Savings vs Investing

Key Terms from week 1 of savings vs investing

Saving

Setting aside money or resources for future use, often to achieve specific financial goals or to prepare for emergencies.

Speculating

Making financial investments with the expectation of significant returns. Speculating often involves higher risks compared to traditional investing.(Gambling)

Investing

Allocating money into assets for long term growth and profit, generally less risky than speculating.

diversification

Spreading investments across various assets to reduce risk.

Capital loss

A decrease in the value of an asset or investment that results in a financial loss when sold.

Capital gain

Profit from an asset sold for more than its purchase price, often realized for tax purposes.

Risk

The potential for financial loss or uncertain returns on an investment.

return

Profit or loss from an investment, usually expressed as a percentage. can be realized through capital gain, dividends or interest

Interest

Cost to borrow money or return on investment, expressed as a percentage of the principal.

Liquidity

Ease of converting an asset to cash without affecting its price.

Simple interest

Interest calculated only on the principal amount.

Compound interest

Interest calculated on the principal and previously accumulated interest.

Low risk

Investments with a low likelihood of losing value, offering steady returns and limited financial loss.

High risk

Investments prone to significant loss and high volatility.

Bonds

Debt securities issued by entities for capital, offering fixed interest over a period. Typically lower risk than stocks and can be backed by the government

Dividends

Payments to shareholders from company earnings.

Savings account

A deposit account at a financial institution offering modest interest for saving.

Inflation

Rising prices for goods and services, reducing purchasing power.

Principal

Original sum invested or loaned, excluding interest or earnings.

Retirement (401K)

Employer-sponsored retirement savings plan offering tax advantages.