Savings and Investing

Municipal bond

-A long- term, interest bearing, security issued by the county, city, or state governments, having a maturity of at least ten years -loans to a state, city, or local government, generally with terms of at least 10 years -interest is exempt from federal tax and in some cases, state and local tax. -some can be insured by outside agencies (guaranteeing safety) -usually come in $5000 par values and require a minimum investment of $25,000 to get the best price

Bond

A certificate of debt issued by a government or corporation that offers payment of the original principal plus interest by a specific future date

U.S. Savings bond

a nontransferable bond issued by the U.S. government. Savings bonds cannot be bought and sold after they are purchased, except to redeem them to the government. -can be purchased with values from $50-$10,000. -they can be sold back to the government at any time if the investor wants cash, but they cannot be sold to other people. -there are several different kinds of savings bonds; they all pay interest and some offer tax advantages. series I savings bonds have a variable interest rate based on the rate of inflation.

Rate of Return

a percentage amount of the return on an investment of loan

Treasury bill (t-bill)

a short term debt security issued by the U.S. government, having maturity of one year or less. -minimum investment of $100 -they can be easily sold if the investor wants cash -the treasury sells the bills at a discount. the "interest" earned is the difference between their cost and their value at maturity.

Investment

property or other possession acquired for future financial return or benefit; also a commitment of time. ex: to education or career training

Stocks

the capital raised by a corporation by issuing shares of ownership; a certificate documenting a proportional share in the corporations' assets and profits. (AKA an equity). If the compony prospers, stockholders might receive quarterly dividend payments, at the discretion of the compony -the value of the stock can appreciate, thus increasing the value of the investment. -the value of a stock can drop, and the stockholder risks loosing part or all of the investment.

wealth

the total accumulated value of the assets a person possesses. -Financial assets include savings, stocks, and bonds. -Physical assets include real estate, rental property, gold antiques and other collectables.

Federal Deposit Insurance Corporation (FDIC)

An independent agency of the federal government that insures accounts up to $250,000 per deposited at all United States depository institutions. The deposit limit was increased from $100,000 to $250,000 in 2008, due to the banking system crisis

Commodities

a basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services. They quality of a given commodity may differ slightly, but it is essential uniform across producers. Ex: barrel of oil, corn, gold, lumber

Portfolio

a lists or a collection of the financial assets held by an individual, bank, or other financial institution

corporate bonds

a loan to a compony, which promises to pay a certain interest and repay the entire principal when the bond comes due. Interest rates are higher than for government bonds, but so is the risk. Corporations can declare bankruptcy or default on a bond, so the investor may lose principal

Treasury bond (T-bond)

a long term interest-bearing security issued by the U.S. government. Interest is pain semiannually. These securities mature in 10 to 30 years. Minimum investment is $100. They can be sold at any time without penalty if the investor wants cash.

Money market account

a savings account that pays variable interest rates based on current conditions in the market for very short term securities. -to open, banks require deposits of $100 or more -deposits are secure. bank money market accounts are insured by the FDIC for up to $250,000 per depositor. (investments maintained in commercial banks or brokerage house accounts are not insured) -money can be easily withdrawn. some accounts have no-fee checking - interest rates are higher than on regular savings accounts, but go up and down.

Diversification

a variety of investments in an investment portfolio; such as stocks, bonds, and real estate. The goal of diversification is to reduce the risk in a portfolio

Savings account

an account in financial institution that earns interest and allows regular deposits and withdrawals. -(regular passbook) can be opened with a small amount of money -deposits are secure. accounts are insured by the FDIC for up to $250,000 per depositor -money can be easily withdrawn -money earns interest, but fixed rates that are lower than for other savings accounts.

government bonds

federal, state, and musical governments all issue bonds. They borrow money form investors to pay for public works such as building new schools. The government bonds pay a stated rate of interest over the life of the bond. The entire face value is repaid upon maturity. U.S government bonds are very low risk because of the creditworthiness of government. they pay lower interest rates that higher-risk corporate bonds.

mutual fund

funds from many investors pooled together to establish a diversified portfolio of investments by buying stocks, bonds, and other financial products. Mutual funds raise money by selling shares of the fund to the public. They can reduce investment risk through a diversified portfolio of professionally managed investments. investors can buy additional shares and cash out shares at any time and in any amount. The rate of return can vary widely.

Treasury note (T-note)

government debt security issued with maturities of two to ten years and traded in the capital markets. Treasury notes bear fixed interest, paid semi-annually.

Compound interest

interest that is calculated not only on the initial principal, but also the accumulated interest of prior periods.

Certificate of Deposit (CD)

A form of time deposit at a bank or other savings institution. A time deposit cannot be withdrawn a specific date without being subject to an interest penalty for early withdrawal. minimum deposit is required, usually at least $500 deposits are secure. CD's are insured by the FDIC for up to $250,000 per depositor. Money is deposited for a "term" or period of time (3 months, 1 year) a fixed rate of interest is received at the end of each term

Security Exchange Commission (SEC)

A government commission created by congress to regulate the securities markets and protect investors. In addition to regulation and protection, it also monitors the corporate takeovers in the U.S. The SEC is composed of five commissioners appointed by the U.S. president and approved by the senate.

Rule of 72

A rule used to calculate the doubling of money (72 divided by the anticipated interest rate gives the number of years it would take to double one's money) Ex: at 4% interest it would take 18 years to double one's money using compound interest.