Stock Bonds and Mutual Funds and Personal Finance Fundamentals
why buy a mutual fund
1. built in diversification 2. professional management 3. easy to buy and sell 4. wide range of funds to choose from
Mid-cap stocks
2-10 billion (dollar tree and ruby Tuesday)
Underwriter
A bank or other financial institution that helps a company go public
Penny stock
A common stock valued at less than one dollar, and therefore highly speculative
Private corporation
A company that issues shares of stock to a small group of people.
Public corporation
A company that sells shares of stock on the stock market to the public
Registered Investment Advisor RIA
A financial advisor who has been through certain training, agrees to abide by certain rules, including ensuring that recommendations, and trades made are in your best interest.
Security
A financial asset—such as a stock or a bond—that can be bought and sold in a financial market.
Portfolio
A grouping of financial assets such as stocks, bonds and cash equivalents, mutual funds, exchange-traded and closed funds/a collection of asset's owned by an individual or by an institution. made of mainly stocks, bonds, mutual funds, money market funds and exchange traded funds
Stock exchange
A market where shares in corporations are bought and sold through an organized system.
Stock Index
A measurement of the value of a section of the stock market. It is computed from the prices of selected stocks
Actively managed mutual fund
A mutual fund that is overseen by a professional fund manager. The fee for this type of investment is typically higher.
Index Fund
A mutual fund that was designed to reduce fees by investing in the stocks and bonds that make up an index A low-fee portfolio of stocks chosen to track or mimic a stock market index, thereby removing the human element of investing. Aa mutual fund holding shares in proportion to their representation in a market index such as the S&P 500
blue chip
A nationally known company that has a consistent pattern of profit growth and dividend payments over the last several years./companies that have a long history of good earnings, good balance sheets, and regularly increasing dividends
Pension
A pension is a retirement account that an employer maintains to give an employee a fixed payout at retirement.
Shareholder
A person who invests in a corporation by buying stock and is a partial owner/Someone who owns stock in a company
401(k) Retirement Plan
A retirement savings plan sponsored by an employer which lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account.
"Shorting"
A risky technique where the investor sells shares of borrowed stock in the open market because they expect that the stock is going to decrease in value.
ticker
A running report of the prices and trading volume of securities traded on the various stock exchanges
Stock
A share of stock represents a fractional ownership of a company, which an individual buys in hopes of earning money and a company issues in order to raise funds.
Nasdaq Composite
A stock index that measures 3,000 companies, primarily in the technology sector
Equity
A stock or any other security representing an ownership interest. This may be in a private company (not publicly traded), in which case it is called private equity
Technical Theory
A theory based on the idea that a stock's value is determined by forces in the stock market itself, such as the volume of shares traded in a certain time period.
Bond
An IOU from a company or from the government. It pays interest each year.
Ticker
An abbreviation used to uniquely identify publicly traded shares of a particular stock on a particular stock market.
401(k) Match
An employer contribution made to their employees' 401(k) plan based on individual employee's contributions. An employee must contribute to the plan in order to receive a match from his/her employer.
market capital gain
An increase in the value of a capital asset that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold.
S&P 500
An index of 500 large cap companies chosen based on 8 factors, including market capitalization, location, and industry.
Financial Times Stock Exchange (FTSE)
An index of the 100 companies listed on the London Stock Exchange with the highest market capitalization
Dow Jones
An index that tracks 30 large, generally successful and reliable companies.
Roth IRA
An individual retirement account that allows a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free/post tax money, grows tax free it can be withdrawn tax free after age 59.5 (up to $5500 total) original contributions may be with drawn at any time without taxes or penalities
Traditional IRA
An individual retirement account that allows a person to set aside pre-tax income (up to a specified amount). Earnings are tax-deferred but taxes are paid when withdrawals are made beginning at age 59 1/2 or later (or earlier, with a 10% penalty)./pre tax money- tax deferred (money will be taxed when withdrawn at retirement) taxed as income after age 59.5
Passive investing
An investment strategy that generally depends on low-fee index funds to make money in the long run (for retirement, for example).
