Fundamentals of Investing

Module 01

01.01 Understanding Stocks

Reading: Welcome to Fundamentals of Investing

By the end of the course, you should understand:

• different types of investments
• the basics of stocks, bonds, pooled investments, and derivatives
• how to develop an investing strategy
• the difference between active and passive investing
• systematic and unsystematic risks
• the risks and returns of investing
• setting investment goals
• the importance of diversification
• investment fees
• taxes associated with investing

Video: Introduction: Investing Basics

• WHY do you want to invest in the first place?
• Selecting an investment strategy largely depends on your financial goals.
• Examples of financial goals:
• building an emergency fund
• investing for retirement
• saving for a home down payment
• starting a business or family

Video: Stock Basics

• A stock is a portion of ownership of a company.
• Stocks are also known as shares of a company, or equity investments, and are primarily bought and sold on publicly traded stock exchanges.
• There are 2 common ways that you can earn money through stock ownership.
1. Value/Capital appreciation
• They're worth more when the business overall value increases and may also command higher market prices due to demand.
• That means you can earn money by selling your stock at a profit.
2. Dividend payments
• Stockholders might earn dividends of a company's profit, which may be paid in cash or in additional stock.
• Stock market: The stock market is where investors connect to buy and sell investments.
• A stock is a share of ownership of a company which you can purchase electronically.

Video: Understanding Stocks

• Each share of stock represents a small but equal share in the company.
• The stocks you can buy are in public companies that have registered their stock with the US Securities and Exchange Commission (SEC).
• A diversified portfolio will help to mitigate the risk of being too heavily invested in any one category.
• Stocks are sometimes referred to as equities.
• Owners of stocks are often referred to as stockholders or shareholders.
• Stocks come in 2 varieties
1. Common stocks: Along with proportional ownership of the company and the growth potential, common stocks also offer voting rights to the stockholder (e.g., management elections or structural business changes).
2. Preferred stocks don't come with voting rights, but they're getting preferred status in the earnings that are paid out to preferred stockholders first.
• Market capitalization: the market value of a company's publicly traded stock.
• Larger companies/cap stocks: older, more established, and less risky for investors
• Smaller companies/cap stocks: often newer, less established, riskier, and more growth potential
• Stocks classified in different style categories:
• Value stocks: stocks considered to be under value
• Growth stocks: companies expected to continue growing at a faster rate than their competitors
• Dividend investing: a style utilized by investors targeting stocks' ability to produce income or yield high dividends and provide cash flow (e.g., utility and real estate companies)

Video: Analyzing Stocks

• The value of stock is made up of several factors:
• the company's ability to continue making a profit
• its customer base
• its financial structure
• the economy
• political and cultural trends
• how the company fits within a broader industry
• Ratios can also offer insight into a company's financial health, allowing for comparisons to other companies in the same industry or against the overall market.
• Price to earning ratio (P ratio):
• It divides the market price of a company's stock by the company's earning per share.
• It can reveal how many years it'll take for a company to generate enough value to buy back its stock.
• Price to sales ratio:
• It divides the market capitalization of the company by its revenue.
• It should be as close to one as possible. If it's less than one, it's considered excellent.
• Earnings per share (EPS)
• It is calculated by taking the net income, subtracting any preferred stock dividends, and dividing the result by the total number of outstanding common stock shares.
• It lets you know how much earnings each shareholder would receive if the company was liquidated immediately.
• Rising EPS means the company's potential to more money to distribute to shareholders or roll back into the business.
• Return on equity (ROE)
• It is determined by dividing the company's net income by the shareholder's equity, then multiplying it by 100.
• It measures the growth and profit of a company.
• It tells you the value you receive as a shareholder should the company liquidate.

Video: Investing in Stocks

• Stocks might lose value under a few circumstances.
• The issuing company falters or goes under.
• If the market as a whole experience losses due to wider-reaching occurrences like economic recessions, war, or political changes.
• Scary news and headlines
• Stocks are volatile and their value can fluctuate in wide swings, but the expectation is that they will still trend upwards over time.
• In order to reduce risk, keep portfolio diversification with stocks across a range of sectors and risks.

Reading: Stock Key Ratios

• Article: Tips on Evaluating Stock Performance
• Evaluating stock performance:
• Total returns
• Using indexes
• Looking at competitors
• Reviewing company revenue
• Using stock ratios in evaluations:
• Price to Earnings (P/E) Ratio
• Price to Earnings Growth (PEG) Ratio
• Price to Sales (P/S)
• Price to Book (P/B)
• Dividend Yield
• Dividend Payout
• Return on Assets (ROA)
• Return on Equity (ROE)
• Profit Margin
• Current Ratio
• Earnings Per Share (EPS)
• Debt to Equity Ratio
• Additional factors:
• Dividends
• Inflation
• Analyst reports
• Historical patterns

Practice Assignment: Stock Quiz

1. Which of the following is a step you should take when selecting an investment strategy?
1. Identify your goal
2. Determine how far into the future you’d like to accomplish it
3. Both A and B
4. None of the above
2. Which of the following are common ways to earn money through stock ownership?
1. Appreciation in stock’s value
2. Income in the form of dividends
3. Capital gains tax
4. Both A and B
3. Which type of stock confers voting rights to the stockholder?
1. Common stocks
2. Preferred stocks
3. Both A and B
4. Neither
4. Which of the following is true about price-to-earnings ratio?
1. It's the market price of a company’s stock divided by the company’s earnings per share.
2. It’s the company’s net income divided by the shareholders’ equity; the result is then multiplied by 100.
3. It’s the market capitalization of the company divided by its revenue, but it doesn’t factor in profit.
4. None of the above.
5. When you’re investing in stocks, what does true portfolio diversification entail?
1. Investing in tech stocks only
2. Investing in stocks across a range of sectors and risk levels
3. Investing in bonds only
4. None of the above

01.02 Understanding Bonds

Video: Bond Basics

• Bonds are loans you make to either a company or a government entity for a fixed period of time.
• They pay you fixed interests until they pay you the money back in the future.
• Three common types of bonds:
• Treasury bonds, which are issued by the US Government (less risky)
• Corporate bonds, which are issued by corporations (higher returns)
• Municipal bonds, which are issued by a state or local government agency, e.g., airports, school districts, and sewer and water authorities
• Two key benefits of purchasing bonds:
• Reliable source of income
• Lower risks used to reduce volatility of a portfolio
• You can also access bonds through bond mutual funds or even bond ETFs.

