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Investing Basics
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1
Question
What is investing?
Page 1
Answer
Buying something with the expectation that it will earn you money over time.
2
Question
What is a long-term goal?
Page 1
Answer
Something you want to do in the future, usually several years away.
3
Question
What is risk in the context of investing?
Page 1
Answer
The chance of losing all or part of the value of an investment.
4
Question
What is saving?
Page 1
Answer
Money set aside for future use such as emergencies or fun.
5
Question
What is a short-term goal?
Page 1
Answer
Something you want to do in the near future.
6
Question
What is a brand?
Page 1
Answer
The name a company gives a product it makes or a service it provides.
7
Question
What is a company?
Page 1
Answer
A business formed to manufacture or supply products or services for profit.
8
Question
What is a private company?
Page 1
Answer
A company that is privately owned by a person, family, or group of people whose shares cannot be purchased in the stock market.
9
Question
What is a product?
Page 1
Answer
A good or service produced by a company.
10
Question
What is a public company?
Page 1
Answer
A company with publicly traded shares that anyone can buy in the stock market.
11
Question
What is an investment strategy?
Page 1
Answer
A plan designed to help you achieve your investment goals depending on factors including risk tolerance and values.
12
Question
What is the previous close for a stock?
Page 1
Answer
The final price at which the stock was traded at the end of the most recent regular trading session, serving as a benchmark for the next day’s trading.
13
Question
What is the 52-week range of a stock?
Page 1
Answer
The highest and lowest price of the stock over a 52-week period.
14
Question
What is the P/E ratio?
Page 2
Answer
A company’s closing price divided by its latest annual earnings per share, representing the relationship between a company’s earnings and its share price.
15
Question
What is beta?
Page 2
Answer
A measure of a stock's volatility compared to the overall stock market; beta of 1 means it correlates with the market, less than 1 means less volatile, greater than 1 means more volatile.
16
Question
What is risk tolerance?
Page 2
Answer
A measure of how much risk you are willing to take, based on factors like age, time horizon, lifestyle, and personality.
17
Question
What is time horizon?
Page 2
Answer
The length of time until you need to access invested money or evaluate a decision, crucial to match investments with goals and determine risk tolerance.
18
Question
What is risk management (in investing)?
Page 2
Answer
The process of identifying, assessing, and reducing investment risks (e.g., through diversification, asset allocation, position sizing, or hedging).
19
Question
What is diversification?
Page 2
Answer
A risk management technique that mixes a wide variety of investments within a portfolio to minimize risk by combining assets whose prices do not move together.
20
Question
What is a sector (in stocks)?
Page 2
Answer
A broad grouping of companies in the same part of the economy (e.g., Health Care, Technology) used to categorize and compare stock performance.
21
Question
What is an industry (in stocks)?
Page 2
Answer
A more specific grouping of companies that produce similar products or services within a sector (e.g., pharmaceuticals within Health Care; soft drinks within Consumer Staples).
22
Question
What is market capitalization?
Page 2
Answer
The aggregate dollar value of all of a company’s outstanding shares based on the current stock price.
23
Question
What is a mutual fund?
Page 2
Answer
An investment vehicle that pools money from many investors to buy a portfolio of securities (e.g., stocks and/or bonds), typically managed by a professional manager.
24
Question
What are net assets in a mutual fund?
Page 3
Answer
The fund’s total assets minus its liabilities (the net value of what the fund owns).
25
Question
What is net asset value (NAV)?
Page 3
Answer
The value per share of a mutual fund, calculated as (total assets − total liabilities) ÷ shares outstanding, typically computed once per trading day after the market closes.
26
Question
What does year-to-date indicate for a fund share?
Page 3
Answer
The percentage increase or decrease in value since the beginning of the current calendar year.
27
Question
What is the expense ratio of a mutual fund?
Page 3
Answer
The cost to maintain the fund proportional to its value, including management fees, recordkeeping, accounting, and auditing fees.
28
Question
What is holdings turnover?
Page 3
Answer
The rate at which a mutual fund replaces its assets annually.
29
Question
What is fundamental analysis?
Page 3
Answer
Assessing a company’s financial history, earnings, and outside factors like demand and news to determine if it is a good investment.
30
Question
What are earnings?
Page 3
Answer
The money remaining after subtracting operating and non-operating expenses from revenue, also called net income.