Markets and investing Flashcards
a market is
an actual or nominal place where forces of supply and demand operate, where buyers and sellers interact to trade, services or contracts
financial market
markets where objects take value
a buyer is convinced what they bought will increase in value
Financial market
the seller is convinced what they sold will decrease in value
Financial Market
Compound interest
Getting interest on interest or in other words getting interest on money that has gained interest in the past.
Time value of money
the value of a dollar today is worth more than the value of a dollar in the future
Dollar-cost averaging
investing a fixed dollar amount on a regular basis, regardless of the share price
401(k) Plan
an employer-sponsored retirement savings plan that offers significant tax benefits while helping you plan for the future.
Individual Retirement Account (IRA)
a personal account for people who are employed that provides either a tax-deferred or tax-free way of saving for retirement
Diversification
the spreading of your investments both among and within different asset classes
Mutual Fund
a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt
Return on investment (ROI)
a performance measure used to evaluate the efficiency or profitability of an investment
Blue chip stock
a stock that comes from a well-known, established company
New York Stock Exchange
a stock exchange located in New York City that is the largest equities-based exchange in the world
Depreciating Asset
an asset used for generating income or profit and has a useful life of more than a year and gradually reduces in value over time
Little risk
means little return
The greater amount of risk
the more return
Represents a high risk, high reward approach to investing
Aggressive
perfect for those with a high tolerance for risk
Aggressive
best suited for younger people with a long investment horizon
Aggressive
A investment type with a high percentage of its value devoted to stocks, particularly “growth” stocks
Aggressive
Can include bonds and cash but they make up a minority of the total portfolio
Aggressive
represents a low - risk, low reward approach to investing
Conservative Strategy
risk aversed (avoid)
Conservative Strategy
perfect for someone who is more concerned with preserving wealth than growth
Conservative Strategy
Very common for older people who need to preserve their ability to earn income from investments
Conservative Strategy
A portfolio with an emphasis on bonds and cash and other fixed income securities
Conservative Strategy
can include stocks but most stocks would be “blue chip” stocks that pay high dividends
Conservative Strategy
represents a middle of the road approach to risk
Balanced Strategy
Perfect for investors who are willing to accept some risk but who want a diversified portfolio
Balanced Strategy
almost any age
Balanced Strategy
seeks to minimize risk by balancing investments across all types - stocks, bonds cash, ect.
Balanced Strategy
Invests in stocks, bonds, then cash
Balanced Strategy
dividend
when a company takes their profits and share it with their stock buyers to get people to buy more shares
Bull market
up 20% for a time
Bear market
down 20% for a time
P/E Ratio (p - price and E - earnings)
get market cap by multiplying share by total number of shares
commodity
a basic good used in commerce that is interchangeable with other goods of the same type. (referred to as a raw material)
it’s a loan that the bond purchaser makes to the bond issuer
Bond
government, corporations, municipalities issue this when they need capital
Bond
someone that buys a bond is
lending the government money
they can be traded, bought, and sold in the “secondary market”
Bonds
another word for coupon rate or interest rate
Yield
if interest rates go up
prices fall
if interest rates go down
prices rise
the original price of a bond
Par
issued in $1000s
Bonds
Calculating Bonds
Face value (1000) X coupon rate (5%) X years to maturity (3) = interest earned ($150)
fiduciary
a person or organization that makes financial decisions on behalf of another party who is legally obligated to act in their clients best interest.
Positions with fiduciary duty
- trustee of a trust
- estate executor
- lawyer
- Directors of corporations
- real estate agents
- financial advisors
YOU CAN NEGOTIATE A FUTURE CONTRACT
TRUE
Events that influence commodities prices:
- supply and demand
- weather
- political events (war)
- economic changes - growth or recession
corporations are able to “hedge” against the effects of increased commodity prices by
purchasing contracts for those commodities in the futures market
if commodity prices go up the finished goods produced with them will become
more expensive
If commodity prices go up this leads to
producer inflation and consumer inflation
Rising prices will often lead to reduced
corporate profits because manufactures aren’t able to pass along 100% of their costs to consumers
Examples of commodities
- agricultural goods
- metal
- energy