Video: Understanding Bonds

• Corporate bonds are rated for risk by agencies such as Standard and Poor and Moody's.
• The precise scale varies with the rating agency.
• Bonds rated AAA to BBB by S&P are considered investment grade.
• As a rule, investors demand higher interest on lower quality bonds. High-yield bonds yield more because the risk of default is higher.
• Yield is the income generated on a given investment over a set period of time.
• Expressed as a percentage in annual terms
• The interest paid on that bond typically stated on the bond itself
• Yield to maturity calculates the average return for the bond when it matures based on the purchase price.
• If the interest rates on the bond (also the coupon rate) are higher than that on bonds issued today, the bond value will be at a premium or higher than par value.
• If the rate on the bond is lower than that on newly issued bonds, the bond will trade at a discount or lower than the price of the par value.
• The primary way to make money on bonds is by receiving interest while owning the bond.
• Another way that you can make money on a bond is by buying it at a discount and holding it to maturity.

Video: Analyzing Bonds

• An issuer is the entity that borrowed the money.
• Maturity is how long the bondholders have to wait for their money.
• The longer, the higher the interest rate, but also the greater the risk
• Quality is the financial strength of the issuer.
• Prices and interest rates tend to go in different directions.
• If you are trying to sell your bond before it matures:
• Higher interest rates result in lower bond prices.
• Lower interest rates result in higher bond prices.
• Bonds:
• Lower risk
• Reduced price volatility
• More predictable yield
• Referred to as fixed income investments
• The underlying price of the bond can change so it is possible to experience negative returns.

Video: Investing in Bonds

• Two reasons to buy bonds:
1. Income
• Reliable income sources: bonds pay interest at a fixed rate
• Welcome in retirement
2. Safety
• High-quality investment grade bonds are typically safer because the borrower is less likely to default on their promise to repay your investment.
• It usually makes more sense to invest in bond mutual funds or exchange-traded funds, ETFs
• If the issuing corporation goes bankrupt, bondholders can still expect to be repaid before preferred stockholders.
• Some bonds have a tax advantage.
• Investors need to keep up with inflation.
• Bonds:
• A way to mitigate risk and volatility of a stock portfolio
• More suitable for investors with a lower risk appetite or shorter time horizon

Reading: Understanding The Yield to Maturity Formula

• Article: Guide to Yield to Maturity (YTM)
• Yield to Maturity (YTM) represents the total return expected from holding a bond until it matures, factoring in interest payments and principal repayment.
• Calculating YTM involves the bond’s coupon rate, face value, current market price, and time to maturity, making it a complex formula.
• Coupon rate (or bond's interest rate): the regular payment issuers pay bondholders for the right to borrow their money
• The higher the coupon rate, the higher the yield.
• Face value (or par value): the amount paid to a bondholder at its maturity date
• Market price: how much an investor would have to pay for a bond on the open market currently
• The price buyers pay on the secondary market may be higher or lower than a bond’s face value. The higher the price of the bond, the lower the yield.
• Maturity date: the date when the issuer repays the principal is known as the maturity date
• YTM is useful for comparing bonds with different characteristics, helping investors anticipate returns and understand interest rate risks associated with bond investments.
• Limitations of YTM include assumptions about reinvestment of interest payments and the neglect of taxes, which can significantly affect actual returns.
• Investors can utilize YTM as a tool for decision-making but should consider diversifying their portfolios and possibly consulting financial professionals for guidance.
• Yield to Maturity (YTM) Formula:\[YTM=\frac{C + (FV - PV) \div t}{(FV + PV) \div 2}\]
• C = Interest or coupon payment
• FV = Face value of the investment
• PV = Present value or current price of the investment
• t = Years it takes the investment to reach the full value or maturity

Practice Assignment: Bond Quiz

1. Which type of bond is issued by a state or local government or agency?
1. Treasury bonds
2. Municipal bonds
3. Corporate bonds
4. None of the above
2. What term is used to describe corporate bonds rated AAA to BBB by Standard and Poor’s?
1. “Investment Grade”
2. “Premium Grade”
3. “Junk” bonds
4. In default and not paying interest
3. What is the interest rate on a bond called?
1. Discount rate
2. Coupon rate
3. Short-term rate
4. None of the above
4. What is the face value of most bonds?
1. $150
2. $500
3. $1,000
4. $2,000
5. Which type of bond yield assumes the issuer uses unfavorable guidelines?
1. Yield to call
2. Yield to maturity
3. Yield to worst
4. None of the above

01.03 Assessing Pooled Investments

Video: What is a Mutual Fund?

• One efficient way to seek diversification is through the use of mutual funds.
• Mutual funds: pools filled with different types of securities, such as stocks and bonds
• Mutual funds can be managed both actively or passively.
• Passively managed funds attempt to track an index, e.g., the Russell 2000 (an index of 2000 small cap US companies).
• Actively managed funds attempt to beat the performance of an index.
• Problem: actively managed funds typically cost you more

Video: All-In-One Mutual Funds

• Some common investment strategies include asset class funds or sector funds.
• Asset class funds: groups of similar assets sharing similar risks, e.g., stocks, bonds, cash, or real estate
• Sector funds: funds representing all or most of the stocks in a particular sector or industry
• Target date fund: funds designed with dates in mind for when you would sell out of the fund
• They assume that you'll terminate the fund at some year in the future, usually when you retire, and then shift to a less risky investment as the target year approaches.

Video: What is an Exchange-Traded Fund (ETF)?

• A good alternative to actively managed funds are exchange traded funds (ETFs).
• Traditional mutual funds are issued by the fund sponsor when you buy them and redeemed when you sell them.
• They're priced on once a day and after the market closes, at the value of all the underlying securities in the fund, divided by the number of shares, which is their net asset value.
• Unlike mutual funds, ETFs trade on stock exchanges throughout the day.
• You buy and sell them to another investor, just like a stock.
• 2 advantages of ETFs:
• liquidity: be bought or sold whenever the market is open
• cost: lower expenses

Reading: Exchange-Traded Funds (ETFs) vs Mutual Funds: Learning the Difference

• Article: ETFs vs Mutual Funds: Learning the Difference
• Differences Between ETFs and Mutual Funds:
• How to Buy Mutual Funds and ETFs
• Mutual funds transact once per day, with all investors selling or buying shares at the same closing price.
• ETFs trade throughout the day on public exchanges, with many shares exchanging hands at various prices as buyers and sellers react to changes in the market.
• Data on Holdings
• Mutual funds
• to report the total value of their portfolio once per day after the stock markets close
• When investors buy or sell a share of the mutual fund, they transact at net asset value (NAV) at the end of the day.
• ETFs
• to report their holdings on a daily basis
• The price fluctuates throughout the day based on market conditions and the value of the ETF’s underlying holdings.
• Passive vs. Active
• ETFs: passive investments
• Mutual funds: active investments
• Fee Differences Between ETFs vs Mutual Funds
• Mutual funds: different types of fees
• ETFs: lower fees
• Tax Implications of ETFs vs. Mutual Funds
• ETFs:
• capital gains taxes and dividend income taxes
• more tax efficient
• fewer transactions to tax
• Lower Initial Investment
• Mutual funds: higher initial investment

