Investment Basics Flashcards
6 cards from real NAB practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Investment Basics flashcards as text
What is the difference between stocks and bonds?
Answer: Stocks represent ownership in a company; bonds are loans to a company or government
Stocks give shareholders partial ownership and potential dividends, while bonds are debt instruments where you lend money in exchange for regular interest payments.
What is diversification in investing?
Answer: Spreading investments across different asset types to reduce risk
Diversification reduces portfolio risk by spreading investments across different asset classes, industries, and geographies so poor performance in one area does not devastate the entire portfolio.
What is a mutual fund?
Answer: A pooled investment vehicle where many investors' money is combined and managed by a professional
Mutual funds pool money from many investors to purchase a diversified portfolio of securities, managed by professional fund managers.
What does ROI stand for and what does it measure?
Answer: Return on Investment — the gain or loss relative to the amount invested
ROI measures the profitability of an investment by comparing the net gain to the original cost, expressed as a percentage.
What is a 401(k) retirement plan?
Answer: An employer-sponsored retirement savings plan with tax advantages
A 401(k) allows employees to save for retirement with pre-tax dollars, often with employer matching contributions, and tax-deferred growth.
What is inflation and how does it affect investments?
Answer: A general increase in prices that reduces purchasing power over time
Inflation erodes the purchasing power of money over time, meaning investments must earn returns above inflation to maintain real value.