Test 2 Flashcards
Why should you save?
To provide for future needs (expected and unexpected) and short term goals like vacations, social events and emergencies
Long term goals
Home ownership, education, retirement, investment
To stay ahead of inflation and make more money
Investment
Smaller loans for current students
Education
Down payment, the more you put down, the smaller the payments
Home ownership
How quickly you turn savings into cash
Liquidity
Money should be placed in an institution that offers the best rate of return
Interest earning potential
Selecting a savings plan
Liquidity
Safety
Convenience
Interest earning potential
The use of your savings to earn a financial return
Personal investing
What is the purpose of investing
the overall objective of investing is to earn money with money
Reasons for investing
Emergencies To supplement earned income Make a profit Minimize tax burdens Provide income for retirement Stay ahead of inflation
A rise in the general level of prices
Inflation
Criteria for choosing an investment
Safety High liquidity High return Tax benefits Reasonable purchase price Growth in value that exceeds inflation rate
Wise investment practices
Define your financial goals Go slowly (research your investment) Follow through Keep good records Seek good investment advice Keep investment knowledge current
Ownership in a corporation
Stock
Debt obligation of corporation
Bond
Buy a $50 bond and receive $100 at maturity
Government savings bond
Buy shares in a large, professionally managed company who invests in many different securities
Mutual funds
Investment options
Stocks and bonds
Government savings bond
Mutual funds
Real estate
Dividends are fixed, paid first, no voting rights
Preferred stock
A class of stock in which the owner of the stock shares directly in the success or failure of a business
Common
The part of the profits of a corporation that each shareholder receives
Dividends
Stocks that have consistent histories of paying high dividends
Income stocks
Shares of stock in companies that reinvest their profits into the business so that it can grow and expand
Growth
A stock that sells for less than $5 a share (highly speculative)
Penny
Stocks of large well established, and usually profitable businesses
Blue chip
Stocks that remain stable and pay dividends during an economic decline
Defensive
Stocks that do well when the economy is stable or growing
Cyclical
Rising stock prices and a general feelings of optimism
Bull market
Investors are pessimistic about the overall economy and start to sell
Bear market
Example of a defensive stock
Utilities, drugs, food
Example of a cyclical stock
Travel industries
Stock investing strategies
Conservative
Aggressive
Speculative
Take limited risks, concentrate on liquidity
Conservative
Take risks, concentrate on growth stocks
Aggressive
High probability of a loss but also a chance for large gains
Speculative
Perks of mutual funds
Diversification, professional management, small initial investments
Perks of real estate
Long term stability and growth in value but can be difficult to sell
What is the most illiquid of all investments
Real estate
Invests in the common stock of smaller companies that have a greater potential to grow
Growth funds
Invests in the common stock of established companies and industries
Income funds
Invests in a mixture of stocks
Balanced funds
Purchases international stocks and bonds as well as US securities
Global funds
Holds stocks that react the same as the stock markets as a whole do
Index funds
A special retirement account where you pay taxes on money going into your account and then all future withdrawals are tax free
Roth IRA
Types of real estate
Vacant land
Single family homes
Duplex and apartments
Recreation and retirement property