Practice Assignment: Pooled Investments

1. What benchmark do actively managed mutual funds attempt to beat?
1. The performance of the index
2. The performance of the treasury yield
3. The performance of the interest rate
4. None of the above
2. What type of all-in-one mutual fund assumes you will terminate the fund in some future year, usually when you retire, and shifts to less risky investments as the target year approaches?
1. Asset class funds
2. Sector or industry funds
3. Target-date funds
4. Both B and C
3. Which of the following is an advantage of ETFs?
1. Liquidity
2. Cost
3. Both A and B
4. Neither
4. Which of the following is considered one class of funds within the broader category of exchange-traded products (ETP)?
1. ETFs
2. ETNs
3. CEFs
4. All of the above

01.04 Uncovering Advanced Vehicles

Video: What is a Derivative?

• Derivatives: financial contracts like options, futures and swaps
1. Options: contracts/agreements that gives an investor the right or the option of buying or selling a security at a set price by a specific date
• When options contracts are traded publicly, options contract typically represents the right to buy or sell 100 shares.
• 2 main components of options:
• strike price: the price at which the shares would be exchanged
• expiration date: the last date when the options holder can exercise their option, or basically execute on the trade
• 2 basic types of options:
• Calls: A call gives an investor the right to buy an asset.
• An investor who purchases the call is placing a bet that the price of the underlying security will go up. So having the call option gives them the ability to purchase the security at a lower price should that price rise.
• Puts: A put option gives the investor the right to sell an asset.
• The investor who purchases a put option may believe the security price will fall and want to lock in the option to sell it at a higher price, should that happen.
• 3 scenarios for when an investor holds a contract:
• In-the-money:
• Profitable option
• The stock is above the strike price for a call or below the strike price for a put.
• In either scenario, the contract would result in a profit if exercised today.
• Out-of-the-money:
• The stock is trading lower than the strike price for a call and higher than the strike price for a put.
• Exercising the option would lose money.
• At-the-money:
• The strike price of an option and the market price are about the same.
2. Forwards and futures: contracts for buyers to purchase an asset at a pre determined price on a specific date in the future
• These are often used for commodities like oil, and used to control costs of business operations.
3. Swaps: contracts that allow two parties to exchange components of cash, like interest rate and currencies

Reading: 5 Important Options Trading Strategies

• Article: 10 Options Trading Strategies for All Investors
• When trading options, investors can either buy existing contracts, or they can “write” or sell contracts for securities they currently hold.
• 10 Options Trading Strategies:
1. Long Calls (beginner)
• e.g., Let’s say an investor believes that stock A will rise in one month. Stock A is currently trading at $10 a share and the investor believes it will rise above $12. The investor could buy an option with a $12 strike price and with an expiration date at least one month from now. If stock A’s price rises to hit $12 within a month, the value or “premium” of the option would likely rise.
2. Long Puts (beginner)
• e.g., An investor who buys shares of Tech Stock C currently trading at $20 is nervous about the stock falling, so they buy puts with a strike price of $18 and an expiration two months from now.
  A month later, Tech Stock C stock tumbles to $15, and the investor needs to sell their shares for extra cash. The investor was able to sell the shares at $18 by exercising their puts.
3. Covered Calls (beginner)
4. Short Puts (beginner)
5. Short Calls or Naked Calls (intermediate)
6. Straddles and Strangles (intermediate)
7. Cash-Secured Puts (intermediate)
8. Bull Put Spreads (advanced)
9. Iron Condors (advanced)
10. Butterfly Spreads (advanced)
• Options trading strategies offer a way to potentially profit in almost any market situation — whether prices are going up, down, or sideways.

Video: Equity Compensation - Stock Options

• 2 most common offers: employee stock options and restricted stock units
• Stock options give an employee the opportunity to purchase shares of their company's stock at a discount, also called the exercise price.
• You would want to exercise the option to buy the stock when the exercise price is lower than the market value of that stock.
• The exercise price is generally predetermined when you receive the grant.

Reading: How Do Employee Stock Options Work?

• Article: How Do Employee Stock Options Work?
• Employee stock options (ESO) give an employee the chance to purchase a set number of shares in the company at a set price — often called the exercise price — over a set amount of time.
• This gives an employee the chance to exercise their ESOs at a point when the exercise price is lower than the market price.
• Employee Stock Option Basics
• Exercise price/grant price/strike price: This is the given set price at which employees can purchase the stock options.
• Market price: This is the current price of the stock on the market (which may be lower or higher than the exercise price).
• Typically an employee would only choose to exercise and purchase the options if the market price is higher than the grant price.
• Issue date: This is the date on which you’re given the options.
• Vesting date: This is the date after which you can exercise your options per the original terms or vesting schedule.
• Exercise date: This is the date you actually choose to exercise your options.
• Expiration date: This is the date on which your ability to exercise your options expires.
• Reason companies offer stock options:
• If employees are financially invested in the success of the company, then they’re more likely to be emotionally invested in its success as well, and it can increase employee productivity.
• 2 main kinds of employee stock options, each of which has different tax implications:
• qualified or incentive stock options (ISOs)
• Taxes are due at the time you sell the stock and make a profit.
• non-qualified or non-qualified stock options (NSOs or NQSOs)

Practice Assignment: Derivatives

1. What are the two main components of options?
1. Strike price and expiration date
2. An expiration date and put option
3. A call option and a strike price
4. None of the above
2. Which type of option gives an investor the right to sell an asset?
1. Call option
2. Put option
3. Both A and B
4. None of the above
3. How many shares of the underlying stock does a stock option typically represent?
1. 100 shares
2. 200 shares
3. 300 shares
4. None of the above
4. In options trading, what does “in the money” mean?
1. An option isn’t already profitable, i.e., the stock is trading higher than the strike for a put, or the stock price is trading lower than the strike for a call
2. An option is already profitable, i.e., the stock price is below the strike for a put, or the stock price is above the strike price for a call
3. The strike price of the option and the stock price are about the same
4. None of the above
5. Which category of stock option plans is also called qualified stock options?
1. Incentivized stock options (ISOs)
2. Nonqualified stock options
3. Both A and B
4. None of the above
6. What is the discounted price called?
1. Strike price
2. Exercise price
3. Options price
4. Both B and C

