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.