Current (dividend) yeild
Annual dividend - Current market value (increase is good)
"Going long"
Buying a stock because you expect it to increase in value
examples of brokerage firms
Charles Schwab, Scottrade, and or E-Trade
Public disclosure
Communication of news and financial information between public companies and the public.
privately held company
Company is owned by the company's founders, management, or a group of investors. Not required to disclose their financial info to anyone. Do not trade on the stock exchange. Advantage: management doesn't have to answer to stock holders
sectors/ industries
Financial Health care Services Utilities Industrial goods Consumer goods Technology Conglomerates
ETF (Exchange Traded Fund)
Funds traded on a stock exchange and track indexes like the NASDAQ, S&P 500, Dow Jones etc. When you buy these shares you are buying shares of a portfolio that tracks the yield and return of its native index. They don't try to out preform their corresponding ondes, but try to replicate its performance, they don't try to beat the market they try to be the market. Passivly managed, low expense ration. they are a diversified portfolio with the simplicity of trding a single stock. Investors can purchase these of the margin, short sell sales or hold for the long term. (recommend hold for the long term)
publicly held company
Has sold a portion of itself to the public via an initial public offering through some of its stock Shareholders have claim to part of the company's assets & profits. Required to file quarterly earnings reports with the SEC. Securities & Exchange Commission. Earnings reports are available for shareholders and public. Trade on a stock exchange
Limited Liability
If a company gets sued, an individual cannot lose their own personal property.
FTC
Independent U.S. agency responsible for the promotion of consumer protection and the elimination and prevention of anticompetitive business practices such a monopoly
Speculation
Investment in stocks, property, or other ventures in the hope of gain but with the risk of loss
Government Bond
Issued by U.S. Treasury and other federal agencies
Market Capitalization
Market value of all of a company's outstanding shares, calculated by multiplying the Current Share Price by Number of Shares.
Dividend
Money from the profits of a company that is paid out to its shareholders (typically, on a quarterly basis).
NASDAQ
National Association of Securities Dealers Automated Quotations. A stock exchange that focuses on trading stocks of technology companies.
NYSE
New York Stock Exchange -- the world's largest stock exchange.
Investing
Objective: long term growth Products: stocks, bonds, mutual funds, EFT's Risk: business failure, inflation, financial market crash Return: interest, dividends, capital gains/losses Benefit: returns have outpaced inflation Drawback: risk of losing money is securities decline in value
Savings
Objective: short term needs or emergencies Products: saving account, CD's money Market: account Risk: none if insured by the FDIC Return: interest earned Benefit: money is liquid Drawback: returns have not outpaced inflation
New York Stock Exchange NYSE
One of the most famous stock exchanges, which trades stocks in companies all of the US and even includes some international companies
Preferred Stock
Ownership in a corporation. If the company goes bankrupt, people who own this will have a higher chance of getting paid back. These owners do not get voting rights.
Common Stock
Ownership in a corporation. If the company goes bankrupt, people who own this will have lower priority in getting paid back. Owners of this are also entitled to voting rights/to raise money for a business and to help pay for ongoing activities, price is based on the market and they may offer dividends
pigs
Pigs are high-risk investors looking for the one big score in a short period of time. Buy on hot tips and invest in companies without doing their due diligence. They get impatient, greedy, and emotional about their investments.
P/E Ratio
Price to earnings ratio. The higher the ratio the more the expectation for higher earnings. This is a measurement that reflects how much you pay for each dollar that company earns. A company reports profits on a per-share basis.
ROI (return of investment)
Selling price - purchase price / Original price ( will tell you the percent of increase or decrease for your investment)
Diversification
Spreading your money into a variety of asset classes, with multiple investments or indexes in each asset class, so that your investment is not reliant on the success of one company. Diversifying minimizes risk.
Bear market
Stock market prices are falling, encouraging people to sell more/investors are pessimistic about the economy and sell stocks
Bull market
Stock market prices are rising, encouraging people to buy more./investors are optimistic about the economy and buy stocks
volume - stock quote volume
The amount of shares that trade hands from sellers to buyers as a measure of activity
Par value/ Face Value
The amount that a company or the government will pay you back when you redeem a bond.
Euronext
The fifth largest stock exchange in the world. Located in Europe.
closing price
The final price at which a stock is traded on a given trading day. Represents the most up to date evaluation of a security until trading commences on the next trading day
Vanguard
The first company to offer low-fee index funds. Its founder, John Bogle, invented index funds in the 1970s.
Initial Public Offering (IPO)
The first time a company issues stock that may be bought by the general public.