01.05 Module Quiz

Graded Assignment: Understanding the Different Types of Investments

1. Which of the following is a step you should take when selecting an investment strategy?
1. Identify your goal
2. Determine how far into the future you’d like to accomplish it
3. Both A and B
4. None of the above
2. Which of the following are common ways to earn money through stock ownership?
1. Appreciation in stock’s value
2. Income in the form of dividends
3. Capital gains tax
4. Both A and B
3. What term is used to describe corporate bonds rated AAA to BBB by Standard and Poor's?
1. Investment Grade
2. Premium Grade
3. "Junk" bonds
4. In default and not paying interest
4. What is the interest rate on a bond called?
1. Discount rate
2. Coupon rate
3. Short-term rate
4. None of the above
5. What is the face value of most bonds?
1. $150
2. $500
3. $1,000
4. $2,000
6. Which of the following is true about price-to-earnings ratio?
1. It’s the market price of a company’s stock divided by the company’s earnings per share
2. It’s the company’s net income divided by the shareholders’ equity; the result is then multiplied by 100.
3. It’s the market capitalization of the company divided by its revenue, but it doesn’t factor in profit
4. None of the above
7. What benchmark do actively managed mutual funds attempt to beat?
1. The performance of an index
2. The performance of the treasury yield
3. The performance of the interest rate
4. None of the above
8. What type of all-in-one mutual fund assumes you will terminate the fund in some future year, usually when you retire, and shifts to less risky investments as the target year approaches?
1. Asset Class funds
2. Sector or industry funds
3. Target-date funds
4. Both B and C
9. Which of the following is an advantage of ETFs?
1. Liquidity
2. Cost
3. Both A and B
4. Neither
10. What are the two main components of options?
1. Strike price and expiration date
2. An expiration date and put option
3. A call option and a strike price
4. None of the above
11. Which type of option gives an investor the right to sell an asset?
1. Call option
2. Put option
3. Both A and B
4. None of the above
12. How many shares of the underlying stock does a stock option typically represent?
1. 100 shares
2. 1000 shares
3. 10 shares
4. None of the above
13. In options trading, what does “in the money” mean?
1. An option isn’t already profitable, i.e., the stock is trading higher than the strike for a put, or the stock price is trading lower than the strike for a call
2. An option is already profitable, i.e., the stock price is below the strike for a put, or the stock price is above the strike price for a call
3. The strike price of the option and the stock price are about the same
4. None of the above

Module 02

02.01 Comparing Different Types of Risk

Video: Understanding Investment Risk

• Risk: the uncertainty that our realized return will not be the same as our expected return
• The level of risk increases, so does the potential reward.
• The more risk you're willing to take, the more you could gain and the more you could lose.
• Risk appetite: an investor's level of comfort taking risk
• Tied to you
• Risk tolerance: how much risk that investor can take on a particular investment based on their goal and time horizon
• Tied to your individual investments
• How much risk is appropriate will depend on the combination of your risk appetite and risk tolerance.

Video: Systematic Investment Risk

• 2 broad categories of risks: systematic risk and unsystematic risk
• Systematic risk:
• non-diversifiable risk
• inescapable or unavoidable
• inherent in the stock market
• present regardless of your choice of investments
• different types of systematic risks:
• purchasing power risk: loss of purchasing power through inflation
• reinvestment risk: the risk that proceeds from an investment may have to be reinvested at a lower rate than what you had already been earning
• interest rate risk: the risk that a change in interest rate will cause the market value of a security that you own to fall
• market risk: the risk of the overall market
• exchange rate risk: the risk associated with changes in the value of currencies
• country risk or political risk: the uncertainty of returns caused by the potential of major changes in the political or economic environment of a country

Video: Unsystematic Investment Risk

• Unsystematic risk:
• diversifiable risk
• 2 types of unsystematic risks:
• business risk: the nature of a business's operation
• financial risk: credit risk or default risk - how a business finances its assets and its operations
• Diversifiable risk: the impact of these risks be reduced through diversification

Practice Assignment: Investment Risk Types

1. What is risk tolerance?
1. An investor’s level of comfort taking risk
2. How much risk an investor can take on a particular investment based on his or her goal and time horizon
3. An investor’s level of success
4. None of the above
2. Which of the following describes the loss of purchasing power through inflation?
1. Market risk
2. Interest rate risk
3. Reinvestment rate risk
4. Purchasing power risk
3. What are the two types of unsystematic risk?
1. Financial risk and business risk
2. Business risk and institutional risk
3. Educational risk and financial risk
4. None of the above

02.02 Analyzing Investment Risk

Video: Measuring Investment Risk

• The main measures of investment risk:
• Beta: the volatility of investment relative to a benchmark
• The benchmark would often be the whole market or market index.
• Beta = 1: the investment is as volatile as the benchmark itself
• Beta < 1: the investment is less volatile than the benchmark
• Beta > 1: the investment is more volatile than the benchmark
• Standard deviation: the data dispersion relative to the average or mean value of a set of data
• Low standard deviation: more predictable investment performance
• High standard deviation: less predictable or more volatile performance
• Sharpe ratio: the risk adjusted return
• To compare the investment return to an investment that is deemed risk free, e.g., treasury bond
• To assess whether the risk is worth taking for the additional return on a particular investment

Reading: 6 Investment Risk Management Strategies

• Article: 6 Investment Risk Management Strategies
• 3 main factors of risk tolerance:
• Risk capacity: How much the investor can afford to lose without it affecting actual financial security
• Based on age, personal financial goals, and an investor’s timeline for reaching those goals.
• Need: How much these investments will have to earn to get the investor where they want to be
• A careful balancing act between taking too much risk and not taking enough
• Emotions: How the investor will react to bad news (with fear and panic? or clarity and control?), and what effect will those emotions have on investing decisions
• Hard to predict until it happens
• Risk management strategies:
1. Reevaluating Portfolio Diversification and Asset Allocation
2. Lowering Portfolio Volatility
• Rebalancing
• Buying bonds
• Beta
3. Investing Consistently
4. Getting an Investment Risk Analysis
5. Requiring a Margin of Safety
6. Establishing a Maximum Loss Plan

Video: Measuring Investment Returns

• Rate of return on investment: the money that's earned or could be lost on an investment
• Typically expressed as a percentage of the investment's initial cost
• e.g., If you bought a stock for $100 that grew to $110, you would have a 10% rate of return.
• Rate of return formular:
  \[Return\ Rate=\frac{(Current\ Value - Initial\ Value)}{Initial\ Value} \times 100\]

Reading: What is Considered a Good Return on Investment?

