consumer ed chapter 9

why do you think many companies have discontinued offering pension plans for their employees and now offer 401(k) plans instead?

it's easier to change companies

what is a portfolio?

selection of stocks or bonds that the fund purchases

what is large cap stock?

shares in corporations with a total stock value of $10 billion or more

what is blue chip stock?

shares in large, well-established corporations

what is capital loss?

the amount of money you lose when you sell your stock at a lower price than you paid

what is risk?

the chance that an investment will decrease in value

what is the FINRA? how does it benefit you?

the financial industry regulatory authority policies the behavior of its members. it tests and certifies people who wish to become stockbrokers. it works to protect investors in several ways. it has many programs to inform and educate the public. it also maintains a listing of complaints that have been filed against its registered brokers

what is return?

the income you earn on an investment

what are stockholders?

the investors who own the corporation because they own shares of its stocks

why is a 401(k) plan an excellent way to save for retirement?

the money you invest in a 401(k) is tax-deferred, you can take your savings with you if you change jobs, and some employers will match employee's 401(k) savings

how can the internet help you with your investments?

the most current information is on the internet. the internet can provide you with yesterday's closing price for shares of a mutual fund. you can buy and sell stocks online and follow stock prices

what is capital gain?

the profit you earn from selling stock at a higher price than you paid for it

selling stock and corporate bonds are two ways for a corporation to raise money for the business. how do you think corporations decide whether to sell stock or bonds?

their current financial situation and how much money they cant spend on interest and dividends

what are the main benefits of retirement plans?

they are tax-deferred, meaning you can postpone paying tax on the income you invest in these plans until you retire

what are some of the reasons for choosing to invest in mutual funds?

they can be from .2 or 3 percent or more of the value of your investment

what is insider trading?

trading stocks based on information that is not available to the general public

what is the difference between a traditional and a Roth IRA?

tradition IRAs are tax-deferred but Roth IRAs are not

what is corporate stock?

unit of ownership in a corporation

what is stock exchange?

where orders to buy or sell stock are sent and carried out

how do diversification help limit risk?

you are investing in various businesses so if one investment goes bad, you won't lose all your money

why is it important to invest in ways that are consistent with your values?

you can gain more than financial gain when you invest in ways that consistent with your values

how can you earn returns on collectible items? is this a good form of investing?

you have to find someone willing to pay more for it than you paid to buy it initially. no because there's no guarantee that the value of collectibles will increase

what is the trade-off to make more income on your investments?

you risk that your value of investment will decrease

what information in a stock quote will help you decide whether or not to invest?

you will be able to see current stock prices. this allows you to carefully choose which fund, or funds, to purchase by being able to see a comparison of funds and any increases or decreases

what is diversification?

investing in various businesses with different levels of risk

besides risk/return objectives, list and describe other common investment objectives of mutual funds.

- the more we risk the higher the return - aim for a high degree of safety so they invest in safe stocks and expect a somewhat low but steady return] - aim for high rates of return so they invest in riskier stocks

list some of the printed sources of information on stocks, bonds, and mutual funds. what type of information do they provide?

1. the wall street journal - the most widely known financial newspaper which is published every business day and quotes stock, bond, and mutual fund prices 2. fortune, forbes, Kiplinger's personal finance, and money - evaluate and compare mutual funds at least once a year 3. moody's reports and value line - provide background information

what is preferred stock?

a nonvoting share that pays a fixed dividend

what is a stockbroker?

a person who handles the transfer of stocks and bonds between buyer and seller

what are four of the classifications of mutual funds mentioned in this chapter?

index funds, balanced funds, large cap funds, sector funds

what is mutual fund?

a business that pools money from many people to invest in various ways

what is a brokerage firm?

a company that specializes in helping people buy and sell stocks and bonds

what is a prospectus?

a publication that describes how the fund is operated, the fund's investing objectives, and the fees that it charges

what is an individual retirement account (IRA)?

a savings plan with deferred tax benefits (2 types: traditional and Roth)

what is a dividend?

a share of the company's profits based on how much of the company you own

what is a 401(k) plan?

a tax-deferred retirement plan that many employers offer their employees

what is common stock?

a voting share that doesn't pay a set dividend

how do age and financial situation affect how you make investment decisions?

as your financial needs change during your life span, you'll probably want to invest a different percentage at different levels of risk. if you're younger and have many income-earnings left, you may want to take more risks

what is the difference between buying stock in a corporation and buying its bonds?

corporations must make interest payments on bonds, which is the money you lend, and repay their bonds on time. bonds are less risky than stock

what is the Securities Exchange Commission (SEC)?

created by Congress to enforce federal laws concerning the trading of stocks and bonds, oversee stockbrokers and investment advisors, and has final authority on matters of financial reporting by corporations

what is dollar cost averaging?

investing equal amounts of money at regular intervals

why do stock prices change?

depends on what other people are willing to pay to buy it

what might be some of the reasons you would select a discount broker instead of a full-service broker?

discount brokers charge smaller fees and spend less time with customers than full-service brokers. if you do your own research about stocks and make your own decisions, then a discount broker would be a better choice

what is the National Association of Securities Dealers Automated Quotation System?

electronically links brokerage firms; stocks can be bought or sold without using a central location

what is the difference between a front-end load fund and a back-end load fund?

front end = when you buy shares back end = when you sell shares

what is junk bond?

high-risk investment that businesses in financial difficulty sell to raise money

how does your tolerance for risk affect your choice of investments?

if taking risks makes you nervous, make safer investment. no matter where you fall on the risk-tolerance scale, you can make investment choices that fit your comfort level

how might you protect yourself from loss when investing in real estate?

location

how is the rate of return measured?

return / initial investment

what is a load?

sales fee paid for investing in a mutual fund

what is investing?

saving money in a way that earns income