual funds but traded like stocks; often track specific market indexes.

What is investment risk?

The possibility of losing some or all of an investment.

What is return?

The gain or loss on an investment over a specific period.

What is the risk-return tradeoff?

Higher potential returns usually involve higher risk, while lower risk investments offer lower returns.

Give examples of low-risk, low-return investments.

Savings accounts, CDs, and government bonds.

Give examples of medium-risk, medium-return investments.

Corporate bonds, dividend-paying stocks, and REITs (Real Estate Investment Trusts).

Give examples of high-risk, high-return investments.

Growth stocks, small-cap stocks, and cryptocurrencies.

What is diversification?

Spreading investments across different asset classes to reduce overall risk.

What are the benefits of diversification?

Reduces risk, balances losses and gains, and smooths returns over time.

How can investors diversify?

1. Invest in different asset classes (stocks, bonds, real estate)

2. Choose investments from various sectors and industries

3. Include both domestic and international investments

What is a time horizon in investing?

The length of time you plan to hold an investment.

Why is time horizon important?

t affects investment choices and determines risk tolerance.

What investments suit shorter vs. longer time horizons?

Short (<5 years): lower-risk options

Long (>10 years): higher-risk investments for potential growth

What are the first steps when starting to invest?

1. Assess your financial situation and goals.

2. Determine your risk tolerance.

3. Research investment options.

What’s a good approach for beginners?

Start with a diversified portfolio and consider low-cost index funds or ETFs.

Example of a beginner ETF mentioned in the notes?

VTI includes big companies like Nvidia, Google, Apple, Tesla, Meta, Microsoft, and Amazon.

What should investors do regularly?

Review and rebalance their portfolio and seek professional advice if needed.