Lesson 1: Types of Investments

Question 1

refers to the act of allocating money or resources with the expectation of generating income or profit in the future.

Answer 1

investment

Question 2

It involves committing funds to an asset, project, or venture with the goal of earning a return on the investment over time.

Answer 2

investment

Question 3

the primary objective of investment

Answer 3

generate a positive return on the capital investment

Question 4

key points to remember to understand about investments

Answer 4

ROI; risk and reward; time horizon; diversification; research and knowledge

Question 5

the gain or loss generated on an investment relative to the amount of money invested.

Answer 5

ROI

Question 6

ROI stands for

Answer 6

return on investment

Question 7

The time period you are willing to invest your money determines the investment strategy you should adopt.

Answer 7

time horizon

Question 8

spreading your investments across different asset classes can help mitigate risk.

Answer 8

diversification

Question 9

different types of investments

Answer 9

stocks; bonds; mutual funds; real estate; exchange-traded funds; commodities; cryptocurrencies; certificates of deposit (CDs); retirement accounts; peer-to-peer lending; precious metals; annuities; collectibles

Question 10

represent ownership shares in a company.

Answer 10

stocks

Question 11

advantages of stocks

Answer 11

potential for high returns; liquidity; ability to own a stock in successful companies

Question 12

disadvantages of stocks

Answer 12

volatility; risk of losing money; dependence on market conditions

Question 13

risks of stocks

Answer 13

flunctuations of stock prices in marker (market risk); not being able to buy/sell stocks (liquidity risk); stock issuer defaults on obligations (credit risk); risk of losing purchasing power because of rising prices (inflation risk)

Question 14

are debt securities where investors lend money to governments, municipalities, or corporations in exchange for regular interest payments and the return of the principal amount at maturity.

Answer 14

bonds

Question 15

advantages of bonds

Answer 15

steady income, lower risk compared to stocks, fixed maturity dates

Question 16

disadvantages of bonds

Answer 16

lower potential returns; interest rate risk; inflation risk

Question 17

risks of bonds

Answer 17

bond’s issuer defaults before bond’s maturity (credit risk); fluctuating value of bonds in the market (market risk); risk that a bond’s price will fall with rising interest rates (interest rate risk); return on a bond won’t grow fast enough to keep up with inflation (inflation risk)

Question 18

pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. They are managed by professionals.

Answer 18

mutual funds

Question 19

advantages of mutual funds

Answer 19

diversification, professional management, accessibility for small investors

Question 20

disadvantages of mutaul funds

Answer 20

management fees, potential for underperformance, lack of control over individual investments

Question 21

risks of mutual funds

Answer 21

changes in the PEST environment (general market risk); risks in the individual securities (specific security risk); security cannot be sold at fair value easily (liquidity risk); loss of purchasing power due to increasing prices (inflation risk)

Question 22

involves purchasing properties for rental income or capital appreciation.

Answer 22

real estate

Question 23

advantages of real estate

Answer 23

potential for rental income and capital appreciation; tangible asset; tax benefits

Question 24

disadvantages of real estate

Answer 24

high upfront costs; property management responsibilities; liquidity

Question 25

risks of real estate

Answer 25

unpredictability of market (market); structural problems or damages (structural)

Question 26

similar to mutual funds but trade on stock exchanges like individual stocks. They offer diversification and can track various indexes, sectors, or asset classes.

Answer 26

exchange-traded funds

Question 27

advantages of ETFs

Answer 27

diversification; liquidity; lower expense ratios compared to mutual funds

Question 28

disadvantages of ETFs

Answer 28

brokerage commissions; potential tracking error; market volatility

Question 29

physical goods like gold, oil, or agricultural products that can be traded on exchanges.

Answer 29

commodities

Question 30

advantages of commodities

Answer 30

portfolio diversification; potential against inflation; potential for profit during market volatility

Question 31

disadvantages of commodities

Answer 31

price volatility; storage costs for physical goods; dependence on supply and demand factors

Question 32

digital currencies that operate on blockchain technology. They can be bought, sold, and used for various purposes.

Answer 32

cryptocurrencies

Question 33

advantages of cryptocurrencies

Answer 33

potential for high returns, decentralized nature, technological innovation

Question 34

disadvantages of cryptocurrencies

Answer 34

high volatility; regulatory risks; cybersecurity threats

Question 35

time deposits offered by banks with fixed interest rates and maturity dates.

Answer 35

certificates of deposits

Question 36

advantages of certificates of deposits

Answer 36

low risk; guaranteed returns; FDIC insurance for U.S. citizens

Question 37

disadvantages of certificate of deposits

Answer 37

lower returns compared to other investments; limited access to funds before maturity (you cant easily access ur money until the maturity date); potential risk for inflation

Question 38

IRAS stand for

Answer 38

Individual retirement arrangements

Question 39

advantages of retirement accounts

Answer 39

tax benefits, long-term growth potential, automatic contributions

Question 40

disadvantages of retirement accounts

Answer 40

early withdrawal penalities; contribution limits; limited access to funds before retirement age

Question 41

connect borrowers with individual lenders, allowing investors to lend money and earn interest.

Answer 41

peer-to-peer lending

Question 42

advantages of peer-to-peer lending

Answer 42

potentially higher returns compared to traditional savings accounts; diversification; direct lending to individuals/businesses

Question 43

disadvantages of peer-to-peer lending

Answer 43

default risk, lack of liquidity, platform fees

Question 44

differences of stocks and bonds

Answer 44

stocks offer higher returns but higher risk, bonds provide lower risks and steady income; stocks have no fixed maturity, bonds have them

Question 45

differences between real estate and commodities

Answer 45

real estate offers tangible assets, potential for rental income and tax benefits, commodities provide diversification and protection against inflation; real estate has a lot of upfront cost and mgmt responsisbilities while commodities face more price volatility and storage costs

Question 46

differences between cryptocurrencies and certificate of deposits

Answer 46

crypto has potential for high returns but have high volatility and regulatory risks, CDs have low risks, guaranteed returns, and FDIC insurance; crypto is decentralized and offers tech innovation; CDs have fixed interest rates and limited access to funds until maturity

Question 47

the best type of investment is

Answer 47

having a diversified portfolio (stocks, bonds, real estate, commodities); retirement accounts for long-term wise strategies

Question 48

difference between ETFs and mutual funds

Answer 48

ETFs are bought and sold on stock exchanges throughout the day like individual stocks (and their prices fluctuate throughout the day), while mutual funds are traded only once a day after the market closes.

Question 49

have been used as a form of currency for centuries.

Answer 49

precious metals

Question 50

examples of precious metals

Answer 50

gold and silver

Question 51

often considered to be a safe haven asset, meaning that they tend to hold their value when other asset classes are volatile.

Answer 51

precious metals

Question 52

are contracts with insurance companies that pay you a regular income stream in exchange for a lump sum payment or a series of payments.

Answer 52

annuities

Question 53

what do annuities mean

Answer 53

a contract between a buyer and an insurance company that provides the buyer with a regular series of payments in return for a lump-sum payment.