Udemy Investing for Beginners by Steve Ballinger

Question 1

Why should you invest in a variety of things?

Answer 1

At different times one asset class outperforms another and different times inside one asset does better than another.

Question 2

What does risk mean?

Answer 2

That your investment might go down or lose money.

• Volatility
• Investments go up and down
• Some more than others
• how much can you stomach
• Sleep at night

Question 3

What is a return?

Answer 3

How much money am I going to make?

Question 4

How can you reduce risk?

Answer 4

increase time, Increase diversification, improve liquidity

Question 5

ETF

Answer 5

Exchange Traded Fund eg.) S&P 500 Index

Question 6

What is a Mutual Fund?

Answer 6

A pool of investors. A bunch of investors get together and they pool their money together and give it to a mutual fund company and then that company manages their investments for them.

Question 7

What is the benefit of investing in a mutual fund?

Answer 7

It gives you diversification, it gives you a wide variety of holdings. So I’m not buying like we’re talking about Tesla stock.

I might be buying a whole bunch of companies, maybe five hundred or more thousands of companies all
at one time and gives me that instant diversification.

Question 8

What does diversification in asset classes mean?

Answer 8

we’re going to invest 80 percent in this mutual fund, 80 percent is going to go to stocks and 20 percent
is going to go into bonds.

Question 9

What is the difference between active and index funds?

Answer 9

Active is more actively managed and the index is more passively managed.

Question 10

Active Fund

Answer 10

You are betting on the Fund Manager to make choices for you.

You buy the philosophy and put your trust in the fund manager.

Ex, Vanguard Health Care Fund

Question 11

What are the advantages of an Active Fund?

Answer 11

• Potential for superior returns
• Park money in down market
• Potential for more diversification

Question 12

What are the disadvantages of an Active Fund?

Answer 12

• Higher fees/costs (Pay Manager/Transaction)
• Fund Managers usually do not beat their benchmark
• Fund Manager leaves
• Can be less diversified

Question 13

Index Fund

Answer 13

This means you are trying to match the market that the index follows

e.g) Vanguard S&P 500 Index Fund, Nifty 50

Question 14

Index Fund Advantages

Answer 14

• Lower cost (Fund Manager caretaker-less turnover costs)
• Potential for more diversification

Question 15

Index Fund Disadvantages

Answer 15

• No Fund manager with a vested interest
• Index down as a whole
• Can be less diversified
• Can be heavily weighted in a few positions (Ex, S&P 500)

Question 16

Target Date Funds

Answer 16

• Usually used for retirement
• pick date you want to retire
• Fund does the rest -easy
• AUtomatically Adjusts (REduce Risk Exposure) as you approach the target date

Question 17

Target Date Funds

Answer 17

• Usually used for retirement
• pick the date you want to retire
• Fund does the rest -easy
• Automatically Adjusts (Reduce Risk Exposure) as you approach the target date

Advantages
- Easy set it and forget it
- Lower cost funds of fund

Disadvantages
- Does not give you full range of choices
- Market timing a problem
- ex) Great Recession, Covid- 19

Question 18

Target Date Funds

Answer 18

• Usually used for retirement
• pick the date you want to retire
• Fund does the rest -easy
• AUtomatically Adjusts (REduce Risk Exposure) as you approach the target date

Question 19

Balanced Funds aka Allocation Funds

Answer 19

Advantages
- Easy- Set it and forget it
- Lower cost-fund of funds

Disadvantages
- Does not give you full range of choices
- Market timing a problem
- Automatically will keep you in the target % but does not change based on date or goal timing

Question 20

ETF

Answer 20

Exchange Traded Funds (Similar yet different than mutual funds)

• Holds basket of underlying assets (stocks, bonds, etc)-diversification
• Typically track an index
• Low expense ratio
• Trade on market like a stock
• Price changes during the day
• Liquidity like a stock (No nav)
• Pay a commission to a broker like a stock
• Can buy 1 share (No minimum like mutual fund)

Question 21

Robo Advisors

Answer 21

Tries to solve issues with technology

• Pick your risk level by answering questions
• Robo-advisor (Algorithm) does the rest
• Invests you in a variety of ETF
• Just add to it when you can

Question 22

What are the advantages of stocks?

Answer 22

1. Superior returns in the long run
2. Two ways to make money - price appreciation, dividends
3. Very liquid
4. Historically best method to outpace inflation and grow wealth
5. More risk but much more returns.

Question 23

Why do some companies pay dividends?

Answer 23

Companies that make profits, but tend to distribute that back to their shareholders in the form of dividends. Energy companies, Utility companies are more famous for paying dividends.

Question 24

What are the disadvantages of stocks?

Answer 24

1. Higher Risk
2. Volatility
3. Last to be paid in a bankruptcy

Question 25

How do you buys stocks?

Answer 25

1. Individually - EX, Online broker, Robinhood, eToro, TD Ameritrade 2. Mutual Fund - Fund company, Vanguard, Fidelity, Schwab 3. ETF- Fund/ETF Company, Blackrock/Vanguard

Question 26

What are the advantages of bonds?

Answer 26

1. Principal safer - safer than stocks, better return 2. Recieve interest payments 3. Safe-haven buying

Question 27

What are the disadvantages of bonds?

Answer 27

1. Interest rate risk - rates rise then bond value declines 2. Credit/default risk 3. Call provision 4. Under perform stocks over the long run