• Article: What Is Considered a Good Return on Investment?
• A good return on investment is generally considered to be around 7% per year, based on the average historic return of the S&P 500 index, adjusted for inflation.
• Cash slowly loses value over time due to inflation if you don't invest.
• Putting money in a savings account that earns interest at a rate that is lower than the inflation rate guarantees that money will lose value over time.
• Different investments, such as CDs, bonds, stocks, and real estate, offer varying rates of return and levels of risk.
• It’s important to consider factors like diversification and time when investing long-term.
• Investing in stocks carries higher potential returns but also higher risk, while investments like CDs offer lower returns but are considered safer.

Practice Assignment: Assessing Investment Risk

1. What is measured by beta?
1. How much the return on investment is deviating from the expected or average return
2. Performance, but it’s used to compare the return of an investment to that of an investment that’s deemed risk-free, like a treasury bond
3. The volatility of an investment relative to a benchmark
4. Data dispersion relative to the average or mean value of a set of data
2. What are the three main factors of an investor’s risk tolerance?
1. Risk capacity, need, and emotions
2. Risk capacity, need, and wants
3. Risk capacity, emotions, and logic
4. None of the above
3. Which of the following is the correct calculation for rate of return?
1. Rate of return = [(Initial value − Current value) ÷ Initial Value ] × 100
2. Rate of return = [(Current value − Initial value) ÷ Initial Value ] × 100
3. Rate of return = [Current value ÷ Initial Value ] × 100
4. None of the above
4. According to the Federal Deposit Insurance Corporation (FDIC), what is the national average annual percentage yield for one month of non-jumbo deposits (as of Jan 4, 2021)?
1. 0.04%
2. 0.05%
3. 0.07%
4. 0.16%

02.03 Balancing Risk and Return

Video: Investment Risk & Return

• The higher risk, the higher return
• The lower risk, the lower return
• Risk reward ratio: calculating the potential outcomes of any investment transaction - good or bad
• e.g., For a risk reward ratio of 1:3, you risk $1 to hopefully gain $3 in profits
• You divide net profits (reward), by the cost of the investment's maximum risk.

Reading: Suitability: Definition, How It's Measured, and How It's Used for Investing

• Article: Investment Risk: What Every New Investor Should Know
• Higher risk, higher potential return
• Risk balancing:
  
• Several types of risk:
• market
• business specific
• price volatility
• interest rate
• concentration

Video: Investment Risk Tolerance & How to Find Yours

• Risk tolerance: the amount of risk an investor is willing to take
• Risk capacity: the ability to handle risk financially
• how much can you afford to lose without affecting your security
• Risk appetite: emotional attitude about risk

Reading: Explaining the Different Types of Asset Classes

• Article: Explaining the Different Types of Asset Classes
• Different asset classes:
• Stocks (equities): a single ownership share in a publicly-traded company (a company that trades on a stock exchange)
• You can receive dividends from stocks if a company pays out part of its profits, or you might get capital gains when you sell if the price of the stock has risen.
• Bonds (fixed income): loans you make to a company or government for a predetermined amount of time at a certain amount of interest
• e.g., treasury bonds, corporate bonds, municipal bonds
• Money market accounts or cash equivalents: savings account, or certificate of deposit (CD)
• You get paid interest on the money for lending money to the financial institution.
• Real estate: buying real estate for the purposes of renting the property to generate income or to earn profits as the value of the property appreciates
• Commodities: putting money into metals, energy products, livestock, agricultural products, and so forth
• Commonly through a futures contract
• Future contract: an agreement to buy or sell a certain commodity at a specific quantity at a predetermined price at a later time
• Cryptocurrencies: investing in digital currency that is largely unregulated
• Typically dependant on a direct financial exchange between users, with no involvement from a bank or other third party
• Real estate investment trusts (REITs): investing primarily in real estate or real estate loans, traded like stocks

Practice Assignment: Risk & Return

1. What is the risk-reward ratio formula?
1. The cost of the investment’s maximum risk divided by net profits (which represent the reward)
2. Net profits (which represent the reward) divided by the cost of the investment’s maximum risk
3. Net expenses divided by the cost of the investment’s maximum risk
4. None of the above
2. Which of the following is NOT one of the broad categories of investment risk tolerance?
1. Simple risk tolerance
2. Aggressive risk tolerance
3. Moderate risk tolerance
4. Conservative risk tolerance
3. How many different stock sectors are there?
1. 5
2. 7
3. 11
4. 15

02.04 Module Quiz

Graded Assignment: Balancing Risk and Return

1. What is risk tolerance?
1. An investor’s level of comfort taking risk
2. How much risk an investor can take on a particular investment based on his or her goal and time horizon
3. An investor’s level of success
4. None of the above
2. Which of the following describes the loss of purchasing power through inflation?
1. Market risk
2. Interest rate risk
3. Reinvestment rate risk
4. Purchasing power risk
3. What are the two types of unsystematic risk?
1. Financial risk and business risk
2. Business risk and institutional risk
3. Educational risk and financial risk
4. None of the above
4. What is measured by beta?
1. How much the return on investment is deviating from the expected or average return
2. Performance, but it’s used to compare the return of an investment to that of an investment that’s deemed risk-free, like a treasury bond
3. The volatility of an investment relative to a benchmark
4. Data dispersion relative to the average or mean value of a set of data
5. Which of the following is the correct calculation for rate of return?
1. Rate of return = [(Initial value − Current value) ÷ Initial Value ] × 100
2. Rate of return = [(Current value − Initial value) ÷ Initial Value ] × 100
3. Rate of return = [Current value ÷ Initial Value ] × 100
4. None of the above
6. What is the risk-reward ratio formula?
1. The cost of the investment’s maximum risk divided by net profits (which represent the reward)
2. Net profits (which represent the reward) divided by the cost of the investment’s maximum risk
3. Net expenses divided by the cost of the investment’s maximum risk
4. None of the above
7. Which of the following is NOT one of the broad categories of investment risk tolerance?
1. Simple risk tolerance
2. Aggressive risk tolerance
3. Moderate risk tolerance
4. Conservative risk tolerance
8. How many different stock sectors are there?
1. 5
2. 7
3. 11
4. 15
9. Which of the following is NOT a factor of an investor’s risk tolerance?
1. Market Volatility
2. Risk Capacity
3. Need
4. Emotions
10. True or False: Your money loses value if you don’t invest it.
1. True
2. False

Module 03

03.01 Factoring in Your Time Horizon

Video: Investment Diversification Basics

• Portfolio diversification involves spreading your money across different asset classes, such as stocks, bonds, and real estate.
• e.g., Instead of buying stock in a few individual companies, you can invest in an index fund, which is a type of mutual fund, or exchange traded fund that holds a variety of stocks tracked to a certain index, such as the S&P 500.
• e.g., Buying property of different types in different markets, rather than just one type in one single location.
• e.g., Another strategy for diversification is to invest in both the US and foreign stocks.
• The greater the quantity and variety of assets you own, the more diversified your portfolio is.
• Diversification reduces your vulnerability as different areas aren't likely to react in the same exact way, to the same exact occurrence.
• The housing market and the stock market can influence each other but they don't have a strong relationship.
• When stocks or bonds drop, real estate prices usually take much longer to follow.

