Investment Basics Flashcards

What does 'compound interest' mean in the context of investing?

Answer: Interest earned on both the principal and previously accumulated interest

Compound interest means you earn returns on your original investment plus on the interest already earned, accelerating growth over time.

Which investment type typically offers the highest potential return over the long term but also carries the most risk?

Answer: Equities (stocks)

Equities historically offer the highest long-term returns but come with greater volatility and risk of capital loss.

What is a 'term deposit' in the context of NAB's investment products?

Answer: A fixed-rate investment held for a set period with penalties for early withdrawal

A term deposit locks your money for a fixed period at a fixed interest rate, typically offering higher returns than an everyday savings account.

What does 'liquidity' mean when referring to an investment?

Answer: How quickly and easily an investment can be converted to cash without significant loss

Liquidity describes how easily an asset can be sold or converted to cash — a savings account is highly liquid, while real estate is not.

If an investor holds a 'diversified portfolio,' what does this mean?

Answer: Investments are spread across multiple asset classes to reduce risk

Diversification involves spreading investments across different asset classes so that poor performance in one area doesn't devastate the entire portfolio.

What is a 'managed fund'?

Answer: A pooled investment vehicle where many investors' funds are combined and professionally managed

A managed fund pools money from multiple investors and a professional fund manager invests it across a range of assets.

What is an 'exchange-traded fund' (ETF)?

Answer: A pooled investment that tracks an index and trades on a stock exchange like a share

An ETF is a basket of securities that tracks an index and is bought and sold on a stock exchange, combining diversification with share-like tradability.