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Now that you have completed our online course on investing basics, let’s do a quick review of what you’ve learned.


Let’s review…

There are many reasons to start investing. You may have a specific financial goal in mind, such as building a retirement plan, college fund or nest egg. Most importantly, the earlier you start working towards your goals, the more time you will have and the less pressured you will feel — which can lead to better decision-making.

Investing terms to remember

We’ve also covered a variety of investing terms you will need, including:

  • Volatility: the rate at which an asset increases or decreases in value over a period of time.
  • IPO: short for Initial Public Offering, where a private company turns public by selling its shares on a stock exchange, making them available to the general public.
  • Dividends: the distribution of a company’s profit in the form of payment made by the company to its shareholders.
  • Long (buy) position: owning an asset because you believe that its price will appreciate in value in the future.

The different types of assets

You can choose to invest in a variety of instruments belonging to the different asset classes. They are:

Stocks
Stocks

Shares of ownership in a public company

Cryptoassets
Cryptoassets

Decentralised digital assets created for online use

Indices
Indices

Stock indexes that follow the performance of a group of regional stocks

ETFs
ETFs

Short for exchange-traded funds, which are baskets of instruments usually grouped by sector or industry

Commodities
Commodities

Basic goods or raw materials, such as oil or gold.

Currencies
Currencies

Also known as forex, is the buying and selling of global currencies.

Trading or investing?

You have also learned the difference between trading and investing. Generally speaking, investing is for the long-term, while trading is for the short-term. Investing can be further categorised as passive or active, but both typically have a longer term outlook and hold your assets for long periods. Trading, however, is about creating results in shorter time frames.

Get a handle on emotions

We’ve discussed the importance of psychology on investing, and how to be aware of some of the emotions you may encounter as an investor. Expect to have losses occasionally; beware of biases, and don’t let “FOMO” take charge of strategic decisions.

Don’t forget to manage risk

Risk management is a priority for every investor. Avoid concentration of assets by allocating capital to a variety of different assets, thus, spreading your risk. Recognise which assets are riskier than others to create and manage a less volatile portfolio. And make use of a stop-loss to limit the downside of investments that don’t go the way you hoped.

How you structure your portfolio will define its volatility and risk exposure. Remember that diversifying your assets with varying types, sectors, geographic exposure or other criteria will help to keep your risk score low. To learn more about creating the best portfolio for yourself, proceed to our next course “Building a portfolio.”

GREAT JOB!

Test yourself on what you have learned

Take a Quiz!

QUESTION 1 OUT OF

Which of the following could be used to produce future income?

Stocks
Bonds
Real Estate
All of them

Correct!

Incorrect!

What is the link between volatility and risk/reward?

Higher volatility leads to higher risk and higher potential reward
Higher volatility leads to lower risk, and lower potential reward
There are no links between risk and reward

Correct!

Incorrect!

Some companies pay a share of profits (or reserves) to shareholders on a regular basis, creating a form of passive income for investors. Do you know what this is called?

A stock payment
A dividend
A rebate

Correct!

Incorrect!

Pick the odd one out! One of the following is not an index:

S&P 500
Nasdaq 100
Treasury Bill
Cac40

Correct!

Incorrect!

What is the difference between passive and active investment?

Passive investing is buying an index fund or stock and holding them for the long term with really low trading activity while active investing is investing in specific assets with greater  trading activity such as buying and selling the assets.
Active investing is where investors have the goal to simply match the performance of a market or benchmark index over time whereas with passive investing, investors actively buy and sell securities for their portfolio with the aim of outperforming an investment benchmark index over time.
Passive investing is where investors simply wait with money in cash not invested whereas with active investing, investors actively buy and sell securities for their portfolio with the aim of outperforming an investment benchmark index over time.

Correct!

Incorrect!

What is confirmation bias?

Confirmation bias is when we as investors have a bias to accept information to confirm our views even if the information is flawed or incorrect.
Confirmation bias is when we as investors have a bias to refuse information to refute our views even if the information is correct.
Confirmation bias is when investors confirmvoting rights.
None of the above.

Correct!

Incorrect!

Which of the questions below should investors ask themselves before starting to invest?

Do I understand what I invest in before I invest in it?
Do I have a strategic plan of when I want to buy or sell and for what period of time?
Do I understand the risk in this investment?
All answers are correct

Correct!

Incorrect!

When should we use stop loss when investing?

When we want to limit the downside on trades and investments that go against us. Taking a loss is an essential part of investing.
Because we never want to lose.
Because otherwise we will always lose.
None of the above.

Correct!

Incorrect!

What is asset allocation?

It is when you basically allocate your cash to buy different asset types. At the end you will get the structure of the portfolio.
It is when you basically allocate your stocks to buy different asset types. At the end you will get the structure of the portfolio.
Allocate a specific amount for one single asset.
None of the above.

Correct!

Incorrect!

What is the difference between trading and investing?

An investor usually has a longer investment outlook than a trader.
An investor uses a technical approach when deciding where to invest.
An active investor has a goal to match the performance of a market.

Correct!

Incorrect!

You can do better.
Not Bad, ready for more
Great score! Well done.
/
It looks like you haven’t yet mastered these topics. Revisit the course, paying attention to bolded sentences, tips, and highlights. These key points will help solidify your understanding. Keep at it, and you’ll see progress in no time. Good luck!
You’re on the right track! Consider trying another course to consolidate your knowledge, paying attention to bolded sentences, tips, and highlights. Understanding key points will help solidify your knowledge. Keep going, you’re almost there!
Congratulations on your high score! You’ve grasped these topics well. Keep up the great work by exploring another course in the eToro Academy. Well done!
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This information is for educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments.

This material has been prepared without regard to any particular investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Not all of the financial instruments and services referred to are offered by eToro and any references to past performance of a financial instrument, index, or a packaged investment product are not, and should not be taken as, a reliable indicator of future results.

eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this guide. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose.