Personal Financial Management - ch 2 Flashcards
Diversification (2)
To spread around one’s investment dollars among several different classes of financial assets
Results in lowering the risk
Which record do you check when investing?
5-10 year track record
Share (2)
Piece of ownership in a company or a mutual fund
NOT an annuity
Portfolio
List of your investments
Rental real estate (3)
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
Risk (2)
degree of uncertainty of the return on an investment
In business, the likelihood of loss or reduced profit
Small-cap fund (3)
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
Annuity (2)
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
Risk return ratio (2)
Relationship of substantial reward in comparison to the amount of risk taken
As risk goes up, return goes up
Best place for emergency fund
Money market account
Commodities and futures are
Extremely speculative and carry a high risk
What % of any 10 year period in the stock market has made money?
100%
Long term investments properly diversified include what mutual funds? (4)
Growth
Growth and income
International
Aggressive growth
Liquidity (4)
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
What are the types of annuities? (2)
Variable
Fixed
What is a C.D.? (2)
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)
Why do you look at the long term track record with a mutual fund?
To make sure it’s safe and reliable
What are some investments that don’t give you a high rate of return? (3)
Single stocks
C.D.s
Bonds
List four types of investments that you should always avoid: (4)
Day trading
Commodities
Goals
Futures
What type of annuity should you invest in?
A variable annuity
KISS
Keep it simple stupid
Never invest purely for
Tax savings
Never invest using
Borrowed money
Money market (4)
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
Single stock (3)
High risk
Buying stock = Ownership of company
Return comes as company increases in value or pays you dividends (profits)
Bonds (3)
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)
Mutual funds (5)
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
Pie chart
25% small cap, large cap, mild cap, and international
5 years or more
Investment
Less than 5 years
Savings
Aggressive growth stock mutual fund (4)
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
Dividend (2)
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
Fixed annuity (4)
Type of annuity that guarantees a certain rate of return
Low interest rate of around 5%
Not really fixed
Bad investment
Futures
Term used to designate all contracts covering the sale of financial instruments or physical commodities for future delivery of a commodity exchange
Investments (2)
Account or arrangement in which one would put their money for a long-term growth
Also called a portfolio manager or a money manager
Growth stock mutual fund (2)
Fund that buys stock in medium-sized companies that have experienced some growth and are still expanding
Called mid-cap funds
Large-cap fund (2)
Funds comprised of large, well-established companies
Growth and income funds
Mid-cap fund
Mutual fund containing a groups of medium-sized companies that are growing
International stock mutual fund
Mutual fund that contains international or overseas companies
Savings account (2)
Accounts at financial institutions that allow regular deposits and withdrawals
Minimum required deposit, fees charged, and the interest rate paid varies among providers
Speculative
️purchasing risky investments that present the possibility of large profits, but also pose a higher-than-average possibility of loss
Track record (2)
The past history of something
Look at 5-10 year track record for investments
Variable annuity (2)
Annuity that has a varying rate of return based on the mutual funds in which one has invested
Grows tax-deferred
Commodity
What’s an example? (2)
A food, metal, or fixed physical substance that investors buy or sell, usually via future contracts
Oil and gold