Reading: What is Portfolio Management?

• Portfolio management: the process of selecting and monitoring investments over time
• guided by 1) investment objectives, 2) risk tolerance and 3) time horizon
• managed by 1) professional portfolio managers and 2) investors themselves
• A diversified strategy: use of a benchmark, asset allocation, and rebalancing
• Passive portfolio management: a strategy that tracks an external market index
• Goal: to mirror the market’s daily performance
• e.g., exchange-traded funds (ETFs), index funds, and equity mutual funds
• lower management fees
• long-term, set-it-and-forget-it strategy
• Active portfolio management: professional money managers regularly track investors’ portfolio performance, deciding when to hold, buy, or sell various investments
• Goal: to outperform (not mirror) the market’s day-to-day ups and downs
• higher management fees
• the chance to “beat the market”
• Important portfolio management strategies:
• Diversification: the technique of buying multiple different, non-correlated investment types in order to lower a portfolio’s overall risk
• e.g., owning stocks within different industries or sectors, in different countries, and with varying investment styles, such as growth, value, or dividend-paying stocks
• e.g., the use of pooled investment funds, like mutual funds or ETFs (inherently diversified)
• Asset allocation: to allocate to different asset classes like stocks, bonds, cash
• determined by an investor’s goals, risk tolerance, and investing timeline
• e.g., someone near retirement may want a more conservative strategy and have more allocated to bonds and cash
• Rebalancing: to re-adjust the proportions of investments to keep a portfolio’s balance
• be done monthly, quarterly, or annually, or on an as-needed basis as the portfolio grows over time
• Using a benchmark in portfolio management: using a broad market index for the investment’s corresponding market
• e.g., if an investor is building a portfolio of U.S. stocks, they might want to use the S&P 500 as a benchmark.

Reading: How Often Should You Rebalance Your Portfolio?

• Portfolio rebalancing:
• tweaking the specific mix of assets and investments an investor owns
• realigning the assets of a portfolio’s holdings to match an investor’s desired asset allocation
• desired allocation of investments in an investor’s portfolio: a combination of assets like stocks, bonds, mutual funds, commodities, and real estate
• made with individual risk tolerance and financial goals in mind
• one stock or fund might have such high returns it eventually grows to be a more significant portion of the portfolio
• If an investor doesn’t rebalance, the portfolio may eventually drift away from the target asset allocation.
• How often to rebalance your portfolio?
• depending on personal preferences
• at set time points, whether monthly, quarterly, or annually
• when the target asset allocation drifts a certain percentage, like 5% or 10%
• depending on what stage of life they’re in - those closer to retirement will want to rebalance more frequently as a risk-avoidance strategy
• The downside is that active trading can lead to trading at the wrong time and more fees.
• Different types of portfolio rebalancing:
• Smart beta rebalancing
• Typically done by portfolio managers of mutual funds and exchange-traded funds (ETFs)
• The managers of the index funds handle the rebalancing of holdings when market caps shift.
• Rebalancing retirement accounts
• Retirement savings are in investment accounts
• Generally, investors will adopt a more conservative target asset allocation as they near retirement.
• Target date funds typically work by automatically rebalancing over time from stocks to bonds as investors get closer to retirement.

Practice Assignment: Investment Time Horizon

1. Why do governments and corporations issue bonds?
1. They want to lend money
2. They want to raise money
3. They want to spend money
4. None of the above
2. Which of the following is an example of pooled investment funds?
1. Mutual funds
2. ETFs
3. Both A and B
4. Cash
3. What is a standard rule of thumb for portfolio rebalancing?
1. Rebalance when an asset allocation changes more than 5%
2. Rebalance when an asset allocation changes more than 10%
3. Rebalance when an asset allocation changes more than 20%
4. Rebalance when an asset allocation changes more than 25%

03.02 Deciding Between Active and Passive Investing

Video: Active Investing

• Active investing: trading individual stocks or bonds in an attempt to beat the market
• Passive investing: putting money in a group of stocks, such as an index fund or an exchange traded fund
• Pros of active investing:
• the possibility of potentially outperforming the broader market
• satisfaction
• to build a completely customized portfolio
• Cons of active investing:
• low possibility of outperforming passive index funds
• time and energy consumption

Video: Passive Investing

• Active investing typically involves in depth research into each stock purchase as well as regularly watching the market in order time buys and sells.
• Passive investing strategies aim:
  • to bring in passive income
  • to grow a portfolio over time without as much day-to-day involvement
• Passive investing is a strategy which looks to match returns of the overall market and often takes a buy and hold approach once investments are chosen.
• Passive investing:
• buying a variety of individual securities and holding them for the long run
• simply investing in passive low cost funds like index funds
• Pros of passive investing:
• without the need to be involved on a day-to-day basis
• lower costs and reduced fees and expenses

Reading: Active vs. Passive Investing

• Article: Active vs Passive Investing: Differences Explained
• Key differences:



Active Funds	Passive Funds
The majority of active strategies underperform the market on average over time.	Most passive strategies outperform the market over time.
Higher fees	Lower fees
Human intelligence and skill may capture market upsides.	A passive algorithm captures market returns, which are typically higher on average.
Typically not tax efficient	Typically more tax efficient
Less tied to market volatility	Tied to market volatility and more vulnerable to market shocks

• Active investing pros and cons:



Pros and Cons of Active Investing
Pros	Cons
May be fun to follow the market and make your own investment decisions	Difficult to beat the market
May profit in up, down, and sideways markets	Time consuming
Can tailor a strategy based on your goals and risk tolerance	Higher fees and commissions

Practice Assignment: Passive and Active Categorization

1. Between 2002 and 2017, actively managed funds produced returns that lagged behind 92% to 95% of index funds, depending on the type of fund, according to Standard & Poor’s.
1. True
2. False
2. In 2007, passive funds accounted for 20% of equity assets under management. In the decade since, that share has tripled.
1. True
2. False
3. About 70 percent of active stock managers failed to beat their index targets over the previous one-year, five-year, and ten-year periods, according to a 2016 study by S&P Dow Jones Indices.
1. True
2. False

