Chapter 8

Question 1

Diversification

Answer 1

The practice of dividing the money a person invests between several different types of investments in order to lower ris

Question 2

Investing

Answer 2

The process of setting money aside to increase wealth over time for long-term financial goals such as retirement

Question 3

Investment

Answer 3

Account or arrangement in which a person puts his/her money for long-term growth; invested money should not be used for a suggested minimum of five years

Question 4

Liquidity

Answer 4

Quality of an asset that permits it to be converted quickly into cash without loss of value; availability of money

Question 5

Potfolio

Answer 5

A list of your investments.

Question 6

Risk

Answer 6

Degree of uncertainty of return on an asset; in business, the likelihood of loss or reduced profit

Question 7

Risk-Return Ratio

Answer 7

Relationship of substantial reward compared to the amount of risk taken

Question 8

Share

Answer 8

Piece of ownership in a company, mutual fund or other investment

Question 9

Stocks

Answer 9

Securities that represent part ownership or equity in a corporation

Question 10

Tax-Favored Dollars

Answer 10

Money that is invested, either tax deferred or tax free, within a retirement plan

Question 11

Annuity

Answer 11

A contract between you and an insurance company that requires the insurer to make payments to you, either immediately or in the future. You buy an annuity by making either a single payment or a series of payments.

Question 12

Bonds

Answer 12

A money instrument by which the company owes you money; a form of I.O.U. The company that issued the bond makes regular interest payments to the bond holder and promises to pay back or redeem the face value of the bond at a specified point in the future (maturity date).

Question 13

Mutual fund

Answer 13

An investment vehicle made up of a pool of money collected(a.ka. fund) from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets

Question 14

Basic Rules of Investing

Answer 14

-Keep it simple
-Never invest just for tax savings
-Don’t invest with borrowed money

Question 15

Money Markets

Answer 15

Low-risk, low return great for short-term emergency funds because of there liquidity and stability.

Question 16

Single Stocks

Answer 16

High-risk piece of ownership

Question 17

Bond

Answer 17

Money instrument by which the company owes you money; a form of I.O.U. The company that issued it makes regular interest payments to the holder and promises to pay back or redeem the face value at a specified point in the future (maturity date)

Question 18

Return

Answer 18

The fluctuation in price and the profit

Question 19

Qualified Plan

Answer 19

A tax-favored investment (which means it has special tax treatment)

Includes:
-Roth IRA
-IRA

Question 20

Roth IRA

Answer 20

Funded with after-tax money, which allows you to use the money tax free in retirement.
After five years, you can make tax-free, penalty-free withdrawals of earnings under these conditions:
1. Over 59 and a half years old
2. Because of death or disability
3. First-time home purchase

Question 21

IRA (Individual Retirement Arrangement)

Answer 21

Everyone that earns income can have this tax advantages for retirement savings and can contribute annually.
Employees manage this and can grow tax-free earnings until withdrawl.

Question 22

Real Esate

Answer 22

People with a lot of money should invest in this and is the least liquid investment a consumer can make. Based on appearance and market. Supply and demand

Question 23

Horrible investments

Answer 23

-Gold
-Commodities (food or mining)
-Daytrading
-Viaticles

Question 24

Viaticles

Answer 24

This is when someone with a terminal disease sells his life insurance policy for less than face value. The buyer then cashes in the full amount at the original owner’s death. There are a lot of scam artists surrounding this type of investment, and investors often incur legal risks.

Question 25

Major Stocks

Answer 25

-New York Stock Exchange (NYSE) largest
-The American Stock Exchange (AMEX) small companies
-NASDAQ stands for the National Association of Securities Dealers Automated Quotation System which is done by computer so it has no physical location

Question 26

The Dow Jones Industrial Average

Answer 26

A measure of the stock market

Question 27

Securities

Answer 27

A financial asset (such as a stock or bond) that can be bought and sold; a tradable financial asset.

Question 28

Bear vs. Bull Market

Answer 28

The terms bull market and bear market describe upward (bullish) and downward (bearish) market trends.

Question 29

Employee benefits package

Answer 29

Employee benefits are various non-wage compensations provided to employees in addition to their normal wages or salaries. The purpose of employee benefits is to increase the financial security of staff members, and in doing so, improve worker retention across the organization

Question 30

Common employee benefits

Answer 30

Are retirement plans, savings plans, insurance, leave (sick, vacation, etc.), stock purchase, educational reimbursement, incentive plans and cafeteria plans. In addition to considering salary when you are offered employment with a company, you should also evaluate the employer’s benefits package.

Question 31

Simplified Employee Pension Plan (SEP)

Answer 31

A self- employed person may deduct up to 15% of their net profit on the business by investing in this.

Question 32

401(k)

Answer 32

a retirement savings plan offered by a corporation to its employees. The employee contributes money to the this from his/her gross pay, and the money in the account grows tax deferred. In some cases, employers will match the employee’s contribution, but you should fund your plan whether your company matches or not.

Question 33

403(b)

Answer 33

found in non-profit organizations such as hospitals, churches, and schools.

Question 34

457

Answer 34

is deferred compensation, which means you are deferring or putting off compensation. Usually this is available for government employees

Question 35

Guaranteed Investment Contract (GIC)

Answer 35

A bond fund that should not be used because this is like a CD inside of your 401(k). You will only make about 3–4%, and it will not help you win long term.

Question 36

Pre-tax contributions

Answer 36

This is taken from your gross income before taxes. Taxes are due upon withdrawal.

Question 37

After-tax contributions

Answer 37

are taken from your net income after taxes. No taxes are due upon withdrawal.

Question 38

I believe…

Answer 38

I should:
-Invest to build wealth and meet financial goals.
» When investing, diversification lowers risk.
» Employee benefits often include insurance and retirement plans.