Saving and Investing
What % of your nearly net income will you need each year in retirement life?
-70-80% -ss will replace 40% -Where will the other 30-40% come from?
What is a pension?
-a fixed sum of money paid regularly by an employer to a retired employee. -$ Amount depends on: 1. how long the employee worked for the company 2. How much $ the employee earned in gross pay from the company.
Requirements to recieve ss checks
-age 62 or older -widow/widower age 60 or older -widow/widower with dependent children under age 18 -permanently disabled -a dependent child age 18 or younger of a permanently disabled or deceased adult
Investment Facts
1.All investments involve some degree risk which is uncertainty that the anticipated return will be achieved. 2.Risk/Reward trade off- the principle that an investment must offer higher potential returns to make up for the increased potential unpredicatabilty. 3. The greater the risk you take, the greater the potentiial returns on your investments. 4. INvestors ranger from coservative to aggresive.
What is the full retirement age in the US?
Age 67 The US government designates age 67 because this is the age you are eligble to recieve all of your social secuirty benefits.
Buying on Margin
Allows a person to quickly and easily borrow money from brokerage to purchase additional shares of stock. interest is charged on any money borrowed. people that dont have $ to buy stocks borrow the money and owe the $ borrowed plus interest to the lender.
Savings/Investment Fact
Basic rule of a risk to return relationship is that the higher the risk, the higher the return rate(the more $$ yoou will make).
Compound Interest
Earning intertest on interest. (earning interest on the principal plus the interest you have already earned.)
2 Major Categories of Investments.
Income: savings account, U.S. savings bond, certificate of deposit money market. Growth: Stock, real estate, collectibles.
Simple Interest
Interest that does not compound. (you dont earn $ on the interest.)
Mutual Fund
It uses diversification. money is placed in income and/or growth investments by an investment expert based on the investors objectives. a mutual fund is your investment $ spent on variety of stocks and/or bonds
3 Elements that help reach financial goals time value of money.
MOney-the more you have to save or invest the more you are likely to earn. Rate of Interest-The higher the rate, the more money you are likely to earn. time-the sooner you invest the more time your money has to make new money so it will be more likely that your investment will earn money as a result.
Principal
The amount $ invested or the $ you borrowed for a loan.
Retirement
When you permanently withdraw from the workforce. You no longer have a job and you depend on your retirement savings(money you have saved specifically for this purpose) to support yourself.
Social secuirty
a US government program established in 1935 (fdr) that includes a retirement benefit for citizens; it is funded by payroll. Social secuirty is a payroll tax trhat is deducted automatically from your paycheck FICA (federal insurance contributions act)
earnings per share (eps)
a corporations net earnings divided by the number of outstanding shares of common stock. -earnings per share serves as an indicator of a companys profitablity.
US savings bond
a formal agreement where the federal government pays interest to investors for lending money. a.the goverenemt will use your money for a set of period of time. b.savings bonds are designed to be held for up to 30 years, so if you cash it in within 5 years of purchase you will pay a penalty, usually 3 months of lost interest. c. typically uou pay higher rates of return than savings account. d. you can buy governemtn issued us savings bonds from almost any financial insitituion or directly from the governemtn.
Dow Jones Industrial average
a price-weighted average of 30 US blue chip stocks, the most populat index which follows US Blue chip stocks
cash dividend
a share in the profit of a company that is distirbuted to each shareholder in cash in proportion to the percentage of ownership in the company each shareholder has. -before dividends can be distributed the corporations board of directors must declare a dividend.
Stock
an investment that represents part ownership in a corportaiton that entitles the stock owner to part of that corporations earnings and assets
DRIP
automatically buy more of the stock with your dividends rather than taking the cash. (dividend reinvestment plan).