03.03 Module Quiz

Graded Assignment: Developing an Investment Strategy

1. Why do governments and corporations issue bonds?
1. They want to lend money
2. They want to raise money
3. They want to spend money
4. None of the above
2. Which of the following is an example of pooled investment funds?
1. Mutual funds
2. ETFs
3. Both A and B
4. Cash
3. What is a standard rule of thumb for portfolio rebalancing?
1. Rebalance when an asset allocation changes more than 5%
2. Rebalance when an asset allocation changes more than 10%
3. Rebalance when an asset allocation changes more than 20%
4. Rebalance when an asset allocation changes more than 25%
4. True or False: Between 2002 and 2017, actively managed funds produced returns that lagged behind 92% to 95% of index funds, depending on the type of fund, according to Standard & Poor’s.
1. True
2. False
5. In 2007, passive funds accounted for 20% of equity assets under management. In the decade since, that share has tripled.
1. True
2. False
6. About 70 percent of active stock managers failed to beat their index targets over the previous one-year, five-year, and ten-year periods, according to a 2016 study by S&P Dow Jones Indices.
1. True
2. False
7. What is money deposited into a taxable investment account known as?
1. Pre-tax
2. Post-tax
3. Past-tax
4. Both A and C
8. Which investment approach gives you, the investor, the most control over your portfolio?
1. An active investing approach
2. A passive investing approach
3. A hybrid investing approach
4. None of the above
9. Which investment approach gives you, the investor, the potential for returns higher than the overall market?
1. An active investing approach
2. A passive investing approach
3. A hybrid investing approach
4. None of the above
10. Which of the following are examples of diversification?
1. Buying an index fund instead of individual stocks
2. Buying real estate properties of different types in various locations
3. Both A and B
4. None of the above

Module 04

04.01 Considering Taxes on Investments

Video: How Investments Are Taxed

• Different ways your money can make money:
1. earning interest
2. receiving dividends
3. selling investments at a profit (capital gains)
• Interest earnings are taxed at your regular income tax rate.
• Dividends:
• qualified
• non qualified
• Qualified dividends are taxed at lower rates than non qualified dividends.
• Capital gains are subject to capital gains taxes when those gains are realized or the investments have been sold.
• Capital gains:
• Short term: investment owned less than 1 year sold
• Be taxed at regular income tax rate
• Long term: investment owned more than 1 year sold
• Be taxed at lower (capital-gains) tax rates

Reading: Everything You Need to Know About Taxes on Investment Income

• Article: Everything You Need to Know About Taxes on Investment Income
• Types of investment income taxes:
• Dividends
• Capital gains
• Interest income
• Net Investment Income Tax (NIIT)
• Dividends received from stocks are taxed either at ordinary income rates or qualified rates.
• Most dividends are considered ordinary/non-qualified dividends by default and taxed at the investor’s income tax rate.
• Qualified dividends are typically taxed at a lower capital gains rate.
• Capital gains tax applies when assets are sold for a profit, with rates depending on the holding period.
• Interest income from investments (e.g., bonds and savings accounts) is taxed at ordinary income rates.
• Municipal bonds are exempted from federal taxes and maybe from state taxes.
• The Net Investment Income Tax adds a 3.8% tax on investment income for high earners.

Reading: Investment Tax Rules Every Investor Should Know

• Article: Investment Tax Rules Every Investor Should Know
• Investments are taxed at one or more of these three times:
• When you sell an asset for a profit.
• When you receive money from your investments (e.g., dividends or interest).
• When you have investment income that includes such things as royalties, income from rental properties, certain annuities, or from an estate or trust.
• Net investment income tax (NIIT) is a flat 3.8% surtax levied on investment income for taxpayers above a certain income threshold.
• 2 types of tax-sheltered accounts:
• Tax-deferred accounts
• Tax-exempt accounts

Practice Assignment: Investment Income

1. What is money deposited into a taxable investment account known as?
1. Pre-tax
2. Post-tax
3. Past-tax
4. Both A and C
2. Which tax form will you receive for dividend income?
1. W2
2. 1099
3. 1099-DIV
4. 1099-B

04.02 Understanding Investment Fees

Video: Investment Fees

• Fees:
• For a human money manager: reasonable between 0.5% and 1%
• For a robo-advisor (electronic money manager): often 0.5% or less
• ETFs often lower fees than mutual funds

Reading: What Are the Different Types of Investment Fees?

• Article: Investment Fees Explained: Definition, Types, Costs
• 6 common types of investment fees:
1. Management fees
2. Hedge-fund fees: two and twenty
3. Expense ratio
4. Sales charges
5. Advisory fees
6. Brokerage fees and commissions
• Standard management fee is about 1%.

Reading: Taxes, Fees, Commissions, and Your Investments

• Article: Taxes, Fees, Commissions, and Your Investments
• Taxes, fees, and commissions significantly reduce the actual returns from investments.
• Understanding and planning for these costs can help investors manage their net earnings more effectively.
• Mutual funds and advisors charge various fees, which can diminish investment gains.
• Income tax and capital gains tax are the primary taxes affecting investment profits, with different rates applied based on the investment duration and investor’s income.
• Employing strategies like investing through tax-advantaged accounts can minimize the tax impact on returns.
• To minimize the cost of investing:
• Index funds
• Automated investing platforms
• Discount brokerage

Video: Choosing Investment Accounts to Maximize Tax Benefits

• 3 major categories of taxation:
1. Tax deferred
• You will pay taxes on the money when you pull out of the tax deferred accounts.
2. Tax exempt
• Money contributed to tax exempt accounts has already been subjected to taxes and therefore will not be subject to income taxes again when withdrawn.
3. Taxable
• Taxable accounts are subject to normal taxation.
• Tax deferred and tax exempt varieties are generally considered more tax advantageous than a taxable account for long term investing.

Reading: A Guide to Tax-Efficient Investing

• Article: A Guide to Tax-Efficient Investing
• Types of tax-efficient accounts:
• Taxable accounts
• Tax-advantaged accounts
• Tax-Deferred retirement accounts
• Tax-exempt accounts

• Types of Accounts	When Taxes Apply	Investment Implications
  Taxable (e.g. brokerage or investment account)	Investors deposit post-tax funds and owe taxes on profits from securities they sell, and from interest and dividends.	Investments with a lower tax impact make sense in a taxable account (e.g. long-term stocks, municipal and Treasury bonds).
  Tax-deferred (e.g. 401(k), 403(b), traditional, SEP, and Simple IRAs)	Investors contribute pre-tax money, but owe taxes on withdrawals.	Investments grow tax free until funds are withdrawn, giving investors more tax flexibility when choosing securities.
  Tax-exempt (e.g. Roth 401(k), Roth IRA)	Investors deposit post-tax funds, and don’t owe taxes on withdrawals.	These accounts offer the most tax flexibility as investments grow tax free and investors withdraw the money tax free.

