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Senior Year > Personal Financial Management - ch 2 > Flashcards

Personal Financial Management - ch 2 Flashcards

0
Q

Diversification (2)

A

To spread around one’s investment dollars among several different classes of financial assets

Results in lowering the risk

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1
Q

Which record do you check when investing?

A

5-10 year track record

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2
Q

Share (2)

A

Piece of ownership in a company or a mutual fund

NOT an annuity

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3
Q

Portfolio

A

List of your investments

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4
Q

Rental real estate (3)

A

Buying real estate to rent out as an investment

Least liquid of all investments

Should have lots of cash before using real estate as an investment

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5
Q

Risk (2)

A

degree of uncertainty of the return on an investment

In business, the likelihood of loss or reduced profit

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6
Q

Small-cap fund (3)

A

Mutual fund that invests in companies whose market value is less than $1 billion

Largely consists of smaller, more volatile companies

Also called aggressive growth stock mutual fund

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7
Q

Annuity (2)

A

Contract sold by an insurance company, designed to provide payments to the holder at specified intervals, usually after retirement –> its a savings account with an insurance company

Holder is taxed at the time of distribution or withdrawal –> tax-deferred agreement

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8
Q

Risk return ratio (2)

A

Relationship of substantial reward in comparison to the amount of risk taken

As risk goes up, return goes up

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9
Q

Best place for emergency fund

A

Money market account

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10
Q

Commodities and futures are

A

Extremely speculative and carry a high risk

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11
Q

What % of any 10 year period in the stock market has made money?

A

100%

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12
Q

Long term investments properly diversified include what mutual funds? (4)

A

Growth

Growth and income

International

Aggressive growth

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13
Q

Liquidity (4)

A

Quality of an asset that permits it to be converted quickly into cash without loss of value

Availability of money

More liquidity = less return

With investments, liquidity = availability

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14
Q

What are the types of annuities? (2)

A

Variable

Fixed

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15
Q

What is a C.D.? (2)

A

Certificate of deposit - usually at a bank

Savings account with a slightly higher interest rate because of a longer savings commitment (i.e. 6 months, 1 year)

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16
Q

Why do you look at the long term track record with a mutual fund?

A

To make sure it’s safe and reliable

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17
Q

What are some investments that don’t give you a high rate of return? (3)

A

Single stocks

C.D.s

Bonds

18
Q

List four types of investments that you should always avoid: (4)

A

Day trading

Commodities

Goals

Futures

19
Q

What type of annuity should you invest in?

A

A variable annuity

20
Q

KISS

A

Keep it simple stupid

21
Q

Never invest purely for

A

Tax savings

22
Q

Never invest using

A

Borrowed money

23
Q

Money market (4)

A

Mutual fund that seeks to maintain a stable share price and to earn current income by investing in interest-bearing instruments with short-term (usually 90 days or less) maturities

Carries a low-risk

Great for emergency fund

Has check writing privileges

24
Q

Single stock (3)

A

High risk

Buying stock = Ownership of company

Return comes as company increases in value or pays you dividends (profits)

25
Q

Bonds (3)

A

Debt instrument where an issuer such as a corporation municipality or government agency owes you money

Form of I.O.U.

Issuer makes regular interest payments on the bond and promises to pay back the money at a specified point in the future (maturity date)

26
Q

Mutual funds (5)

A

Pool of money managed by an investment company and invested in multiple companies, bonds, etc.

Offers investors a variety of goals depending on the fund and its investment charter

Often used to guarantee income on a regular basis or to preserve an investor’s money

Sometimes used to invest in companies that are growing at a rapid pace

Good long-term investments

27
Q

Pie chart

A

25% small cap, large cap, mild cap, and international

28
Q

5 years or more

A

Investment

29
Q

Less than 5 years

A

Savings

30
Q

Aggressive growth stock mutual fund (4)

A

Mutual fund that seeks to provide a maximum long-term capital growth from stocks of primarily smaller companies or narrow market segments

Dividend income = incidental

Most volatile fund

Small-cap fund

31
Q

Dividend (2)

A

Distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders

Generally distributed in the form of cash or stock

32
Q

Fixed annuity (4)

A

Type of annuity that guarantees a certain rate of return

Low interest rate of around 5%

Not really fixed

Bad investment

33
Q

Futures

A

Term used to designate all contracts covering the sale of financial instruments or physical commodities for future delivery of a commodity exchange

34
Q

Investments (2)

A

Account or arrangement in which one would put their money for a long-term growth

Also called a portfolio manager or a money manager

35
Q

Growth stock mutual fund (2)

A

Fund that buys stock in medium-sized companies that have experienced some growth and are still expanding

Called mid-cap funds

36
Q

Large-cap fund (2)

A

Funds comprised of large, well-established companies

Growth and income funds

37
Q

Mid-cap fund

A

Mutual fund containing a groups of medium-sized companies that are growing

38
Q

International stock mutual fund

A

Mutual fund that contains international or overseas companies

39
Q

Savings account (2)

A

Accounts at financial institutions that allow regular deposits and withdrawals

Minimum required deposit, fees charged, and the interest rate paid varies among providers

40
Q

Speculative

A

️purchasing risky investments that present the possibility of large profits, but also pose a higher-than-average possibility of loss

41
Q

Track record (2)

A

The past history of something

Look at 5-10 year track record for investments

42
Q

Variable annuity (2)

A

Annuity that has a varying rate of return based on the mutual funds in which one has invested

Grows tax-deferred

43
Q

Commodity

What’s an example? (2)

A

A food, metal, or fixed physical substance that investors buy or sell, usually via future contracts

Oil and gold

Senior Year (31 decks)

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