P/E Ratio Price to Earnings Ratio
The higher the P/E ratio, the more growth oriented the stock is. If you want your money to grow, look for high ratios bc that means the company is reinvesting its profits to grow the company. They want to make $$$ but they put it back into the company so they can make new products and innovations. Here's the rub-- the higher the ratio, the riskier the stock.
Random Walk Theory
The idea that stock market prices are unpredictable and often random, meaning it is impossible to consistently outperform the stock market in the long run
Inflation
The increase in the general price of goods and services in an economy over a period of time.
Coupon rate
The interest rate on a bond.
Volume of Shares
The number of shares that changed hands during a given day of a particular stock
EPS
The portion of a company's profit allocated to each outstanding share of common stock. It serves as an indicator of a company's profitability.
dividend
The portion of corporate profits paid out to stockholders/a company will offer to divide up some of its income among shareholders. can be paid once, quarterly, monthly, or semi-annually/A sum of money paid quarterly by a company to its shareholders out of its profits
P/E Ratio
The ratio for valuing a company that measures its current share price relative to its per-share earnings. It indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company's earnings
Rate of Return
The ratio of money gained or lost on an investment relative to the amount of money invested; also known as return on investment (ROI).
NASDAQ
The second largest stock exchange in the world behind the NYSE.
SEC
The securities and exchange commission, a US government agency that oversees securities, transactions, activities of financial professionals and mutual fund trading to prevent fraud and international deception
Fundamental Theory
The theory that a stock's true value is determined by looking at the company's earnings potential in the future. The stock price should go up if the company's earnings are expected to go up.
Maturity Date
The time when a bond expires. This is when the company needs to pay you back.
Delisting
When a company is removed from trading on a stock exchange because it does not meet certain requirements. Generally, it means that the company's stock price has decreased to under $1
Surplus
When the available supply for something is greater than the demand for it.
Shortage
When the demand for something is greater than the available supply.
short sell
You don't own the stock. You borrowed the stock and then sold it.The shares are sold and the proceeds are credited to your account. Sooner or later, you must "close" by covering. If the price of the stock drops you EARN $. If the price of the stock goes up you LOSE $.
Bond
a certificate acknowledging a loan from the lender to the government or a corporation for a specific time at a specific rate
subsidiary company
a company that is owned and controlled by a different company
Stock split
a corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares
Mutual Fund
a fund operated by an investment company which requires money from shareholders and invests in a group of assets in accordance with a stated set of objectives
beta
a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
The Motley Fool
a multimedia financial-services company that provides financial advice for investors through various stock, investing, and personal finance services. The Virginia-based private company was founded in July 1993. The company employs more than 300 people.
DRIP (Dividend reinvestment pan)
a plan offered by a corporation that allows investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment
diversity
a portfolio with more than one type of asset
Limit order
a request to buy/sell stock at a specified price (can be good for a day, week, month, or until cancelled)
balance sheet
a statement showing what a company owns, as well as the liabilities the company has, and stating the outstanding shareholder equity
income stock
a stock with a history of paying high dividends and limited future growth options (ex: Johnson&Johnson, Proctor and Gamble, Pepsi co, conoco phillips)
index
a tool used to statistically measure the progress of a group of stocks that share characteristics.
chickens
afraid to lose anything. Fear overrides their need to make profits. It's true you should never invest in something over which you lose sleep. However you are guaranteed never to see any return if you avoid the market completely and never take a risk.
securities
all types of investments, stocks, bonds, mutual funds, ETF's, options, and commodities
Defensive stocks
also known as cyclical stocks, necessity items, stock remains stable during economic decline (ex: food, shampoos, gas, Colgate Palmolive, Philip Morris, Sin industry, Ameren)
Warren Buffet
an American business magnate, investor, and philanthropist. He serves as the chairman and CEO of Berkshire Hathaway. He is considered one of the most successful investors in the world, and as of January 2018, has a net worth of $91.6 billion, making him the third wealthiest person in the United States and in the world. He developed an interest in business and investing in his youth, eventually entering the Wharton School of the University of Pennsylvania in 1947, before transferring and graduating from University of Nebraska-Lincoln at the age of 19.
The Standard & Poor's 500- S&P 500.
an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ.
