Unit 4: Saving and Investing Review

Index

A group of similar stocks and bonds

certificate of deposit (CD),

A savings alternative in which money is left on deposit for a stated period of time to earn a specific rate of return.

Risks

Actions that are different from the norm

Risk

Degree of uncertainty of return on an asset; in business, the likelihood of loss or reduced profit.

Brokerage Firm

Facilitates the buying and selling of investments from stock exchange

Earning

Gaining money by working, owning a business, or receiving investment returns

Speculative Investments

Have the potential for significant fluctuations in return over a short period of time

Types of Returns

Interest. Investments like savings accounts, GICs and bonds pay interest. With these types of investments, you know exactly how much money you're going to earn on your investment. ... Dividends. Some stocks pay dividends, which give investors a share. ... Capital gains. As an investor, if you sell an investment like a stock, bond.

Bond

Is a form of lending to a company or the government

Rent

Is charged for the use of the property or land

Mutual Fund

Is created when a company combines the funds of different investors and then invest that money in diversified portfolio

Inflation Risk

Is the danger that money won't be worth as much in the future as it is todays

Inflation

Is the rise in the general level of prices

Maturity Date

Is the specified time in the future when the principal amount of the bond is repaid to bondholder

Index Fund

Is the type of mutual fun that was designed to reduce fees by investing in teh stocks and bond that make up the index

Financial Advisor

Is trained professional that help people make investing decisions

Investment Philosophy

Or an individual general approach to investment risk

Discount Brokerage Firm

Provide limited services

Portfolio Diversification

Reduces your risk by spreading money among a wide array of investments

Saving Vs. Investing (when would you use each type of account)

Saving and investing often are used interchangeably, but there is a difference. Saving is setting aside money you don't spend now for emergencies or for a future purchase. ... Investing is buying assets such as stocks, bonds, mutual funds or real estate with the expectation that your investment will make money for you.

Lending vs. owning types of investments

Stocks, real estate, and precious metals are all ownership investments. The buyer hopes that they will increase in value over time. Lending money is an investment. Bonds and even savings accounts are loans that earn interest over time for the investor.

Market Price

The current price that a buyer is willing to pay

Inflation vs. inflation risk

The real interest rate on an asset is the nominal rate minus the rate of inflation. Because it takes inflation into account, the real interest rate is more indicative of the growth in the investor's purchasing power. If a bond has a nominal interest rate of 5% and inflation is 2%, the real interest rate is 3%.

Rate of Return

The total return expressed as a percentage of the amount of money saved

Full-Service Brokerage Firm

Tradition brokerage firms

Capital Gain

Unearned income received from the sale of an asset above its purchase price

Dividend

Which is the share of proits distributed in cash

money market account

a savings account that requires a minimum balance and earns interest that varies from month to month

tiered interest

a way to calculate interest where the account that pays lower interest on smaller deposits and higher interest on larger balances

regular savings account,

allows consumers to deposit or withdraw money at any time and to earn interest on the funds

Investment

are assets purchased with the goal of providing additional income from the asset itself but with the risk of loss.

Risk

is the chance of loss from an event that cannot be entirely controlled.

Return

return is the profit or income generated by saving and invesƟng. Your trade‐off to earning higher returns is higher investment risk.

Liquidity

the ease with which an asset can be converted into the economy's medium of exchange

Rate of Return

the percentage of increase in the value of your savings from earned interest

Investment Risk

which is the possibility that an investment will fail to pay the expected return or fail to pay a return at all.