Standard 7 Saving & Investing

Liquidity

how quickly you can convert something to cash without significant loss of value

Demand deposit

the money put into a checking account that can be withdrawn any time

Savings accounts

accounts that you can withdraw money at any time, but do not provide check- writing services

Certificate of deposit

a contract between an individual and the financial institution that specifies some length of time that the individual will leave a certain amount of money deposited at the particular bank

Money market deposit accounts

accounts that require you to maintain a minimum balance, have no maturity date, pay interest, and offer limited check-writing privileges

Compound interest

the way that interest added to an account earns interest

Annual percentage yield

the interest rate that takes the compounding frequency into account

Individual retirement accounts (IRA)

Type of savings account created by the government to encourage people to save for retirement

Traditional IRAs

Allow people to make tax deductible contributions and all earnings are tax deferred

Tax deductible

you can deduct money from your taxable income and pay no federal tax on that amount

Tax deferred

means that the account's earnings, such as from interest, are not taxed until they are withdrawn after retirement

Roth IRA

contributions are not tax deductible, but the earnings from an eligible account are never taxed even after withdrawal

Employer-sponsored retirement plans

retirement plans are set up by the employer, and the employer will generally make some contributions to the plan on your behalf

Defined-benefit plans

Plans that guarantee you a specific amount of income when you retire

Pension plans

a deferred-benefit plan under which an employer makes contributions to the plan on the employee's behalf

Vesting

the process of earning eligibility for an employer benefit

Defined-contribution plans

when the employer contributes to the employee's retirement account but does not guarantee a specific retirement benefit

401k and 403b plans

plans that allow employees to make contributions into their own accounts, which may feature an a range of investment options

Annuities

a type of financial product that guarantees annual payments to the owner for a fixed period of time or for a person's lifetime

Fixed annuity

when the return and ultimate payment is a guaranteed amount

Variable annuity

when the return and ultimate payment depend on the performance of the investments

Investment

something that you acquire with the goal of making money

Stocks

certificates that represent pieces of ownership in a company

Initial public offering

when a company chooses to "go public" and has the first sale of stock

Primary market

where the IPO occurs

Secondary market

organized stock exchanges

Publicly traded

when a company begins trading on one of the organized stock exchanges

Institutional investors

investors who trade large volumes of stocks on behalf of large institutions

Shareholders

people who own stock in the company

Dividends

cash distributed to the company shareholders

Securities and exchange commission

government agency that regulates and monitors the stock market

Security

investments issued by corporations or governments in which the investor receives proof of ownership

Brokerage

firm that provides you access to the stock markets

Full service brokerage

firms provide advice and execute your trades

Commission

fee for carrying out a transaction

Discount brokerage

offers a reduced level of service, lower costs, and often the ability to make your trades yourself online

Bond

promissory note, or a promise to repay a certain amount of money at some point in the future

Maturity date

date when the bond expires

Face value

bond's maturity value that is printed on the front of the bond

Coupon rate

bond's interest rate

Coupon payments

regular interest payments

Treasury bonds

bonds issued by the US Treasury to finance the debt of the US government

Federal agency bonds

types of bonds that encourage home ownership

Municipal bonds

bonds issued by state and local governments to finance large public projects

Corporate bonds

bonds issued by large firms

Junk bonds

bonds from companies with the highest risk

Mutual funds

sell shares to investors in order to collect a pool of money that is then used to buy various investments

Diversification

process of investing in multiple investments