Mr. Levering Personal Finance
bond yield
= $bond pays / $price paid for bond *100
dividend yield
= $dividend amount / share price
PEG
= P/E / projected growth rate (%); measures the value of a company's shares
Market cap
= number of shares * dollar price per share
real interest rate
The _____ __________ _______ is the interest rate adjusted for inflation.
2%-3%
The average inflation rate in the US over the last 20 years is ____% to ______ %
$1,523
The average social security monthly payment is ________.
higher
The higher education level you complete, the ____________ one's income is.
52 week high and low
The highest and lowest price at which a stock has traded in the past 12 months, or 52 weeks.
true
T or F? A back load fund is usually better than a front load fund because it allows you to have all your money's worth investment of shares which can magnify one's investments through compounding over time.
true
T or F? Equity income funds include stocks that have high paying dividends and are more volatile than bond funds which usually include more safe, lower returning investments on bonds.
false
T or F? If you make a large salary above the IRA limit ($139,000) you can qualify for a Roth.
true
T or F? Net income = profits = earnings
false
T or F? Reallocating assets towards riskier stocks from safer bonds and cash helps ensure your money is there for retirement, as the time of your planned retirement is closer.
true
T or F? The stock market is risky. There is no insurance or guarantee -- you can lose your entire investment.
false
T or F? There is more money in the stock market than the bond market
true
T or F? You can withdraw money early without a penalty if it is for a medical emergency, for a down deposit on one's first home, and for an education expense. An early withdrawal for any other reason warrants a 10% penalty and an income tax (depending on one's income tax bracket).
lower
lower risk = ______ rates of return (loss)
recession
A ___________ is six months of economic contraction
nest egg
A _____ _____ is one's life savings.
regressive tax
A __________ ___ charges a flat rate on all regardless of income; It proportionally hurts the poor more than the rich
progressive tax
A ___________ ___ charges a lower tax rate on lower income earners and a higher tax rate the more one earns a higher income.
portfolio
A ___________ is one's mix of investments.
$139,000
A traditional IRA gives a tax break up front for contributions to investors who make under a $___,___
mortgage
Another word for a home loan is ___________.
no
Are bonds insured?
yes; income tax bracket
Are corporate and treasury bonds taxable? if so, what kind of tax applies?
yes; no
Are mutual funds taxable? Are mutual funds insured?
no
Are stocks insured?
67
At age ____ you can retire and get a full social security monthly payment
yes
Can foreign companies list on U.S. Stock Markets?
yes
Does one who owns a share of stock partially own the company?
$68,703
How much does the average American earn yearly?
15%
How much is the capital gains tax if the stock was owned for more than a year?
income tax bracket
How much is the capital gains tax of the stock is owned for less than a year?
employers = 1.45% employees = 1.45% total = 2.9%
How much is the medicare tax for employers and employees?
6.2%; 6.2%; 12.4%
How much is the social security tax (Employer, employee, total respectively).
s.s. = 12.4% medicare = 2.9%
If one owns their own business, how much is their social security and medicare tax rate?
more of bonds and cash; less of stocks
If someone only has a few years until retirement, what should they have more of? Less of? (stocks, bonds, cash).
the 9.3% state income tax bracket
If the average American lives in California, what tax bracket would they be in?
35-50; 40-55; 10
If you just retired you would have ___-____% in stocks/mutual funds, ___-____% in bonds, and __% in cash.
IPO
Initial public offering, a corporation's first offer to sell shares to the public
3
Most Americans own more than ___ funds to increase the diversification of their portfolios.
100; 10%
Over the last ___ years, stocks have averaged a __% yearly return, including down years in the stock market
cyclical stocks
Stocks of companies whose performance tends to mirror the economy. When the economy grows the stocks turn up, and when the economy falters the stocks fall. Automobile and housing sectors are good examples.
false
T or F? 401k's are insured for stocks and bonds, but they are not insured for money markets
$19,500
The max yearly contribution someone can make to their 401k every year is $__,____
$1.5 to $2 million
The typical financial planner says that someone in your generation will need $_________ to $__________ saved by retirement
7,500
There are over _,___ mutual funds in the U.S.
collateral
This is what one must put up to secure a loan? If you stop making payments, the bank can seize it.
rent, food, cellphone plan, internet, AC/heat, gas (water/oven/heater/stove), car expenses, clothes, social life, and savings (retirement, house, vacation, and emergency reserve).
