Stock Market Foundation

Question 1

What are the 2 types of investment?

Answer 1

• Active: You manage your finances. Ideal if your time is all yours, or if you have flexibility for your time.
• Passive: Managed by a third party. Ideal if you’re very busy or have big responsibilities such as your family.

Question 2

What are the levels of risk tolerance?

Answer 2

• Conservative: Low risk. Ideal if you are in your senior years.
• Moderate: Medium risk. Ideal if you have responsibilities, such as family.
• Aggressive: High risk, ideal for early 20s and if you have no responsibilities.

Question 3

What time horizons are available for as an investor/trader?

Answer 3

• Quick Profit (Day Trader)
• 3-6mos
• Long-term (10-20 years)

Question 4

What are stocks and bonds? What is the difference between them?

Answer 4

• Stocks and bonds are types of securities. Stocks are equity securities, while bonds are debt securities.
• Stocks are a slice of ownership of 1 or more companies, and you earn through dividends (investing) or price appreciation (trading)
• Bonds are like loans you give to the government or a company for their capital. Bonds can’t be sold, and your money is fixed on a bond, with a promise of receiving interest (usually quarterly)

Question 5

What are the types of bonds and stocks available to traders/investors?

Answer 5

• Government Bonds: Low risk. Fixed return, unsellable.
• Corporate Bonds: Same as government bonds but a little riskier since corporations have higher chances of going bankrupt.
• Preferred Shares: Passive long-term with good dividend.
• Common stocks: Active short term, high risk high return.

Question 6

What are mutual funds?

Answer 6

• Pool of money from investing public. The money is used to invest in different securities like stocks, bonds, and other assets.
• A fund manager manages your money.
• Ideal if you don’t have time to manage, and you’re in for a long term investment.

Question 7

What is a security?

Answer 7

• A financial instrument used to raise capital in public and private markets.
• Types of securities are stocks (equity security), bonds (debt security), and hybrid of both.

Question 8

What is a blue chip?

Answer 8

These are the top 30 companies in the PSEi

Question 9

What is a Unit Investment Trust Fund (UITF)

Answer 9

Much like the Mutual Funds, they work the same way but instead of fund managers, the bank manages your money.

Question 10

Why does the stock market exist?

Answer 10

• To address a company’s need for financing their capital or growth

Question 11

What are the choices available to the company if they need financing for capital or expansion?

Answer 11

• Make their shares available to the public through equity (stocks)
• Go into debt with debt by applying loan in a bank (bonds)

Question 12

What is Initial Public Offering (IPO)?

Answer 12

• It is when a company gets listed in the stock market.

Question 13

How do you make money in stocks?

Answer 13

• Dividends: company gives back portion of their earnings, mostly quarterly
• Price Appreciation: Buying a stock and selling it when the price goes higher.

Question 14

What is blind-investing and why is it a bad practice.

Answer 14

• Blind investing is not being aware of where you invest your money, which can result to losses in the long run.

Question 15

What is breakeven?

Answer 15

• The point where you just have recovered your investment/trading capital from without any gains.

Question 16

What is a broker?

Answer 16

The middleman that assists you in buying/trading stocks. In the early days, these are people you call, now they’re mostly online platforms like col financial, philstocks etc.