investing unit test vocab Flashcards
slay marsh
Compound Interest
Interest calculated on both the initial principal and the accumulated interest from previous periods.
Exchange-Traded Fund (ETF)
A fund that holds a collection of assets like stocks or bonds and trades on an exchange like a stock.
Diversification
An investment strategy that reduces risk by spreading investments across various assets.
Bond
A bond is like lending money to a company or the government. In return, they promise to pay you back with interest over time.
Imagine you lend $100 to a friend, and they agree to pay you back $110 in a year. That extra $10 is the interest, just like how a bond works.
Stock
Ownership in a company that may provide dividends and carries more risk than bonds.
Mutual Fund
A pooled investment managed by professionals that buys a diversified portfolio of stocks, bonds, or other securities.
Shareholder
An individual or entity that owns shares in a company, giving them a claim on part of the company’s assets and earnings.
Index Fund
An index fund is a group of investments that tries to copy how a certain part of the stock market is doing, like the S&P 500. It’s like buying a little piece of a bunch of companies at once.
Example: Imagine a fruit basket with one of every fruit in the market. Instead of picking individual fruits, you just buy the whole basket that has a little bit of everything.
Roth IRA
A retirement account where contributions are made with after-tax income, and withdrawals in retirement are tax-free.
Traditional IRA
A retirement account where contributions are tax-deductible, but withdrawals in retirement are taxed.
Bond Fund
A bond fund is a group of many different bonds put together. Instead of owning just one bond, you get a mix of many bonds in one investment.
Example: Think of it like a playlist of songs. Instead of buying one song (a bond), you buy the whole playlist (a bond fund) with a variety of songs (bonds) that balance out the risk.