What are 10 typical monthly expenses individuals have?
long term goals (10+ years), medium term goals (5-10 years), and short term goals (0-5 years)
What are the 3 time horizons that financial planners refer to?
retirement, yearly vacations/leisure, down deposit for a home, and a car
What are the are 4 financial goals that are most included in the "American Dream?"
New York Stock Exchange (NYSE) and NASDAQ
What are the names of the two major stock markets in the U.S.?
sale of stocks, sale of homes, and sale of businesses
What are the three things capital gains tax applies to?
Immediately after receiving paycheck, put money into savings for your financial goals/"American Dream goals"
What does "pay yourself first" mean?
Spend less money on nonessential things and save for long term financial goals
What does "put off a little consumption today for tomorrow's well being" mean?
the person is losing money, their purchasing power is falling, and their standard of living is falling
What does it mean if a person has a negative real interest rate?
FAMILY BUDGET= INCOME - SPENDING GOVERNMENT BUDGET= TAX REVENUE - GOVERNMENT SPENDING COMPANY BUDGET= REVENUE - EXPENDITURE
What is a budget? (family budget, government budget, company's budget)
over $10 Bn
What is a large cap company?
$2 Bn to $10 Bn
What is a mid cap company?
$300 Mn to $2 Bn
What is a small cap company?
22%
What is the average income tax rate in the U.S?
15%
What is the dividend tax rate? (for people not in the top tax bracket)
real interest = nominal interest - inflation
What is the formula to calculate real interest rate?
14-15
What is the historical average P/E?
37%
What is the maximum income tax rate in the US?
inverse relationship
What is the relationship between bond prices and bond yields?
taxes, inflation, and fees
What three things will conspire against your long term investing goals?
high tech companies
What type of companies in general are listed on the NASDAQ?
condo = own a single unit, access to underground parking, people living all around you townhouse = usually two floors, two car garage, no one lives above or below you single family home = pays for homeowners insurance, property tax, and mortgage; doesn't pay home owners association fee (HOA) like townhouse or condo people do
What's the difference between a condo, townhouse, and a single family home?
buy the dip
When stock prices are low (during downturns) buy more shares; "When others are fearful, be greedy. When others are greedy, be fearful" - WARREN BUFFET
fall
When the stock market is rising, usually the bond yields ______.
3.5
When there are bear markets or a stock market drop of over 20%, on average it only takes _._ years to get back to the break even point.
corporations and the government
Who issues bonds?
people in higher tax brackets
Who usually buys munis?
70; 25; 5
With a medium time horizon you would have ___% in stocks, ____% in bonds, and __% in cash.
marginal tax bracket
________ ___ _______ means that each additional dollar earned will be taxed at this rate
compound interest
________ _________ is when one gets paid interest on interest (and principle).
nominal interest
_________ __________ is interest unadjusted for inflation
assets
__________ are anything of value you own. They can be stocks, bonds, cash, gold, home, and rental properties.
inflation
__________ is when the prices rise in society.
diversification
______________ is spreading one's money across many different stocks across different industries and owning bonds (in addition to stocks and cash).
target date funds
index funds that reallocate one's assets according to how much time one has until their retirement. (shifts from more risky to more safe securities as time passes)
bond
a corporate/government debt bought by investors as an IOU
expense ratio
a fee charged yearly on one's dollar amount in their mutual fund/ETF.
equity income fund
a fund that focuses on companies that have high dividend paying stocks
growth and equity income fund
a fund that includes a combination of both growth stocks and equity income stocks
blended fund
a fund that includes both growth stocks and value stocks
bond fund
a fund that invest in bonds; generally are safer and therefore have lower rates of return ( AAA rated )
index fund
a fund that tracks the components of a market index (ex// S&P500); passively managed funds
high yield bond
a highly risky bond that companies and governments have a higher chance of defaulting. it pays more because it is a risky investment; junk bond
secondary market
a market where already issued bonds are sold
Rule of 70
a math formula that tells how long it takes for something to double
load
a mutual fund fee other than the yearly expense ratio
discount
a price below par value an investor has to pay for an already issued bond when the interest rate on the already issued bond is lower than the current market interest rate.
premium
a price of an already issued bond that that an investor has to pay that is above par value when the interest rate on the already issued bond is higher than the market interest rate.
