Investing Flashcards
The total return on an investment expresses as a percentage of the amount of money invested
Rate of return
The danger that money won’t be worth as much in the future as it is today
Inflation risk
The current price that a buyer is willing to pay for stock
Market price
Reduces risk by spreading investment money among a wide variety of investment tools
Portfolio Diversification
The uncertainty regarding the outcome of a situation or event
Risk
A mutual fund that was designed to reduce fees by investing in the stocks and bonds that makes up an index
Index Fund
A share of ownership in a company
Stock
The purchase of assets with the goal of increasing future income
Investing
A form of lending to a company or the government (city, state, or federal)
Bond
Te specified time in the future when the principal (or initial investment) amount of the bond is repaid to the bondholder
Maturity date
The share of profits distributed in cash
Dividend
Eliminate, reduce, defer, or adjust the current year tax liability
Tax-sheltered investments
The owner of a stock
Stockholder
Created when a company combines the funds of many different investors and then invests that money in a diversified portfolio of stock and bonds
Mutual fund
An individual’s general approach to investment risk
Investment Philosophy
The possibility that an investment will fail to pay the expected return or fail a return at all
Investment risk
Allows a person to easily calculate when the future value of an investment will double the principal amount
Rule of 72
The rise in the general level of prices
Inflation
Have the potential for significant fluctuations in return over a short period of time
Speculative Investments
A group of similar stocks and bonds
Index
Illustrates the trade-offs between risk and return for a number of saving and investing tools
Financial risk pyramid
List three characterisitcs of saving
- ) more liquid
- ) low risk
- ) used for emergencies
List three characteristics of investing
- ) less liquid
- ) high risk
- ) helps build wealth
Oder from high risk to low risk: Bonds, Stock and real estate, speculative, mutual funds and index funds
Speculative, stock and real estate, mutual funds and index funds, bonds
Rule of 72 Equations
72/interest rate = years to double
72/years = interest rate needed for investment to double
