Unit 1: Working/ Investing Flashcards
W-4
tells the employer the correct amount of tax to withhold from an employee’s paycheck based on the employee’s marital status, number of exemptions and dependents and other factors.
W-2
reports an employee’s annual wages and the amount of taxes withheld from his or her paycheck. -Get this from employer at end of year and need it to file your taxes
What gets taken out of your paychecks and why?
- FICA- social security/ Medicare
- Federal taxes
- State Taxes
- Local Taxes
*pays for public goods- things everyone benefits from but no one would volunteer their money to pay for.
Net Income
money you take home from pay check AFTER taxes are taken out
Gross Income
An individual’s total personal income, before accounting for taxes or deductions.
Wealth
What you own minus what you owe. You can make a lot and still not be wealthy
What influences your income
-Economic ( supply/ demand, inflation), discrimination, work skills, education
Why people use banks
- make money (interest)
- safety and convenience
- for loans/ build credit
Volatility
Indicates how much and how quickly the value of an investment, market, or market sector changes.
Stock
A type of security that signifies ownership in a corporation and represents a claim to a part of the company’s profits or losses. Companies usually issue stock to raise money for a variety of reasons, including expanding or modernizing their operations.
IPO
Initial Public Offering; the initial sale of stock to the public by investment bankers.
Risk Tolerance:
An investor’s ability to accept loss of some or all of the money he or she has invested, based on a number of factors including age, financial stability, amount of time before the invested funds are needed for other purposes, etc.
Face Value
The principal amount of a bond or note due at maturity.
Principal
the original dollar amount of investment you start with
Beta Number:
-How to use beta to look for risk tendency of a security’s returns to respond to swings in the market. A beta of 1 indicates that the security’s price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security’s price will be more volatile than the market.
P/E ratio (what is does, what else you need)
This is calculated by dividing the current stock price by earnings per share from the last four quarters. -need to use this to compare other companies in the same INDUSTRY as the stock you are looking at. -if the p/e is above the industries p/e, it is overvalued stock -if p/e is under, it is undervalued
Volume
-This figure shows the total number of shares traded for the day, listed in hundreds. - To get the actual number traded, add “00” to the end of the number listed.
Dividends( Div)
-part of company’s profits income the company is paying out to the investors
Market Cap
it is the market value of a company’s outstanding shares. -High cap stocks(5 billion) not risky -Low cap stocks are riskier
Private vs public company:
-private: shares are not sold to the public -public: anyone can buy share to own part ownership of the company.
Bonds
-A bond is like an IOU for a loan you’ve made to an institution -When you purchase a bond you are lending money to the issuer, who can be a corporation, the government or a government agency.
How do you make money on bonds
In return for the loan the issuer promises to pay you ( the bond investor) a specific rate of interest known as the “coupon rate”.
Mutual Funds
collection of stocks, bonds and other securities owned by a group of investors and managed by a professional investment firm.
Diversification
-An investment strategy in which you spread your investment dollars among industry sectors. -Want different types of investment options as well (stocks, mutual funds, bonds etc.) -That way if one type goes down, you won’t lose all your money
Pay yourself first means
Saving Strategy: put away savings before spending on consumer goods
Why you should start saving early
-Savings is one way to build wealth Unexpected expenses occur due to loss of job, accidents, health issues or automobile and home repairs. -Setting money aside for such emergencies can ease the stress of uncertainty until additional income is available. -Earlier you start, the more that money will grow with interest = more money you get
Compounding interest
is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. “interest on interest”
Liquidity
how fast assets can turn into cash
Factors that reduce money earned in savings accounts:
-Fees, and penalties: if you go under a certain amount, or take out your money too much or early you can get charged -Taxes: banks will tax your money, tax-deferred means it does not get taxed until you are ready to take the money out, allowing the money to grow larger. -Inflation risk: if inflation is higher than your interest rate, your savings is losing money.
Savings Accounts
-A deposit account that earns interest and is issued by a bank or credit union Minimal risk- insured by FDIC/ NCUSIF -Not risky -No restrictions on withdrawals -Low or no minimum balance required -lowest interest rates -Some banks charge fees for opening and maintaining accounts
Money Market accounts
A type of checking/ saving account issued by bank or credit union to hold your money -Minimal risk- insured by FDIC/ NCUSIF -Higher interest rates than a savings account/ -Can withdraw money USUALLY when you want -HIgher minimum balance required -Some withdrawal restrictions( limit on number withdrawals a month) -Subject to fees if balance is below certain amount
Retirement Accounts
An account such as an IRA and 401K that helps you set aside money for retirement -Investment choices range from non risky government bonds to high risk stocks. -Tax-deferred growth(not taxed until you want the money) -Some employers will match contributions -Helps create long term savings -Steep penalties for withdrawing money before retirement -Contribution limits( cannot put all your money in here)
Certificate of deposit
Savings certificate issued by a bank or credit union. You give the bank money, and they hold it for a certain amount of time( called term) Minimal risk- insured by FDIC/ NCUSIF -Higher interest rates than traditional saving accounts -not risky -The longer the term, the higher interest you earn -Must be left in the bank for the fixed amount of time -Steep penalties for withdrawing money early -Minimum balances required
Ticker
Symbols used by the stock market for stocks exchanges to identify listed companies.
Stock Index
like a GPA, it tells the investor the overall performance of a portfolio designed to represent a selected market.
DOW (Dow Jones industrial average)
-Only tracks 30 blue chip stocks
S%P 500
-Tracks 500 large companies-mostly industrial/ financial sectors though
NASDAQ
-Every company listed on the NASDAQ stock exchange is tracked on this index
Russell 2000
-tracks 2000 small cap business
Bull vs Bear Market
-Bull Market is when the stock market is doing really well and the economy is going - bear market is when the stock market has gone down a lot and the economy is doing bad.
Allowances
people you claim on your w-4 who depend on you, meaning less taxes will get taken out
Scarcity
Unlimited wants but limited resources
Opportunity Cost
The best next option. What you are giving up when you make a choice.
I-9
A form you fill out that shows your citizenship to be able to work in the US
