The fundamentals of investing answer key page 23

Also, tax-advantaged retirement accounts come with rules that make it difficult to get your hands on your cash should you suddenly need it, so that account should not be your only emergency fund. Start Investing Now Bad stock markets—known as bear markets —can make people question the wisdom of investing, but historically there has been no better way to grow your money.

The magic of compound interest alone will grow your money exponentially, but you do need a lot of time to achieve meaningful growth. However, remember that—for everyone except professional investors—it would be a mistake to attempt the kind of stock picking made famous by billionaires like Warren Buffett. Instead, open an online brokerage account that makes it easy for you to learn how to invest , create a manageable portfolio, and make weekly or monthly contributions to it automatically.

Achieving financial freedom can be very difficult in the face of growing debt, cash emergencies, medical issues, and overspending, but—with discipline and careful planning—it is possible. That is the ultimate goal of 6. Watch Your Credit Score Your credit score is a very important number that determines the interest rate you are offered when buying a new car or refinancing a home.

It also impacts the amount you pay for a range other essentials, from car insurance to life insurance premiums. The reason credit scores have so much weight is that someone with reckless financial habits is considered likely to be reckless in other areas of life, such as not looking after their health—or even driving and drinking. It may also be worth looking into a reputable credit monitoring service to protect your information.

Negotiate for Goods and Services Many Americans are hesitant to negotiate for goods and services, because they're afraid that it makes them seem cheap. Conquer this fear and you could save thousands each year. Small businesses, in particular, tend to be open to negotiation, so buying in bulk or positioning yourself as a repeat customer can open the door to good discounts.

Stay Educated on Financial Issues Review relevant changes in tax law to ensure that all adjustments and deductions are maximized each year. Keep up with financial news and developments in the stock market and do not hesitate to adjust your investment portfolio accordingly. Knowledge is also the best defense against fraudsters who prey on unsophisticated investors to turn a quick buck.

Maintain Your Property Taking good care of property makes everything from cars and lawnmowers to shoes and clothes last longer. Learn to know the difference between the things you want and the things you need. Live Below Your Means Mastering a frugal lifestyle means developing a mindset focused on living a good life with less—and it's easier than you think.

In fact, before rising to affluence, many wealthy individuals developed the habit of living below their means. It simply means learning to distinguish between the things you need and the things you want—and then making small adjustments that drive big gains for your financial health. Take Care of Your Health The principle of proper maintenance also applies to your body—and taking excellent care of your physical health has a significant positive impact on your financial health as well.

Investing in good health is not difficult. It means making regular visits to doctors and dentists, and following health advice about any problems you encounter. Many medical issues can be helped—or even prevented—with basic lifestyle changes, such as more exercise and a healthier diet. Poor health maintenance, on the other hand, has both immediate and long-term negative consequences on your financial goals.

Some companies have limited sick days, which means a loss of income once paid days are used up. Obesity and other dietary illnesses make insurance premiums skyrocket, and poor health may force early retirement with lower monthly income for the rest of your life. What Is Financial Freedom? Everyone defines financial freedom in terms of their own goals. For most people, it means having the financial cushion savings, investments, and cash to afford a certain lifestyle—plus a nest egg for retirement or the freedom to pursue any career without the need to earn a certain salary.

We have built an easy-to-follow budgeting calculator to help you categorize and control your spending and saving—which is the essential first step toward financial freedom. Not all stock funds are the same. Some examples are: Growth funds focus on stocks that may not pay a regular dividend but have potential for above-average financial gains. Income funds invest in stocks that pay regular dividends. Sector funds specialize in a particular industry segment.

Target date funds hold a mix of stocks, bonds, and other investments. Target date funds, sometimes known as lifecycle funds, are designed for individuals with particular retirement dates in mind. What are the benefits and risks of mutual funds? Mutual funds offer professional investment management and potential diversification. They also offer three ways to earn money: Dividend Payments.

A fund may earn income from dividends on stock or interest on bonds. The fund then pays the shareholders nearly all the income, less expenses. Capital Gains Distributions. The price of the securities in a fund may increase. When a fund sells a security that has increased in price, the fund has a capital gain. At the end of the year, the fund distributes these capital gains, minus any capital losses, to investors. Increased NAV. The higher NAV reflects the higher value of your investment.

All funds carry some level of risk. With mutual funds, you may lose some or all of the money you invest because the securities held by a fund can go down in value. Dividends or interest payments may also change as market conditions change. But past performance can tell you how volatile or stable a fund has been over a period of time.

The more volatile the fund, the higher the investment risk. How to buy and sell mutual funds Investors buy mutual fund shares from the fund itself or through a broker for the fund, rather than from other investors. The fund usually must send you the payment within seven days. Before buying shares in a mutual fund, read the prospectus carefully.

Understanding fees As with any business, running a mutual fund involves costs.

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