Savings Vs. Investing
Savings
1 - 5 years, liquid, emergency fund, low interest, low risk
Investing
5-40 years, not as liquid, higher possible interest rate, higher risk of losing money, increase net worth, need money to get started
Risk pyramid
A heirarchy of investment tools organized by level of risk. Bonds are low risk, speculative investments are at the top.
Dividends
A portion of the profits which is shared with the stockholders.
Securities
Any type of investment. Could be debt securities, equity securities, and derivative securities.
Speculative Investments
Investments that are very risky
Stock
Ownership of a share of a company.
Real Rate of Return
Rate of Return - Inflation
Rate of Return
Return/Principal; the interest rate of your return on the investment
Risk
The chance at loss
Inflation Risk
The danger that your money won't be worth as much in the future.
Inflation
The general rise of prices over time
Risk vs. Reward
The higher the risk, the higher the potential for either making or losing money; the lower the risk, the lower the potential for either making or losing money
Capital Gains
The money you earn from selling stock or dividends. Also called Unearned Income. You have to pay tax on it.
Investment risk
The possibility that the investment will fail
Return
The profit or income generated from your investment. Also known as Reward.
Time Value of Money
This is the idea that your money is worth less in the future than now because of the potential for interest from investing.