University of Phoenix Material

Investments Worksheet

Answer the following questions in at least 50 words each:

1. What are the main differences between a 401K and a Roth IRA?

A 401K is an employer-sponsored deferred income plan. To contribute to
a 401K, the employee designates a portion of each paycheck to be
diverted into the plan. These contributions occur before income taxes
are deducted from the paycheck. 401K plans are most beneficial when an
employer offers to match by contributing additional money to the
employee's 401K based on how much the employee contributes. A Roth IRA
is set up directly between an individual and an investment firm; the
individual's employer is not involved. This gives IRA accounts a
greater degree of investment freedom than employees have with their

2. How would you explain the difference between a stock, a bond, and a
mutual fund?

A stock is ownership in a company. When you buy a stock, you buy a
piece of the company. So if the company does well, you do well. If
the company doesn't preform well then you tend to lose the stock. A
bond is more like a loan to others where you earn the interest. You
loan your money to the government or a company, and in return they pay
you interest for the term of that loan. There are many types of bonds;
government bonds, corporate bonds, short-term bonds, long-term bonds,
municipal and inflation protected bonds, etc. Mutual funds represent
another way to invest in stocks, bond, or cash alternatives. In a
Mutual bond money is pooled, along with the money of other investors,
into a fund, which then invests in certain securities according to a
stated investment strategy.

3. What are the risks and rewards of investing?

As an investor, risks come in many forms. Without a risk, you can
expect rewards. When you invest money in company stocks then you run
the risk if the company doesn't perform well. There is always a risk
of inflation risk, interest rate risk, business failure risk, and
market risk. Without risks there are no rewards. A final factor to
consider when choosing an investment is your age. Younger investors
tend to invest a large percentage of their nest egg in growth-oriented
investments. If their investments take a nosedive, they have time to
recover. On the other hand, older investors tend to be more
conservative and invest in government bonds, high-quality corporate
bonds, and very safe corporate stocks or mutual funds. As a result, a
smaller percentage of their nest egg is placed in growth-oriented

4. How can you minimize the risks associated with investing?

The best way to minimize the risk associated with investing is
really getting to know what you are investing in and getting to
know each risk with each investment. The best way is by
diversifying your portfolio, which means buying a single type of
asset from many various companies. Asset allocation is the process
of spreading your assets among several different types of
investments to lessen risk.

5. What would affect your decision to invest?

If there is anything that will affect is the risk it takes to invest.
To save money, I will have to give up on my lifestyle. At this time, I
don't think I understand all types of investments. I am not sure where
to invest. I will have to carefully evaluate my comfort zone when it
comes to taking risk. At this time one thing that is affecting my
decision is not having enough savings.