#1
What is the primary purpose of financial planning?
To achieve financial goals
ExplanationFinancial planning aims to fulfill specific financial objectives.
#2
What is diversification in investing?
Investing in multiple asset classes
ExplanationDiversification involves spreading investments across different types of assets.
#3
What is the 'emergency fund' in personal finance?
A fund for emergencies such as medical expenses or job loss
ExplanationIt serves as a financial safety net for unexpected expenses or income loss.
#4
What is the concept of 'compounding' in investing?
The process of earning interest on the initial investment plus the accumulated interest
ExplanationCompounding refers to earning returns not just on the principal investment but also on previously earned returns.
#5
What is the purpose of setting financial goals?
To achieve a desired financial status
ExplanationSetting goals provides direction and motivation for financial planning and decision-making.
#6
What is the 'rule of 72' in investing?
A rule to estimate how long an investment will take to double
ExplanationThe rule of 72 provides a quick calculation for estimating investment growth.
#7
What is the concept of 'buy low, sell high' in investing?
Buying assets when prices are low and selling when prices are high
ExplanationIt suggests purchasing assets when undervalued and selling them when overvalued.
#8
What is the concept of 'asset allocation' in investing?
Investing in a mix of different asset classes
ExplanationAsset allocation involves distributing investments among various types of assets to balance risk and return.
#9
What is the 'time value of money'?
The concept that money available today is worth more than the same amount in the future
ExplanationThis principle asserts that money has greater value if received sooner rather than later due to its potential earning capacity.
#10
What is the concept of 'risk tolerance' in investing?
The ability to accept losses in investment
ExplanationRisk tolerance reflects an investor's comfort level with the possibility of investment losses.
#11
What is the difference between stocks and bonds?
Stocks represent ownership in a company, while bonds are a form of debt
ExplanationStocks offer ownership shares in a company, whereas bonds are debt securities.
#12
What is the difference between a traditional IRA and a Roth IRA?
Contributions to a traditional IRA are tax-deductible, while contributions to a Roth IRA are not
ExplanationTraditional IRA contributions are tax-deductible, whereas Roth IRA contributions are not, but Roth IRA withdrawals are typically tax-free.
#13
What is the difference between a stock market index and an individual stock?
A stock market index represents the performance of a group of stocks, while an individual stock represents ownership in a single company
ExplanationIndices track the overall market performance, whereas individual stocks represent ownership in specific companies.
#14
What is the difference between a 401(k) and an IRA?
A 401(k) is an employer-sponsored retirement account, while an IRA is an individual retirement account
Explanation401(k)s are provided by employers, while IRAs are opened by individuals, with differing contribution limits and tax treatments.
#15
What is the difference between a bull market and a bear market?
A bull market is characterized by rising prices, while a bear market is characterized by falling prices
ExplanationBull markets signify optimism and rising asset prices, whereas bear markets indicate pessimism and declining prices.