- Zenith Newsletter
- Posts
- If you have money in the market, you'll need to know this
If you have money in the market, you'll need to know this
Do you know investing terms? This quick quiz will test your acumen
In partnership with
All your news. None of the bias.
Be the smartest person in the room by reading 1440! Dive into 1440, where 3.5 million readers find their daily, fact-based news fix. We navigate through 100+ sources to deliver a comprehensive roundup from every corner of the internet – politics, global events, business, and culture, all in a quick, 5-minute newsletter. It's completely free and devoid of bias or political influence, ensuring you get the facts straight.
The investing terms you need to know
Welcome to any new subscribers! This week, we’ll go over the investing terms you need to know to properly analyze the market. We’ll go from basic ones, to more advanced concepts essential to evaluating your investment choices.
Question 1
What percentage is equal to 1 basis point?
A. 10%
B. 1%
C. 0.10%
D. 0.01%
Question 2
When do you pay taxes on dividend (stock) or (bond and CD) interest income?
A. Only when you sell the security
B. In the tax year that you receive the income
C. If you reinvest the income you do not have to pay taxes, but if you take out the money to use as cash you must pay at that time
D. You do know have to pay interest income
Question 3
What is the difference between yield and total return?
A. Yield is a measure of an investment’s profitability that includes both income and capital gains, while total return exclusively focuses on the income generated by the asset, disregarding any changes in the asset's market value.
B. Yield refers to the income generated by an investment, typically expressed as a percentage of the investment's cost or current market value, while total return includes both the income (yield) and any capital gains or losses over a period.
C. Yield measures the growth rate of an investment's principal over time, whereas total return accounts only for the reinvestment of dividends without considering capital appreciation.
D. Yield is calculated by dividing the total return by the duration of the investment, giving a time-weighted performance metric, whereas total return represents the annualized percentage of dividends received.
How are you feeling? We’ll get to the answers after the break.
If you think others could benefit from this information, please share this newsletter with others you know
Work with us
Making more than $100,000 and feeling your money isn’t going far enough? We’ll be here to make sure you get the most of out every dollar.
Quiz Answers
Question 1
Answer: D (0.01%)
A basis point is tiny, 0.01%, but makes a huge difference. Basis points are important for small investors, because over time the fees on an investment—usually denoted in basis points—can add up and cost you more money. Basis points are super important for larger investment companies as well. For example, the difference in 1 basis point (bp) for a billion dollar is equal to $100,000. So even small moves like 25 bp interest rate could net a $2.5 million difference.
Questions 2
Answer: B (in the year received)
Dividend and interest income are due in the tax year received. This is the main difference between capital gains and interest income. Capital gains are only realized and thus taxed in the year they are actually sold, meaning you can delay a tax hit as long as you hang on the security. However, interest income will be taxed in the year it was received.
Question 3
Answer: B
This one was a bit of a doozy for those not in the depths of investing. However, this question is an important concept.
Yield is a forward looking measurement. It is a key metric for investors, particularly those focused on income generation, as it provides a measure of the return on investment relative to the cost of the security. It helps in comparing different securities and making informed investment decisions based on expected income returns.The yield is calculated by dividing the annual income generated by the security (interest or dividends) by the current market price or the original purchase price of the security.
Total return measures the past. It is a comprehensive measure of the performance of a security over a specific period. It accounts for all the income generated by the security, as well as any capital gains or losses due to changes in the security's price. Total return is typically expressed as a percentage of the initial investment. Total return provides a complete picture of an investment's performance by including both income and price appreciation. This makes it a valuable metric for comparing the performance of different securities or investment strategies over time.
Be brutally honest about the short term and optimistic and confident about the long term
Reply