Expense Ratio
an annual charge that is a fixed percent of the funds asset value. Average is from .2-2% all mutual funds charge an expense ratio
Mutual fund
an investment that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments, and similar assets. These are operated by money managers who invest the fund's capital & attempt to produce capital gains for the investors.
Bonds
an investment that represents what an entity owes you. you lend $ to a company and you are promised that the principal will be returned + interest
Why investors buy common stock
appreciation of stock value (capital gain/loss) and income from dividends
book value
assets and common stock equity - liabilities= what you have left over. this left over part is called _______.
where to purchase mutual funds
brokerage firm and or contact an investment company
Front Load (A shares)
charge the 4-6% commission when the shares are purchased
Back end load (B shares)
charge the 4-6% commission when the shares are sold
private corporation
closely held corporation, issue stocks to a small group of people, and not traded on stock exchanges
how personal financial planners can be compensated
commission based, hourly fee and or a percent of asset under management
Retained earnings
company keeps the profits in the business in order to help the company grow
Parent company
company that owns enough voting stocks in another firm/company to control management and operation by doing and influencing or electing its board of directors
S&P 500 stock index
consist of 500 large cap stocks of U.S. companies
Prospectus
corporate document that discloses financial information
statistical averages
don't pinpoint specific investments, but shows general direction of stocks and other investments ( Ex: Dow Jones industrial Average, S&P 500 stock index, and NASDAQ stock index)
income dividends
earnings a fund pays to the shareholder (may set it up to reinvest dividends)
401k/403b
employee sponsored retirement plan, pre tax money up to $7500 and is tax deferred until retirement
How/Where to buy mutual fund shares
go to a broker, the website of a mutual fund company (Charle Schwab, Scottrade, E-trade), or an online broker. Minimum investments can be as law as $500. Always find out about commissions and expenses which can vary widley
Federal Deposit Insurance Corporation (FDIC)
government agency that insures deposits in banks and thrifts in the event of bank failures
No load Fund
has no commission and no help
why companies issue common bonds
helps corporation raise money also a way of financing which can attract more conservative investors
individual investment representative
hourly rate or percent of assets, regulated by a states security agency and/or SEC held to fiduciary standard
capital loss
if market price goes down and you selling m
capital gain
if market price goes up and you sell
earn money with mutual fund
income dividends, capital gain distribution, and capital gain
IRA's
individual retirement accounts, up to $5500 if less than 50 year old and up to $6500 of 50 years or older)
IPO
initial public offering, the first time a company goes from a private company to a public one
ETF - Exchange Traded Funds
is traded just as a normal share of stock is traded. But unlike a mutual fund, this will have its price adjusted throughout the day rather than at market close. This is made up of stocks in a similar industry, such as energy, but can cover an index of equities as well. This allows an investor to gain exposure to a basket of equities without having to purchase individual shares. This carries a management fee, but is typically lower than those found in a mutual fund.
Issued by U.S. Treasury and other federal agencies
issued by companies
large cap stocks
less risky more stable stock, greater than 10 billion (ebay and General Electric)
Micro cap stocks
less than 250 million (exponent)
Full service broker
licensed financial dealer that provides a large variety of services to its clients, including research, advice, retirement planning, tax tips etc. (Ex. Edward Jones, A.G. Edwards)
Cyclical Stock
luxury item, usually if the economy is doing well then the market price goes up and if the economy is in decline the market price goes down (ex: fine dining, new cars, electronics travel, Ford, and Best buy)
Dow Jones Industrial Average DJIA
made up of 30 large cap stocks
speculative investments
makes an investment high risk, investments in commodities, options, collectibles etc. (cars, homes, luxury items etc.)
