Introduction to Saving, Investing, and Financial Markets

Comprehensive practice flashcards covering saving vs. investing, market history, financial instruments (stocks, bonds, funds, crypto, commodities, real estate), and retirement planning based on the lecture notes.

Define the goal of 'Saving' versus 'Investing'?

Saving is for short-term use and emergency funds, while Investing is for long-term wealth and growing value over time.

What is the relationship between the Level of Risk and the Return on Investment (ROI)?

Lower Risk results in a Lower ROI, while Higher Risk results in a Higher ROI.

In the context of the history of investing, what did people trade in ancient Babylon and Greece?

Assets like cows for a promised share of future crops.

What organized structure created in the 1800s eventually became the NYSE stock exchange?

Structured clubs where investors traded shares in one spot rather than searching the streets.

What are three indicators of higher risk when looking at a potential investment?

Age (younger people often take more risk), 'guaranteed promises', and high popularity (hype).

How is 'Trading' defined differently from long-term investing?

Trading involves buying and selling financial assets with the goal of generating short-term profit through fast moves and active price watching.

What was the significance of the 1700s Buttonwood tree agreement?

It involved men meeting daily under a tree to buy and sell trades of their business, which later became the NYSE.

What mechanism was created following the Dow's $22.6\%$ crash on Black Monday to prevent future panics?

'Circuit breakers' that automatically pause trading.

What is an Initial Public Offering (IPO)?

The process where a company makes shares public and receives capital from investors for the first time.

What are 'Dividends' in the context of stock ownership?

Payouts, usually in cash and typically quarterly, that companies give to owners as a 'thank you' for investing and to share their success.

Contrast a Bull market with a Bear market.

A Bull market is characterized by rising prices and high investor confidence, while a Bear market is characterized by falling prices and investor pessimism.

What is an 'IPO Lock-Up Period'?

A restriction (typically $90$-$180$ days) that prevents pre-IPO investors from selling shares immediately to prevent flooding the market.

How is the value of a single share calculated?

Divide the total amount of money being raised by the number of shares issued.

What are two primary ways investors make money from stocks?

Capital Gains (selling for more than the purchase price) and Dividends.

What is the effect of a 'Stock Split'?

The total company value stays the same, but the number of shares increases and the price per share lowers to make them more accessible.

What happens when a bond reaches 'Maturity'?

The investor receives the bond’s face value plus interest.

How does credit rating affect identified risk for bonds?

A High rating indicates the issuer is likely to meet debt obligations, while a Low rating indicates a higher risk of default.

What is the difference between an Index Fund and a Mutual Fund?

An Index fund is a passive investment designed to track a market index, while a Mutual fund is actively managed by a professional aiming to outperform the market.

Define 'Cryptography'

The science of securing communication and information using coded algorithms (ciphers) to make data unreadable to unauthorized parties.

What was the total market capitalization of cryptocurrency as of January 2025?

$3.42$ $3.42 trillion

What is the main difference between Custodial and Non-Custodial crypto wallets regarding private keys?

In Custodial wallets, a third party holds the keys; in Non-Custodial wallets, the user has full control over their keys and funds.

What is the difference between 'Hard' and 'Soft' commodities?

Hard commodities are typically extracted from natural resources (energy, metals), while Soft commodities are grown or produced (agriculture, livestock).

What is a Real Estate Investment Trust (REIT)?

A company that owns, operates, or finances income-producing real estate and must pay out $90\%$ of taxable income annually as dividends.

What does the acronym 'MNPI' stand for?

Material Non-Public Information.

What is the 'Early Withdrawal Penalty' for most retirement accounts?

Withdrawals before age $59.5$ are generally subject to a $10\%$ penalty in addition to regular income tax.

What are the 2024 contribution limits for a 401(k) and a Traditional IRA?

The 401(k) limit is $23,000$ (with a $7,500$ catch-up for age $50+$) and the IRA limit is $7,000$ (with an $8,000$ catch-up for age $50+$).