Dave Ramsey Foundations in Personal Finance - Chapter 11 Video Terms 100% Correct

Dave Ramsey Foundations in Personal Finance - Chapter 11 Video Terms 100% Correct What is the main goal of investing? To build wealth over time through compound interest How does compound interest work? It earns interest on both the initial investment and the accumulated interest Why should you start investing early? The earlier you invest, the more time your money has to grow through compound interest What is the difference between saving and investing? Saving is for short-term goals, while investing is for long-term growth What is a stock? A share of ownership in a company 2 What is a bond? A loan you give to a company or government in exchange for periodic interest payments and the return of the principal at maturity What does diversification mean in investing? Spreading investments across different assets to reduce risk What is the risk of putting all your money into one investment? It increases the chance of losing money if that investment performs poorly What is an index fund? A type of mutual fund that tracks a specific market index, like the S&P 500 Why is it important to have an emergency fund before investing? It provides financial security so you won’t have to sell investments in a crisis What is a mutual fund? 3 A pool of money from many investors that is used to buy a diversified portfolio of stocks, bonds, or other securities What is a 401(k)? A retirement savings plan offered by employers, where employees can contribute pre-tax money for retirement What is the benefit of a Roth IRA? Contributions are made with after-tax dollars, and earnings grow tax-free Why should you avoid individual stock picking for most people? It is risky and requires a lot of knowledge and research What is the rule of 72? A way to estimate how long it will take for your investment to double at a given interest rate by dividing 72 by the interest rate What is the difference between a traditional IRA and a Roth IRA? 4 Traditional IRA contributions are tax-deductible, while Roth IRA contributions are made with after-tax dollars and grow tax-free