Russell 2000
a stock index that follows 2,000 small cap stocks (small size companies).
S&P 500
a stock index that follows 500 of the largest American companies; stands for standard and poors
Dow Jones Industrials
a stock index that tracks 30 of the largest U.S. Companies (Megastocks)
401K
a tax deferred retirement account that can only be opened if your employer offers it; is a tax-shelter, but not a permanent one because it is tax-deferred; If someone wants to withdraw money early they must pay a penalty if they do it without approval from their company's human resources.
traditional IRA
a tax deferred retirement account that provides tax breaks up front on contributions if you make less than the IRS income limit and has taxes (income tax) on all withdrawals. You can contribute a maximum of $6000 per year. You can invest in stocks, bonds, mutual funds, ETFs, and even real estate. The earliest you can withdraw money without a penalty is at 59 ½ years old.
Roth IRA
a tax sheltered retirement account. It is different from a traditional IRA because it does not offer a tax break up front, but makes all withdrawals tax-free after 59 ½ years old. _______ ___ are also only available to people that make less than a certain income.
Total Stock Market Index
index that spreads one's money across all stocks in the U.S.; helps to diversify one's portfolio
Total Stock Market Index (Wilshire 5000)
an index that follows all the stocks that trade in the U.S. that are listed on both the NYSE and the NASDAQ
commercial paper
are corporate bonds
front load
charges a fee other than the yearly expense ratio up front on one's contribution to a mutual fund
back load
charges an extra fee other than the yearly expense ratio after one sells their mutual fund
no
does one who owns a corporate bond own a portion of the company?
ETF
exchange traded funds; a type of security that includes a collection of assets that usually track an underlying index--unlike mutual funds they are listed on exchanges, can be traded throughout the day (not just for the end of the day price), and do not have loads
mutual funds
funds created from a pool of money from many investors that is used to invest in stocks, bonds, and other assets that may be more difficult to invest in alone.
actively managed funds
funds that have a fund manager with staff/assistants that try to "beat the market" by choosing individual stocks and buying/selling them throughout the year
tax deferred
means that you pay taxes in the future/in retirement. Its advantage is that it allows untaxed investment growth.
beta
measures a stock's historical volatility relative to the broader market's volatility which has a ____ of 1.
P/E
measures the valuation of a stock (overvalued, undervalued, or fairly valued= 14-15); = $share price/ EPS
shareholders
owners of a corporation
penny stocks
small company stocks that usually costs less than $5 per share and are mostly traded over the counter. They are highly volatile, risky, and you often cannot sell in real time.
equity
stock
securities
stocks and bonds
blue chip stocks
stocks from a large cap, household name company
growth stocks
stocks that grow faster than the market average, but can be volatile/risky
value stocks
stocks that have been oversold in the market, have beaten down, low prices, and are out of favor in the market; often from companies that have hit a rough patch
defensive stocks
stocks that provide consistent dividends and stable earnings regardless of the state of the overall stock market (more stable); prices go up during downturns of the market and down during the upturns of the market
municipal bonds
tax free, local bonds
short cover
the act of buying a stock back for a lower price (selling short)
maturity
the date the bond expires and the bond comes due
rollover
the free process of transferring one's money from one retirement account to another when you switch jobs.
leverage
the use of borrowed money to supplement existing funds for purposes of investment (to magnify profits from an investment)
market capitalization
the value of a company; shows the minimum price a company has to pay to buy another company
buying on margin
using borrowed money from a stock broker to buy a stock
opportunity cost
what must be given up when one makes a choice; you can't have it all
matching funds
when a company offers to match an employee's contributions to their 401k at a certain dollar amount up to a certain dollar amount.
secondary offering
when a company that already has shares being publicly traded releases more stocks on the market; often occurs to raise more money for the company's expansion
de-leveraging
when a person decreases the amount of debt/borrowed money used in their investments
selling short
when an investor borrows a stock and sells it on the market, planning to buy it back for a cheaper price for profit
correction
when the stock market falls 10% or more (up tp 19.99%) it is called a __________.
bear market
when the stock market falls 20% or more it is called a ____ ______.
bull market
when the stock market is growing strongly it is called a ____ ______.