FDIC
federal deposit insurance coporation. each depositor is insured for up to $250,000. FDIC is an indepedent agency of the United States government. Each month banks pay a percentage of their deposits to the FDIC For FDIC protection.
common stock
gives shareholders voting rights but no gurantee of dividend payments
Stock
having a stock in a company means that you own part of that company. a.stock is purchased in denominations called shares. b.invdiviuals who own stock are referred to as shareholders or investors. c. stock is generally riskier than income investments because you can potentially make more money.-over long periods of time stock tends to make more money than income investments. d. stockis generally liquid where you can sell back a stock at any time
Money Market account
higher interest rates than regular savings account. cons: may limit how many withdrawals per month requires higher intial deposit. may require a higher minimum balance to avoid fees.
Risky-growth
increase in value of investments over a period of years is not guranteed.
Investing
is putting money to use that you hope will increase its value overt time. long term goals. no gurantee $ will grow Investment will rise/increase and fall/decrease in value over time.
Saving
is what people do to reach short term goals and intermediate goals. Money is very safe. Earns small amount of interest easy for you to get and withdraw the money. You account is liquid. the money can easily be converted into cash. When interest rates are low, money has very low growth but it is very safe.
Bear market
market condition that occurs when investors are pessimistic about the economy and sell stocks
Bull Market
market conditojn that occurs when investors are optimistic about the economy and buy stocks
Savings Account
normally the first banking product that people use or open. a.earns a small amount of interest. b. considered to be very low risk. c. tend to pay low rates of interest d. you can take your money out of the account without any penalties, so a savings account is very liquid. (liquid-it can be convereted to cash.)
preferred stock
provides no voting rights but usually gurantees a dividend payment.
Diversification-Mutual Fund
putting money in several different types of investments. spread your risk by owning a diverse group of stocks. -a key concept to remember when investing your money is never put all of your eggs in one basket.
examples of growth investments
real estate, stock, classic cars, coins, baseball cards, stamps. real estate-investors buy property such as land or buildings. examples of real estate include: a.malls b.apartment c.undeveloped land d.commerical buildings. e.farmland f. houses
Inflation
rise in the cost of goods and services. Inflation decreases the spending power of each dollar you have
Enployer-sponsored retirement plan
savings plan for retirement that is offered through a companys benefits package;contributions are usually made by each employee and [partially by the employer. employee's money contributions are not taxed until money in pension checks (usually during retirement are recieved.)
SEC
securities and exhange commission- US government agency responisble for protecting investors by monitoing and regulating brokers, dealers and the stock and bond markets in the US. -the SEC also make sure publicly-traded companies disclose the required business details to the public. (quarterly financial reports)
Blue chip stock
stock in a corporation with a national reputation for quality, reliabilty and the ability to operate profitablty good times and bad
real time quote
the actual price of a stock at that moment in time.
Earned interest
the payment you recieve for allowing a final insitution or corporation to use your money. When you save or invest your money you will earn a certain amount of interrest dependinging on thew rate of interest. APR-annual percentage rate.
Stock Market
the stock market is a private or public market for the trading of company stocks at an agreed price. stocks are listed and traded on stock exchanges where buyers and sellers of tock and bonds are brought together.
Market capitalization
the total number of outstanding shares of a companys stock multiplied by the stock price.
social secuirty
throughout your working years- US government will keep track of your payroll earnings and your ss contributions.
Time Value of Money
time is critical variable in the exact value of a dollar. Time value of money refers to the relationship among time, money and rate of interest.
Certificates of Deposit
when you purchase a CD from a bank, you are loaning money for a set of period of time such as 3 months, 6 months, 1 year, 2 years etc. and getting interest in return. a.the longer the term the higher the rate of interest paid. b. normally pay a slightly higher rate of interest than savings bond. c. like savings bonds. you will lose a few months of interest if you cash them in early.
Capital gain
when you sell a stock how much money you earn when the current value of stock if greater than the amount of money you paid for the stock
capital loss
when you sell a stock how much money you lose when the current value of stock is less than the amount of money you paid for the stock. Z
