Personal Finance Section 4

Installment-Certain Annuity

A type of annuity that issues regular payments to you for a set number of years. If you die before this time period ends, the payments can be transferred to a member of your family, such as a spouse or a child.

Bonds

A type of debt investment in which you lend money to a company or a government, and the company or government gives you a document called known as this. The document says that the company or government will pay you back a specific amount on a specific date in the future, so you are promised a specific return on investment.

Investment Commodity

A very basic good or service. They have utility for the majority of consumers. They are almost always needs instead of wants. They are usually precious metals, agricultural products, energy sources, or sources of meat.

Stock Market Indicator

A way of analyzing the performance of a stock market as a whole.

Period Certain Annuity

Also called an installment-certain annuity.

Publicly Held Stock

A registered stock that is available to the general public.

Rule of 72

A rule for helping calculate the approximate number of years required to double the principal of an account based on its annual compound interest rate. To use this rule, divide 72 by the interest rate of the account.

Annuity

An agreement you can make with an insurance company in which you pay the company a specific amount of money, and the insurance company agrees to pay you back a larger amount of money in regular payments in the future. .

Financial Reserve

An amount of money you've set aside in case of an emergency.

Adjustable Interest Rate

An interest rate that may change over time.

Fixed Interest Rate

An interest rate that stays the same over time.

Quarterly

Every three months.

Simple Interest

Interest gained only on the principal amount. The interest generated by the account does not get added to the principal before generating more interest.

Compound Interest

Interest that is added to the principal, so that the interest you receive starts to generate its own interest.

Securities

Investment opportunities, such as stocks or bonds, represented by a document. This document is usually on paper, but some are represented by online or computer-based documents.

Alternative Investments

Investments other than the traditional categories of stocks, bonds, and cash. These include things like real estate, annuities, lending, private equity, investment commodities, foreign exchange, collectibles, and social investing.

Private Equity Investments

Investments that are made in private companies. These companies can be any size, but individual investors often make these investments in small businesses.

Microfinance

Providing loans or other financial services to low-income individuals or small groups who can't access banks or wouldn't qualify for loans. The borrowers use these loans to fund small business ideas, which ideally helps them escape poverty.

S and P 500

Standard & Poor's 500 Index

Equities

Stocks.

Real Estate Investment

The purchase of property in the form of buildings or land, such as a home, an office building, or land with nothing built on it. This is considered an equity investment, since you own the property and will benefit if it increases in value.

Capital Loss

When an investor loses money by selling an equity investment for less than the investor originally paid for it.

Capital Gain

When an investor makes money by selling an equity investment for more than the investor originally paid for it.

Social Investing

When the goal of an investment is to both have a high financial return and make a positive impact on the world.

Investing

When you give your money, time, or energy to something in order to get a reward in the future--usually a financial reward. This can produce money for you while you are doing other things.

Opportunity Cost

When you put your money into an investment, you are giving up the opportunity to make other investments with that money. This is the value of the next best opportunity you are giving up.

Securities and Exchange Commission (SEC)

A U.S. government agency with the purpose of regulating the securities market and protecting investors. In order to sell stock on a public stock market in the U.S., companies must register their stock with this agency.

Short-term Capital Gain

A capital gain that occurs when an investment or property is owned for less than a year.

Long-term Capital Gain

A capital gain that occurs when an investment or property is owned for more than a year.

Investment Portfolio

A collection of investments and financial holdings.

Ticker Symbol

A combination of three or four letters that identifies a stock in information about the stock market.

Money Market Account

A common type of account offered by many banks that is used in a similar way to a savings account. This type of account invests your money in low risk investments with predictable interest rates.

IRA (individual retirement account)

A common type of retirement account that you can get directly from an investment company. An It can be similar to a 401(k), but it is not set up by your employer.

Stock Tables

A common way of presenting information about how stocks and securities are performing.

Mutual Fund

A company that takes money from many investors, pools that money together, and then invests the money in stocks, bonds, other securities, or a combination of these. They let investors benefit from investment opportunities that might not be reasonable for them as individuals investing without a fund.

Investment Account

A diversified account that a finance professional sets up and maintains for you.

Broker

A finance professional who buys and sells stock and other securities on behalf of an investor.

Share

A fractional ownership of a company that you buy.

529 Plan

A fund that allows parents to prepay or save for their children's future college expenses.

Index Fund

A fund that is set up to track the overall performance of the stock market. It follows a stock market index.

