test 1 Flashcards
- Low risk
- low return
- high liquidity
- usually requires minimum deposit
Savings/Money market
- Low risk
- Love return
- Low liquidity
- Purchased for specific amount of money
- fixed rate of interest
- penalty for withdrawing money early
Certificate of deposit (CD)
- Low average risk
- Average return
- low liquidity
- written promise to repay loans
- Bondholder expects to be repaid in full and to recieve fixed amount of interest
Bonds
- high risk
- potential for high return
- Average liquidity
- Earn money by dividends and capital gains
Stocks
Pool of money used by an investment company to purchase shares of many corporations
mutual funds
- Lowers risk
- potential for high return
- average liquidity
mutual funds
- A focus on preservation
- Short term goals
- Less risk, less potential for return
Saving
- An emphasis on accumulation
- Long term goals
- Greater risk, more potential for return
Investing
The interest payment is computed as a percentage of the original deposit amount
Simple Interest
Interest is when you earn interest on interest
Compound interest
A term often used to imply downside meaning the uncertainty of a return and the potential for financial loss
Risk
The amount of money an investment earns. Expressed as a percent of the original investment and is figured on an annual basis
Rate of return
Even if you do receive the future money on schedule, it will have lost some of its buying power because of increasing prices. Your money buys less
Inflation
The speed and ease at which an investment can be converted to cash
Liquidity
Savings and money and market funds for short term needs
Liquid INvestments
Certificates of Deposit (CDs), stocks, and bonds are suitable for longer term goals
Less liquid deposits
Simple rule that tells you how long it takes your money to double in value
Rule of 72
Principal x Interest Rate x Time
Simple INterest Calculation
Principal (1+interest rate)^time
Compound Interest Calculation
What most people mean when they say and investment is risky
Principle Risk
Technique of investing: Invest the same fixed dollar amount in an investment at regular intervals over a long period of time
Dollar cost averaging
- Save $500 emergency fund
- Get out of debt
- Pay cash for your car
- Pay cash for college
- Build wealth and give
The 5 foundations
Refers to buying or selling a security while in possession of material, non-public information about the security
Insider trading
Some companies recommend stocks and lie about the payments they receive gets them in trouble
Online investment newsletter
These are used to share information about companies but you can’t always trust them because they can lie
Online bulletin boards
Boost the price of the stock with misleading info and then the promoters dump their shares into the market
Pump and Dump
Spread false information about a company
Spam
American stock trader prosecuted by the SEC at age 15 for stock manipulation
Jonathan Labed
Was accused of inside trading
Martha Stewart
plan is a qualified employer-established plan to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis.
401K
Contribute up to $5,500
IRA (individual IRA retirement account)
Tax free, not tax deductible
Roth IRA