investment income
makes an investment low risk because you know the interest rate and when you'll receive the interest. dependable and safe (savings account, CD's, U.S. savings bond)
Loaded Fund
means commission and investment advice are recommending you lean towards products which earn them commission and may not be best for your portfolio, average between 4-6%
equity capital
money that a business gets from its owners to operate
Target retirement fund (asset allocation fund)
mutual funds that hold a group of other mutual funds run by the same company
NASDAQ Stock Index
national association of securities dealers automated quotations, has approximately 4000 companies
asset allocation
one of the ways to divide up the holdings in your portfolio/investment strategy that aims to balance risk and reward by apportioning a portfolios assets according to an individuals goals, risk tolerance and investment horizon
broker
one who buys and sells investments on your behalf
sources for evaluating stocks
online, newspapers, magazines, news programs, and or prospecurs
Capital gain distribution
payments made to shareholders that result from the sale of securities inside the mutual fund (may set it up to reinvest capital gains)
capital gain distribution
payments made to shareholders that result from the sale of securities inside the mutual fund (may set up to reinvest capital gains)
Rule of 72
quick way to tell how quickly your money will double
investment liquidity
refers to how long and at what cost does it take to convert an investment into cash
how to purchase mutual funds
regular account transactions (dollar cost averaging), payroll deduction plans, and or reinvestment plans
Broker
regulated by FINRA and must only uphold suitability standard
Market order
request to buy/sell stock at market value
Suitability standard
requires investment advisers to make suitable recommendations but duty is to the company and not necessarily the client
fiduciary duty
requires investment advisers to put their clients interest over their own
Blue chip stocks
safe investment, attracts conservative investors generally pay dividends older established corporations (walmart, coco-cola, exxon-mobil)
short term investment options
savings account short term CD's U.S. savings bond
low risk investments
savings account, MMDA, CD's
Securities exchange
secondary market place where brokers who represent investors buy and sell securities (NYSE, AMEX, NASDAQ)
public corporation
sells shares in a open market, anyone can purchase shares and own a part of the corporation
Asset
something that has the potential to earn $ for you
high risk investments
sophisticated, luxury investments, and startup companies
Online discount broker
stockbroker who carries out to buy and sell orders at a reduced commission rate but doesn't provide investment advice (Ex. Charles Schwab, Scottrade, E-Trade, and Ameritrade)
Long term investment options
stocks bonds mutual funds ETF
asset groups of mutual funds
stocks (equities), stocks (fixed income) and or bonds (cash equivalents or money market instruments
Medium Risk investments
stocks of large established, financially healthy companies; mutual funds that balance stock and bond holdings
earnings
the amount of PROFIT a company produces during a specific period, which is usually defined as a quarter (three calendar months) or a year. Every quarter, analysts wait for the earnings of the companies they follow to be released. These are studied because they represent a direct link to company performance.
revenue
the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the "top line" or "gross income" figure from which costs are subtracted to determine net income.
Dow Jones Industrial Average (The Dow)
the average of 30 blue chip stocks; the largest companies in the United States. it is often used as a gauge of the health of the stock market as a whole- even though its only a very small portion
Maturity Date
the day at which the bond is complete and the final payment is made to the investor
capital gain (or loss)
the difference between what you bought an investment for and what you sell it for
bid
the highest price a buyer is willing to pay when buying an investment
diversification
the idea to create a portfolio that includes multiple investments in order to reduce risk
Index funds
the investment objective seeks to make an index such as S&P 500, attemping to match the market not beat the market, passive fund/A low-fee portfolio of stocks chosen to track or mimic a stock market index, thereby removing the human element of investing.
ask
the lowest price an owner is willing to accept for an asset
Par value (face value or principal)
the price an investor pays for bond
Capitalization
the total value of the outstanding shares, equal to the current market price times the number of outstanding shares
Risk
the uncertainty of achieving a desired result, there are no guarantees that your investments will make money, all investments involve this. the more you have the more potential loss or reward you have.
Net asset value
the value of the mutual fund that is reached by deducting the fund's liabilities from the market value of all of its shares and then dividing by the number of issued shares
exchange
this is a place where investments including stocks bonds commodities and other assets are bought and sold. a place where brokers can connect
margin
this is essentially borrowed money used to make an investment.
market capitalization
this is figured by multiplying the current share price by the number of shares outstanding. the largest companies have market caps in the billions.
yield
this represents the ratio between the stock price paid and the dividend paid. A stock trading at $100 per share, with a dividend that is $5 per year, you divide 5 by 100 and turn it to a percentage. This yield would be 5%.
Primary Market
when a company issues an IPO the stock is purchased through an investment bank or brokerage firm, then it gets sold to the public on the secondary market
capital gains
when the shareholder sells shares in a mutual fund for a profit
capital gain
when the shareholders sell shares in a mutual fund at a profit
Dollar cost averaging
when you invest the same amount of money every month and purchase a different amount of shares (depends on the price per a share)
reward
when you money does at least what you expect it to do, a higher risk means a higher of this
cover
when you return the shares you borrowed.
Secondary market
where securities are traded among investors