NASDAQ

A major stock market whose trades take place over computers, not in person.

Stock Market

A market where stock and other securities are bought, sold, and traded.

Stock Market Index

A market where stock and other securities are bought, sold, and traded.

Commodities Mutual Fund

A mutual fund that's specifically for investments in investment commodities such as livestock or energy sources.

Dividend

A payment you receive as a stockholder who owns stock in a company. Usually, a company issues these payments to stockholders at regular intervals throughout a year. Not all companies offer these.

Stocks

A popular type of equity investment in which you can buy partial ownership of a company in a tiny fractional amount called a share.

Dow Jones Industrial Average

A stock market indicator that averages the stock prices of the 30 biggest U.S. companies in the NYSE and NASDAQ stock markets.

Standard and Poor's 500 Index

A stock market indicator that includes a large group of 500 companies selected by a committee to represent all aspects of the market well.

NASDAQ Composite Index

A stock market indicator that tracks a set of thousands of representative stocks in the NASDAQ stock market and uses them as an indicator of how the NASDAQ stock market as a whole is performing.

Tax Deferred Account

A type of account that allows the account holder to contribute money to the account without paying taxes on that money. Taxes are due on the money when it is withdrawn from the account at a future date.

Straight Annuity

A type of annuity that begins issuing regular payments to you at the time you agreed on, and then keeps making these payments for the rest of your life. Once you die, the payments stop, even if there is still money left in the annuity account at that time.

Equity Investments

An investment in the ownership of something with the hope that the investment will increase in value and be worth more at some future date.

Diversification

An investment strategy in which investments are spread out among many different types, so that the good investments balance out the bad ones. This helps to deal with risk.

Volatile Investment

An investment that can change quickly and without much warning. Its value might go up or down dramatically.

Debt Investments

An investment without ownership that promises a specific return on the investment. The investor lends money to a person or organization and charges interest on the amount that was loaned.

Angel Investor

An investor or small group of investors who provide funding to a startup business in its very early stages. This often takes the form of a private equity investment.

Privately Held Stock

An unregistered stock that is not traded on public markets. These types of stocks have not been registered with the Securities and Exchange Commission (SEC).

Rate of Return (ROR)

Another way of refering to return on investment (ROI).

Subtract the amount you originally invested from the amount you received back. Divide that amount by the original investment, and multiply the result by 100.

How do you calculate ROI as a percentage?

Subtract the amount you originally invested from the amount you received back.

How do you calculate ROI?

Add the expenses required to meet your needs for one month, and multiply the amount by the number of months you want to save for.

How do you calculate the amount you should have in your financial reserve?

Principal

In a bank account, this is the amount of money you have in the account. With credit or loans, this is the amount you owe a creditor.

Exponential Growth

In compounding, this type of growth speeds up as the value of the account grows.

Performance

In investing, this is how well an investment produces more money for you.

Diverse

Made up of many different things.

Liquidation Policy

On a bank account, this tells you when and how you're able to remove money from the account.

Annual

Once per year.

Disclosure

The act of making information known.

Return on Investment (ROI)

The amount of money you eventually receive in return for your investment.

Equity

The amount of ownership an investor has in an equity investment. This can also refer to the value of a company's assets after all creditors are paid except those with ownership interest in the company.

Risk Tolerance

The amount of risk you are able to handle without being too negatively affected by failed investments.

Time Value Of Money

The assumption that money is worth more the sooner it is received. If you receive money today, you can put it into an account that offers interest and start earning interest on that money right away.

Liquidity

The ease in which you can convert an asset to cash.

Financial Risk

The possibility of losing money.

Compounding

The process of generating compound interest.

New York Stock Exchange (NYSE)

The world's largest exchange for trading stocks and other securities. It's located in New York City, on Wall Street. Professional brokers and traders who represent buyers come here each day to sell, buy, and trade stocks.

Registered Stocks

These are stocks that have been through the SEC's registration process.

Savings 529 Plan

This is an investment account where money is set aside for college expenses.

Venture Capital

This is money used to fund a business in its early stages. However, this happens in stages of the business that are more stable than the very beginning startup stage. This often takes the form of a private equity investment.

Prepaid 529 Plan

This lets parents purchase college tuition at today's rates, with the guarantee that they'll be able to apply today's rates to college in the future, no matter how much they go up.

Volatility

Unpredictability.

Appreciation

When an equity investment increases in value.

Depreciation

When an equity investment or fixed asset decreases in value.