Personal Finance Investing Test

Bond

a certificate acknowledging a loan from the lender to the government or a corporation for a specific time at a specific rate

Portfolio

a collection of asset's owned by an individual or by an institution. made of mainly stocks, bonds, mutual funds, money market funds and exchange traded funds

subsidiary company

a company that is owned and controlled by a different company

Stock split

a corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares

Mutual Fund

a fund operated by an investment company which requires money from shareholders and invests in a group of assets in accordance with a stated set of objectives

DRIP (Dividend reinvestment pan)

a plan offered by a corporation that allows investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment

Limit order

a request to buy/sell stock at a specified price (can be good for a day, week, month, or until cancelled)

income stock

a stock with a history of paying high dividends and limited future growth options (ex: Johnson&Johnson, Proctor and Gamble, Pepsi co, conoco phillips)

securities

all types of investments, stocks, bonds, mutual funds, ETF's, options, and commodities

Defensive stocks

also known as cyclical stocks, necessity items, stock remains stable during economic decline (ex: food, shampoos, gas, Colgate Palmolive, Philip Morris, Sin industry, Ameren)

Expense Ratio

an annual charge that is a fixed percent of the funds asset value. Average is from .2-2% all mutual funds charge an expense ratio

Why investors buy common stock

appreciation of stock value (capital gain/loss) and income from dividends

where to purchase mutual funds

brokerage firm and or contact an investment company

Front Load (A shares)

charge the 4-6% commission when the shares are purchased

Back end load (B shares)

charge the 4-6% commission when the shares are sold

private corporation

closely held corporation, issue stocks to a small group of people, and not traded on stock exchanges

how personal financial planners can be compensated

commission based, hourly fee and or a percent of asset under management

Retained earnings

company keeps the profits in the business in order to help the company grow

Parent company

company that owns enough voting stocks in another firm/company to control management and operation by doing and influencing or electing its board of directors

S&P 500 stock index

consist of 500 large cap stocks of U.S. companies

Prospectus

corporate document that discloses financial information

statistical averages

don't pinpoint specific investments, but shows general direction of stocks and other investments ( Ex: Dow Jones industrial Average, S&P 500 stock index, and NASDAQ stock index)

income dividends

earnings a fund pays to the shareholder (may set it up to reinvest dividends)

401k/403b

employee sponsored retirement plan, pre tax money up to $7500 and is tax deferred until retirement

How/Where to buy mutual fund shares

go to a broker, the website of a mutual fund company (Charle Schwab, Scottrade, E-trade), or an online broker. Minimum investments can be as law as $500. Always find out about commissions and expenses which can vary widley

Federal Deposit Insurance Corporation (FDIC)

government agency that insures deposits in banks and thrifts in the event of bank failures

No load Fund

has no commission and no help

why companies issue common bonds

helps corporation raise money also a way of financing which can attract more conservative investors

individual investment representative

hourly rate or percent of assets, regulated by a states security agency and/or SEC held to fiduciary standard

capital loss

if market price goes down and you selling m

capital gain

if market price goes up and you sell

earn money with mutual fund

income dividends, capital gain distribution, and capital gain

IRA's

individual retirement accounts, up to $5500 if less than 50 year old and up to $6500 of 50 years or older)

IPO

initial public offering, the first time a company goes from a private company to a public one

asset allocation

investment strategy that aims to balance risk and reward by apportioning a portfolios assets according to an individuals goals, risk tolerance and investment horizon

Bull market

investors are optimistic about the economy and buy stocks

Bear market

investors are pessimistic about the economy and sell stocks

Issued by U.S. Treasury and other federal agencies

issued by companies

large cap stocks

less risky more stable stock, greater than 10 billion (ebay and General Electric)

Micro cap stocks

less than 250 million (exponent)

Full service broker

licensed financial dealer that provides a large variety of services to its clients, including research, advice, retirement planning, tax tips etc. (Ex. Edward Jones, A.G. Edwards)

Cyclical Stock

luxury item, usually if the economy is doing well then the market price goes up and if the economy is in decline the market price goes down (ex: fine dining, new cars, electronics travel, Ford, and Best buy)

Dow Jones Industrial Average DJIA

made up of 30 large cap stocks

speculative investments

makes an investment high risk, investments in commodities, options, collectibles etc. (cars, homes, luxury items etc.)

investment income

makes an investment low risk because you know the interest rate and when you'll receive the interest. dependable and safe (savings account, CD's, U.S. savings bond)

Loaded Fund

means commission and investment advice are recommending you lean towards products which earn them commission and may not be best for your portfolio, average between 4-6%

equity capital

money that a business gets from its owners to operate

Target retirement fund (asset allocation fund)

mutual funds that hold a group of other mutual funds run by the same company

NASDAQ Stock Index

national association of securities dealers automated quotations, has approximately 4000 companies

sources for evaluating stocks

online, newspapers, magazines, news programs, and or prospecurs

Stock

ownership in a company (voting rights)

