Personal Finance Investing Test

Current (Dividend) Yield

100 (annual dividend/sell price) = current dividend yield

Where to purchase mutual funds?

Brokerage firm (Charles Schwab, Scottrade, E-Trade, etc.) Contact the investment company

Statistical Averages

Dow Jones Industrial Average - DJIA National Association of Securities Dealers Automated Quotations -NASDAQ Standard & Poor's 500 - S & P 500

3 ways to earn money with a mutual fund

Income dividends Capital gain distributions Capital gains

IRA's

Individual Retirement Account (up to $5,500 if < 50 years; up to $6,500 if 50 and over)

Securities exchanges

NYSE AMEX NASDAQ

How to purchase mutual funds?

Regular account transactions- $ cost average Payroll deduction plans Reinvestment plans

Saving vs. Investing

SAVING objective- short term needs or emergencies products- savings account, CD's money-market account risk- none if FDIC indured, inflation risk return- interest paid benefit- money is liquid drawback- returns have not outpaced inflation INVESTING objective- long term growth products- stocks, bonds , mutual funds, ETF's risk- varies-business failure, financial market risk return- interest, dividends, capital gains/losses benefit- returns have outpaced inflation drawback- risk of losing money if securities decline in value

Prospectus

all financial information on a company

Mutual fund

an investment created by pooling the money of many people and investing it in a collection of securities

Expense ratio

annual charge that is a fixed percent of the fund's asset value

Securities

any stocks and bonds

Why do investors purchase common stock? (2 ways)

appreciation of stock value (capital gain) income from dividends

Bull vs. Bear Market

bull market- investors are optimistic about the economy and buy stocks bear market- investors are pessimistic about the economy and sell stocks

2 Long Term Investing Techniques

buy and hold strategy- buy and hold for a long period of time and reinvest dividends dollar cost averaging- same dollar amount invested in regular intervals

2 Short Term Investing Techniques

buying on margin- borrow money to invest selling short- you hope the price of stock goes down

Portfolio

collection of stocks/investments

Load fund ("A" shares and "B" shares)

commissions at purchase or at sell

Retained Earnings

company reinvesting in itself instead of offering dividends

Investment Liquidity

converting investments to cash without losing value

Cyclical vs. defensive stock

cyclical- luxuries defensive- necessities

Income dividends

earnings a fund pays to shareholders

Why buy a mutual fund?

easier than managing individual shares (@anyone studying this I don't know the answer this is just a guess ¯\_(ツ)_/¯)

403b/401k

employee sponsored retirement plan - tax deferred

12b-1 fees

fee for marketing and distributing charge

Types of brokerage firms

full-service, discount, online; differences in service & cost

ETF's (Exchange Traded Funds)

funds that are traded on a stock exchange and track indexes

Ms. Mueller's top 2 pieces of advice when starting investing life

if employer offers a match on a 401K or 403 B, contribute up to the match open up a roth IRA

Income vs. growth stock

income stock- history of paying high dividends growth stock- doesn't pay dividends

IPO

initial public offering

Sources for evaluating stocks

internet, newspaper, company's annual report

Types of low risk(safe) investments vs. types of high risk(speculative) investments vs. types that can vary

low risk- savings account, short term CDs, US savings bonds high risk- commodities, options, collectibles varying- stocks, bonds, mutual funds, ETFs

Market order; limit order

market order- request to buy/sell stock at market value limit order- request to buy/sell stock at specified price or better

Equity Capital

money that businesses gets from its owners to operate

Risk vs. Reward

must take on more risk to get more reward

Target Retirement Fund

mutual funds that hols a group of other mutual funds run by the same company; automatically adjust their asset allocation toward more conservative investments as the retirement date draws near; automatically rebalance the portfolio on a regular basis to ensure that the investor's asset allocation is appropriate for their age

No load fund

no commissions and no help

Compute capital gain or capital loss

number of shares (sell price - original price) = capital gain/loss

Diversification

owning many different types of stocks in order to spread out the risk

Parent Company vs. Subsidiary Company

parent company- owns subsidiary company- is owned

Capital gain distributions

payments made to shareholders that result from the sale of securities inside the mutual fund

Roth IRA

post (after) tax money - it can be withdrawn tax free after age 59.5 Original contributions may be withdrawn at any time without taxes or penalties

Traditional IRA

pre (before) tax money - taxed as income after age 59.5

Net asset value (NAV)

price of one share of a mutual fund

Primary market vs. secondary market

primary market- when a company issues an IPO, the stock is purchased through an investment bank or brokerage firm. it is then sold to the public in the secondary market secondary market- where securities are traded among investors

Private vs. Public corporation

private- closely held, issues stock to a small group of people, not traded on the stock exchanges public- sells shares n the open markets, anyone can purchase shares and own a part of the corperation

Capital gains

profit earned by selling shares

Federal Deposit Insurance Corporation (FDIC)

provids deposit insurance to depositors in US banks

Blue-chip stocks

reliable, well known companies that have been around for a long time and offer dividends

ROI

return on investment 100 [(sell price - original price)/original price] = ROI

Dollar Cost Averaging

same dollar amount invested in regular intervals monthly amount/cost per share = number of shares purchased

SEC

security and exchange commission (make sure people follow the rule of the stock market)

Dividends

share in a company's profits

Rule of 72

shortcut to tell how quickly your money will double 72/# of years = ROI needed to double money 72/ROI = # of years needed to double money

Stock split

splitting stocks and prices to attract more investors ex: 200 shares at $100 =400 shares at $50

3 main asset groups of mutual funds

stock blended/mixed/balanced bond

Stock (common)

stock- ownership in a company common stock- to raise money for a business and help pay for ongoing activities; price is base on the market; voting rights, may offer dividends- not mandatory

Why do corporations issue common stock?

to raise money fro their business and to help pay for ongoing activities

Capitalization (Large, Mid, Small)

total value of how large a company is equal to current price, number of outstanding shares large > 10B mid < 10B, >2B small <2B

Index Fund

type of mutual fund with a portfolio constructed to match or track the components of a market index

Asset allocation

where your assets are and in what percent