Chapter 6 - Investing

bond

a certificate of debt issued by a corporation or government.

investment portfolio

a collection of the investments a person has made.

initial public offering

a company's first sale of stock to the public.

brokerage firm

a financial institution that facilitates the purchase and sale of financial securities by buyers and sellers. Their main mission is to process buy and sell orders for customers.

investment club

a group of people who work together to learn about securities and to invest their pooled funds.

prospectus

a legal document that gives a detailed description of a security.

dividend

a portion of the company's earnings that is paid to stockholders.

securities exchange

a secondary market where securities are bought and sold through stockbrokers.

stock

a share in the ownership of a corporation.

proxy

a stockholder's written authorization to have someone else cast a vote on his or her behalf.

dollar-cost averaging

a strategy of investing a fixed dollar amount at regular intervals, such as monthly, without regard to the price of the investment at the time you buy it.

preferred stock

a type of stock that pays a regular dividend at a fixed rate.

dividend reinvestment plan (DRIP)

allows investors to reinvest cash dividends by purchasing additional shares of stock. Dividends are automatically reinvested.

rate of return

amount earned on an investment for a given period of time.

bear market

an extended period of falling stock prices, which comes with uncertainty and pessimism.

bull market

an extended period of rising stock prices, which comes with high consumer confidence and optimism.

appreciation

an increase in the value of an investment.

real estate investment trust (REIT)

company that owns income-earning real estate.

level of risk

degree to which an investment may deviate from its rate of return.

Series EE bond

earns a fixed rate of interest for up to 30 years.

Series I bond

earns interest based on combining a fixed interest rate and the inflation rate.

primary market

exists when a company first sells stock to the public (IPO)

secondary market

exists when investors purchase securities from other investors rather than from the issuing company (like the NYSE)

securities

financial assets issued by corporations, governments, or other organizations.

capital gain

income that results from selling an asset for more than the purchase price.

mutual fund

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

treasury bond

long-term investments with maturities of 30 years.

capital loss

loss of money that occurs when the selling price of an investment is less than the purchase price.

risk

measure of the likelihood that something will be lost.

personal investment plan

outlines how to develop investment growth.

inflation

overall rise in prices.

investing

purchasing a financial product or valuable item with the goal of increasing wealth over time, in spite of possible loss.

volatility

quick and unexpected changes in value or price.

treasury bill

short-term debts with maturities ranging from a few days to 52 weeks.

treasury note

short-term securities with maturities of two, three, five, seven, or ten years.

diversification

spreading risk by putting money in different types of investments.

common stock

stock that has voting rights and receives dividends (when declared by the company).

yield

the amount of money earned on the investment, usually expressed as an annual percentage.

risk tolerance

the amount of uncertainty a person is willing to handle.

business cycle

the fluctuations between periods of economic growth and slowdown.

market value

the price at which it can be bought or sold at any given time.

stock trade

the purchase or sale of shares of stock.

net asset value (NAV)

total of the fund's assets minus its liabilities divided by the number of the shares the fund has outstanding.

money market mutual fund

type of mutual fund that deals only in interest paying, short term investments

OTC market

Over the counter markets; virtual markets where stockbrokers conduct business through an electronic network of phones and computers. These exchanges lack many of the rules and regulations imposed on stockbrokers in securities exchanges and are considered high risk.