• The tradeoffs of tax-free growth:
• Contribution limits
• Income limits
• Penalties for early withdrawals
• Required withdrawals
• Choosing tax-efficient investments:
• ETFs
• Treasury bonds
• Municipal bonds
• Stocks that do not pay dividends

Practice Assignment: Quick Fee Calculations/Savings

1. Why do mutual funds that are actively managed tend to have higher expense ratios?
1. They incur fewer penalties
2. There are more costs for managing those funds
3. There are fewer costs for managing those funds
4. They don’t incur any costs
2. How much are the fees for a robo advisor?
1. 0.3% or less, and in some rare cases, free of charge
2. 0.4% or less, and in some rare cases, free of charge
3. 0.5% or less, and in some rare cases, free of charge
4. 0.6% or less, and in some rare cases, free of charge

04.03 Module Quiz

Graded Assignment: Understanding Taxes and Fees

1. Which tax form will you receive for dividend income?
1. W2
2. 1099
3. 1099-DIV
4. 1099-B
2. Why do mutual funds that are actively managed tend to have higher expense ratios?
1. They incur fewer penalties
2. There are more costs for managing those funds
3. There are fewer costs for managing those funds
4. They don’t incur any costs
3. How much are the fees for a robo advisor?
1. 1% or less, and in some rare cases, free of charge
2. 2% or less, and in some rare cases, free of charge
3. 0.5% or less, and in some rare cases, free of charge
4. Robo advisors are almost always free of charge
4. Which of the following is NOT a type of investment income?
1. Commission
2. Dividends
3. Interest
4. Capital gains
5. Which of the following are types of capital gains?
1. Short-term capital gains
2. Mid-term capital gains
3. Long-term capital gains
4. Both A and C
6. Which of the following are types of capital gains?
1. Short-term capital gains
2. Mid-term capital gains
3. Long-term capital gains
4. Both A and C
7. All of the following are considered tax-exempt accounts EXCEPT:
1. 529 Plan Account
2. Pre-tax 401k
3. Roth 401k
4. Roth IRA
8. Which of the following describes the tax to be paid on the profit from a sold asset?
1. Capital Gains Tax
2. Qualified Dividend Tax
3. Ordinary Dividend Tax
4. Alternative Minimum Tax
9. Which of the following are common types of fees you could incur by investing?
1. Management Fees
2. Expense Ratios
3. Commissions
4. All of the Above
10. Which of the following are ways you can minimize the cost of investmenting?
1. Using Index Funds
2. Using Automated Investing Platforms
3. Using Discount Brokers
4. All of the Above

Answer Key

A01.01 Understanding Stocks

Practice Assignment: Stock Quiz

1. C. Both A and B
2. D. Both A and B
3. A. Common stocks
4. A. It's the market price of a company’s stock divided by the company’s earnings per share.
5. B. Investing in stocks across a range of sectors and risk levels

A01.02 Understanding Bonds

Practice Assignment: Bond Quiz

1. B. Municipal bonds
2. A. “Investment Grade”
3. B. Coupon rate
4. C. $1,000
5. C. Yield to worst

A01.03 Assessing Pooled Investments

Practice Assignment: Pooled Investments

1. A. The performance of the index
2. C. Target-date funds
3. C. Both A and B
4. D. All of the above

A01.04 Uncovering Advanced Vehicles

Practice Assignment: Derivatives

1. A. Strike price and expiration date
2. B. Put option
3. A. 100 shares
4. B. An option is already profitable, i.e., the stock price is below the strike for a put, or the stock price is above the strike price for a call
5. A. Incentivized stock options (ISOs)
6. B. Exercise price

A01.05 Module Quiz

Graded Assignment: Understanding the Different Types of Investments

1. C. Both A and B
2. D. Both A and B
3. A. Investment Grade
4. B. Coupon rate
5. C. $1,000
6. A. It’s the market price of a company’s stock divided by the company’s earnings per share
7. A. The performance of an index
8. C. Target-date funds
9. C. Both A and B
10. A. Strike price and expiration date
11. B. Put option
12. A. 100 shares
13. B. An option is already profitable, i.e., the stock price is below the strike for a put, or the stock price is above the strike price for a call

A02.01 Comparing Different Types of Risk

Practice Assignment: Investment Risk Types

1. B. How much risk an investor can take on a particular investment based on his or her goal and time horizon
2. D. Purchasing power risk
3. A. Financial risk and business risk

A02.02 Analyzing Investment Risk

Practice Assignment: Assessing Investment Risk

1. C. The volatility of an investment relative to a benchmark
2. A. Risk capacity, need, and emotions
3. B. Rate of return = [(Current value − Initial value) ÷ Initial Value ] × 100
4. A. 0.04%

A02.03 Balancing Risk and Return

Practice Assignment: Risk & Return

1. B. Net profits (which represent the reward) divided by the cost of the investment’s maximum risk
2. A. Simple risk tolerance
3. C. 11

A02.04 Module Quiz

Graded Assignment: Balancing Risk and Return

1. B. How much risk an investor can take on a particular investment based on his or her goal and time horizon
2. D. Purchasing power risk
3. A. Financial risk and business risk
4. C. The volatility of an investment relative to a benchmark
5. B. Rate of return = [(Current value − Initial value) ÷ Initial Value ] × 100
6. B. Net profits (which represent the reward) divided by the cost of the investment’s maximum risk
7. A. Simple risk tolerance
8. C. 11
9. A. Market Volatility
10. A. True

A03.01 Factoring in Your Time Horizon

Practice Assignment: Investment Time Horizon

1. B. They want to raise money
2. C. Both A and B
3. A. Rebalance when an asset allocation changes more than 5%

A03.02 Deciding Between Active and Passive Investing

Practice Assignment: Passive and Active Categorization

1. A. True
2. B. False
3. B. False

A03.03 Module Quiz

Graded Assignment: Developing an Investment Strategy

1. B. They want to raise money
2. C. Both A and B
3. A. Rebalance when an asset allocation changes more than 5%
4. A. True
5. B. False
6. B. False
7. B. Post-tax
8. A. An active investing approach
9. A. An active investing approach
10. C. Both A and B

A04.01 Considering Taxes on Investments

Practice Assignment: Investment Income

1. B. Post-tax
2. C. 1099-DIV

A04.02 Understanding Investment Fees

Practice Assignment: Quick Fee Calculations/Savings

1. B. There are more costs for managing those funds
2. C. 0.5% or less, and in some rare cases, free of charge

A04.03 Module Quiz

Graded Assignment: Understanding Taxes and Fees

1. C. 1099-DIV
2. B. There are more costs for managing those funds
3. C. 0.5% or less, and in some rare cases, free of charge
4. A. Commission
5. D. Both A and C
6. D. Both A and C
7. B. Pre-tax 401k
8. A. Capital Gains Tax
9. D. All of the Above
10. D. All of the Above