Emergency Fund Planning Flashcards
Purchasing a small part of the company
Common Stocks
Treasury bills and other very short-term notes
Money Market Mutual Funds
Limited holdings in cash, bond, and short-term investments
Stock Mutual Funds
What are characteristics of bond issuers?
Generally a corporation, city or a state.
Uses the money loaned.
Pays the interest.
what makes stocks are marketable?
No difficulty in selling them.
Secondary markets extremely well developed.
Money Market Mutual Funds:
These investments are generally regarded as practically risk-free because they have a short maturity period.
Stock Mutual Funds:
These funds don’t just hold stocks. They do have some limited holdings in cash, bonds, and short-term investments (such as those in money market mutual funds). But their main emphasis is indeed firmly on stocks.
Stocks:
The possible returns on stock investments are high and so also are the accompanying risks, however they generate returns precisely the same way your own business does.
____ reduce risk through diversification and produce steady current income. They can be a safe investment to serve as emergency funds.
Bonds
What are alternatives to checking, NOW accounts, and savings accounts for holding emergency funds
Money Market Mutual Funds
Stocks
Bonds
Stock Mutual Funds
Sources of Emergency Funds can include
checking, Negotiable Order of Withdrawal (known as a NOW account), passbook savings
How much should you hold in an emergency fund
3 to 6 months but perferrably 6
How to determine liquidity?
Liquid assets to take-home pay ratio = liquid assets/ take-home pay
Liquid Ratio= Liquid Assets ÷ Current Liabilities
_____= Liquid Assets ÷ Current Liabilities
Liquid Ratio
Ratio to consider the level of existing liabilities
Larger the number the better liquidity. Needs to be over 1.0
Liquid assets to take-home pay ratio = ______
liquid assets/ take-home pay
What are the most important aspects of liquid assets?
- act as a shock absorber in crisis situations
- liquid assets may cover unforeseen expenses outside the budget and helps prevent compromising long-term investments.
The emergency fund should contain assets if not cash, should be _____ and _____.
“marketable” and “liquid”
______ refers to the ease in which an asset can be bought or sold while liquidity is the ease in which an asset can be converted to cash with little risk of loss of principal.
Marketability
Your ability to _____, with no ______, and with no______ will make the deposit liquid.
withdraw it easily
delays or other complications
loss in principal
What factors should you consider when choosing alternatives to Checking, NOW, or savings accounts?
Returns using comparable interest rates,
Tax status, and
Safety or risk
What are the advantages of Bonds?
Reduce risk through diversification
Produce steady current income
Safe investment if held to maturity
______ is simply a company’s distribution of profits to its stockholders. It can be in the form of cash or additional company stock.
A dividend
_____ refers to an increase in the selling price of your shares of stock as the company’s earning prospects improve.
Capital appreciation
What are the advantages of Stocks?
Over time, common stocks may outperform many other types of investments.
Common stocks may help reduce portfolio risk through diversification.
Common stocks may be sold quickly and relatively inexpensively.
