Investment Basics Flashcards

What does 'capital gain' refer to in investing?

Answer: The profit made when an asset is sold for more than its purchase price

A capital gain is the positive difference between an asset's selling price and its original purchase price.

What is 'dollar-cost averaging' as an investment strategy?

Answer: Investing a fixed dollar amount at regular intervals regardless of market price

Dollar-cost averaging means investing a consistent amount regularly, buying more units when prices are low and fewer when prices are high.

In investing, what is a 'dividend'?

Answer: A portion of a company's profits distributed to shareholders

A dividend is a payment made by a company to its shareholders, usually from profits, as a reward for holding the company's stock.

What is 'inflation risk' in an investment context?

Answer: The risk that returns will not keep pace with rising prices, eroding purchasing power

Inflation risk is the danger that your investment returns grow more slowly than inflation, meaning your money buys less over time.

What does 'asset allocation' mean in portfolio management?

Answer: Deciding what proportion of a portfolio to invest in each asset class

Asset allocation is the strategy of dividing a portfolio among different asset categories — such as stocks, bonds, and cash — to balance risk and reward.

Which of the following best describes a 'bond'?

Answer: A loan made by an investor to a government or corporation in exchange for fixed interest payments

A bond is a fixed-income security where the investor lends money to the issuer, who repays the principal at maturity plus periodic interest payments.

What does 'rebalancing' a portfolio mean?

Answer: Adjusting the proportion of assets in a portfolio to restore the original target allocation

Rebalancing means periodically buying or selling assets to maintain the desired asset allocation as market movements cause proportions to drift.