SFL 260 Final Exam | updated 2023/24

SFL 260 Final Exam | updated 2023/24 What is investing? - 1. Long-term 2. Implies stewardship/ownership 3. Slow, disciplined process of acquiring wealth What is speculating? - Desire for short-term gain by accepting greater risk What is the counsel from the first presidency about investments? (4) - 1. Live within a budget 2. Avoid debt 3. Save against a time of need 4. Invest wisely Eight principles of successful investing? - 1. know yourself/family/goals 2. Understand risk 3. Invest low-cost and tax efficiently 4. Invest in the log run 5. Stay diversified 6. Monitor your portfolio 7. Invest only with reputable people 8. Develop a good investment plan What are the three asset classes which most investors should include in their portfolio? - 1. Cash/cash equivalents 2. Fixed-income investments 3. Equities What are the benefits of having cash/cash equivalents? (3) - 1. Liquidity (turn to cash quickly) 2. Low risk investments 3. Emergency fund What are the disadvantages of having cash/cash equivalents? - Low rate of return. Cant keep up with inflation. Examples of fixed-income investments? - Treasury bonds, corporate bonds, bond funds, bond mutual funds Advantages of fixed-income investments? (2) - 1. Greater rate of return than cash 2. Stable income stream Disadvantages of fixed-income investments? (2) - 1. Less liquidity than cash 2. Less rate of return than stocks Examples of stocks/equities? (4) - 1. Large cap 2. Mid cap 3. Small cap 4. Mutual funds What is a mutual fund? (2) - 1. Investment that pools the money of thousands of people together 2. Fund managers invests the money according to the parameters of the fund into segments of asset classes Advantages of stocks/equities? - Excellent return on long-term investments Disadvantages of stocks/equities? (3) - 1. Market volatility 2. Less stability of principal 3. More risky investment What is it called when you spread your wealth among different assets in different asset classes? - Diversification. Enables low risk, stable returns, which beat the rate of inflation Bottom line advice on investing? (3) - 1. Create a livable budget that includes 10% long-term savings 2. Invest in a no-load, low fee, tax advantaged mutual fund that represents a diversified set of stocks and bonds 3. Don't try to time the market What are stocks?(3) - 1. Represent a real ownership of a proportion of a business 2. All of the shares of stock together represent ownership of the company 3. Stocks are traded on stock exchanges 3 major stock exchanges in the US? - 1. New York stock exchange 2. NSDAQ 3. NYSE american stock exchange equities What are dividends? - A distribution of a portion of the business profits to investors. 6 principles for successfully investing in stocks - 1. Take on the right amount of risk 2. Diversify 3. Dont try to time the market 4. Invest in passively-managed stock index funds 5. keep expenses low 6. minimize taxes What typically has the greatest return? - stocks What are the two basic risks? - 1. Company risk 2. Overall market risk How can you manage company-specific risk? - Investing in mutual funds or index funds What should your investment portfolio include? (3) - 1. large cap 2. small cap 3. international stocks The average investor in the stock market earns ____ than the overall stock market return - 5% less Where do the most costs come from in investing? (5) - 1. Sale charges 2. management fees 3. distribution expenses 4. custodial 5. brokerage commissions How can you avoid the expenses in investing? - invest in no load, passive index funds Avoid ____ like the plague - day-trading Avoid ____ funds - actively managed Make your major stock investments within _____ - tax advantaged retirement accounts Make charitable contributions with ______ - appreciated stock What is some basic info to know if you trade in stocks? (4) - 1. How to read stock listings 2. Different ways to buy and sell stocks 3. What stock splits are 4. How to calculate returns Three types of stock orders? - 1. Market 2. Limit 3. Stop-loss What is a market order? - Order to buy or sell shares at the current market value price What is a limit order? - Specify a price at which you want to buy/sell "x" number of shares What is a stop-loss order?(3) - 1. You set up a limit in an attempt to stop your loss. 2. Sell when price drops to a certain level 3. Can set up multiple for gain and/or loss Ho