Capital gain distribution

payments made to shareholders that result from the sale of securities inside the mutual fund (may set it up to reinvest capital gains)

capital gain distribution

payments made to shareholders that result from the sale of securities inside the mutual fund (may set up to reinvest capital gains)

Roth IRA

post tax money, grows tax free it can be withdrawn tax free after age 59.5 (up to $5500 total) original contributions may be with drawn at any time without taxes or penalities

Traditional IRA

pre tax money- tax deferred (money will be taxed when withdrawn at retirement) taxed as income after age 59.5

Rule of 72

quick way to tell how quickly your money will double

investment liquidity

refers to how long and at what cost does it take to convert an investment into cash

how to purchase mutual funds

regular account transactions (dollar cost averaging), payroll deduction plans, and or reinvestment plans

Broker

regulated by FINRA and must only uphold suitability standard

Market order

request to buy/sell stock at market value

Suitability standard

requires investment advisers to make suitable recommendations but duty is to the company and not necessarily the client

fiduciary duty

requires investment advisers to put their clients interest over their own

Blue chip stocks

safe investment, attracts conservative investors generally pay dividends older established corporations (walmart, coco-cola, exxon-mobil)

short term investment options

savings account short term CD's U.S. savings bond

low risk investments

savings account, MMDA, CD's

Securities exchange

secondary market place where brokers who represent investors buy and sell securities (NYSE, AMEX, NASDAQ)

public corporation

sells shares in a open market, anyone can purchase shares and own a part of the corporation

Dividend

share in the profits of a corporation

high risk investments

sophisticated, luxury investments, and startup companies

Online discount broker

stockbroker who carries out to buy and sell orders at a reduced commission rate but doesn't provide investment advice (Ex. Charles Schwab, Scottrade, E-Trade, and Ameritrade)

Long term investment options

stocks bonds mutual funds ETF

asset groups of mutual funds

stocks (equities), stocks (fixed income) and or bonds (cash equivalents or money market instruments

Medium Risk investments

stocks of large established, financially healthy companies; mutual funds that balance stock and bond holdings

Maturity Date

the day at which the bond is complete and the final payment is made to the investor

diversification

the idea to create a portfolio that includes multiple investments in order to reduce risk

Index funds

the investment objective seeks to make an index such as S&P 500, attemping to match the market not beat the market, passive fund

Par value (face value or principal)

the price an investor pays for bond

SEC

the securities and exchange commission, a government agency that oversees securities, transactions, activities of financial professionals and mutual fund trading to prevent fraud and international deception

Capitalization

the total value of the outstanding shares, equal to the current market price times the number of outstanding shares

Risk

the uncertainty of achieving a desired result, there are no guarantees that your investments will make money, all investments involve this. the more you have the more potential loss or reward you have.

Net asset value

the value of the mutual fund that is reached by deducting the fund's liabilities from the market value of all of its shares and then dividing by the number of issued shares

Common Stock

to raise money for a business and to help pay for ongoing activities, price is based on the market and they may offer dividends

Primary Market

when a company issues an IPO the stock is purchased through an investment bank or brokerage firm, then it gets sold to the public on the secondary market

capital gains

when the shareholder sells shares in a mutual fund for a profit

capital gain

when the shareholders sell shares in a mutual fund at a profit

Dollar cost averaging

when you invest the same amount of money every month and purchase a different amount of shares (depends on the price per a share)

reward

when you money does at least what you expect it to do, a higher risk means a higher of this

why buy a mutual fund

1. built in diversification 2. professional management 3. easy to buy and sell 4. wide range of funds to choose from

Mid-cap stocks

2-10 billion (dollar tree and ruby Tuesday)

Secondary market

where securities are traded among investors

Current (dividend) yeild

Annual dividend - Current market value (increase is good)

examples of brokerage firms

Charles Schwab, Scottrade, and or E-Trade

ETF (Exchange Traded Fund)

Funds traded on a stock exchange and track indexes like the NASDAQ, S&P 500, Dow Jones etc. When you buy these shares you are buying shares of a portfolio that tracks the yield and return of its native index. They don't try to out preform their corresponding ondes, but try to replicate its performance, they don't try to beat the market they try to be the market. Passivly managed, low expense ration. they are a diversified portfolio with the simplicity of trding a single stock. Investors can purchase these of the margin, short sell sales or hold for the long term. (recommend hold for the long term)

Government Bond

Issued by U.S. Treasury and other federal agencies

Investing

Objective: long term growth Products: stocks, bonds, mutual funds, EFT's Risk: business failure, inflation, financial market crash Return: interest, dividends, capital gains/losses Benefit: returns have outpaced inflation Drawback: risk of losing money is securities decline in value

Savings

Objective: short term needs or emergencies Products: saving account, CD's money Market: account Risk: none if insured by the FDIC Return: interest earned Benefit: money is liquid Drawback: returns have not outpaced inflation

ROI (return of investment)

Selling price - purchase price / Original price ( will tell you the percent of increase or decrease for your investment)