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Investing in the stock market is the quickest way to grow your wealth.
Explanation
Investments require a long-term commitment of your fundsbecause it generally takes a long time for them to generate significant returns.You should never think of investing as a get-rich-quick scheme.
You decide that you want to buy a house and you need to save £30,000 for your deposit. You make a once-off deposit of £10,000 into a fundthat grows by 15% each year. Ignoring fees and other charges, how many years would youneed to keep your money in the fund to reach your goal?
Explanation
If you calculated an interest growth of 15% each year, it would take eight years for your fund to be worth: £10,000 x (1.158) = £30,590. Remember, it’s 15% of the current value of your account at the end of each year, not only 15% of your initial investment.
Capital growth is the only way investors can profit from buying stock.
Explanation
You can also profit from dividends, which some companies payout to investors when they’ve reached or exceeded their profit targets.
Which of the following assets can you invest in?
Explanation
You can invest in all of these assets.
Which of the following statements are true about investing in shares?
Explanation
Some companies pay dividends to shareholders when they’vemade significant returns. Investing in shares is also riskier than investing ingovernment bonds because there’s no promise that you’ll get back your initialinvestment as you might with bonds. Plus, a share’s value could depreciate overtime, meaning you could lose some of the money you put up – so A is incorrect.
Which of the following is not a stock exchange:
Explanation
The London Stock Exchange (LSE), New York Stock Exchange (NYSE) and National Association of Securities Dealers Automated Quotations (NASDAQ) are all exchanges. The SEC is the Securities and Exchange Commission – a regulatory body that controls the financial services industry in the US.
What’s the risk of keeping your money in a savings account?
Explanation
The interest you earn in a traditional savings account could belower than the rate of inflation. So even though you’re gaining profits, thetrue value of your money could be diminishing over time.
Match the following stock exchanges to their respective countries:
Explanation
National Association of Securities Dealers Automated Quotations (NASDAQ) > USA, London Stock Exchange (LSE) > UK, Australian Securities Exchange (ASX) > Australia, Toronto Stock Exchange (TSX) > Canada, Dubai Financial Market (DFM) > UAE
Which of the following statements are true about government bonds?
Explanation
Bonds are less risky than shares because, although a return ofyour capital isn’t always guaranteed, they promise to pay back the full amountof your investment after a fixed period. Shares can either appreciate ordepreciate in value by the time you decide to sell them.
You can invest in an index like the FTSE 100.
Explanation
Though indirectly, you can invest in a FTSE-tracking ETF that will hold shares in its constituentcompanies.
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