Personal finance Flashcards
free class module
why have a CD account ?
- interest rates get locked (if fed cuts interest rates they will not be affected UNLIKE how in a high yield savings acc. will be impacted.)
main advantage of CD/high yield
you don’t lose, no real risk unlike how the stock market is all risks
real world what do you do w/ stocks and CDs/high yield accs ?
Split your assets, some in savings some in stocks
CD latter
add more and more money in a CD saving account to build interest
401K ?
some of your paycheck is set aside for retirement
advantages of 401K
- Tax differs (bypasses tax filter, goes into the savings at 100%) BUT you will still pay a marginal tax rate
- most employers will match you (how much you put they will put in)
roth IRA
money you put in AFTER taxes, so you dont have to pay taxes when you pull it out (there are restrictions ex: above 200,000 cannot use them, no more than 7000 put in a year)
what is a stock
a % of ownership in a company in the hopes it will perform well. An investment partner.
equity financing
cutting someone in a business for an investment & they will receive a portion of the profits. (if the business flops you are not indebted to the investor, but you get less reward if you succeed)
debt financing
higher risk, higher reward/higher punishment. You will owe back what you take no matter what
stock market investment
stocks will go down. (as of our lifespan we have only seen in grow. the due for a “correction” is (historically) growing close. month after month recently stocks have been rising. but the stocks going down can be detrimental. mindfulness is important. historically it rises 10% a year but it can crash at ANY time. overtime the returns have been decent.
how do you know what companies to invest in
Using anticipation strategy. Assuming what will be most profitable in the FUTURE while the price is still decent.
why doesn’t everyone just invest in the most profitable companies (apple, amazon)
price tanks. you can invest in the “good” companies but then when they only do “so well” instead of how well you thought they would do you could overall lose money.
predicting stock prices is essentially playing supply and demand, why
the more people want, the higher the price.
less people want, lower prices.
long vs short position
long: “buy low, sell high” (most buyers rely on long position) “loses are bounded”
short: “buy high, resell higher” “loses are unbounded”
mutual fund
instead of an individual stock, you buy a little bit of everything (someone decides what goes in) BUT a % is paid to the management (very expensive for reliability)
Index fund
similar to mutual fund except instead of a person, its passively managed (allocated by a formula, once it’s set those stocks will stay in it)
stock split
every share you own can be split into an amount. you buy an initial stock for one dollar 60 years ago, if it never splits that could be worth 50,000, business do this to allow smaller time investors to take part in the market.
a “bubble”
imagine two categories. 1. goods and services (intend to consume),
and 2. assets (intend to buy and sell later)
if price rises in 1 this repels buyers (ex. food getting too expensive).
If price rises in 2 this attracts buyers (everyone wants success)
vice versa too, price lowers in 1 more people want, price lowers in 2 less people want
dividends in stocks
if a stock is a dividend stock, it is how it is distributed (typically once a quarter) and put into your account. distributing profits. DO NOT only invest in dividend yields. (forced tax liability.)
