unit 4

Investing

The use of long-term savings to earn a financial return.

Inflation

A rise in the general level of prices.

Rule of 72

A technique for estimating the number of years required to double your money at a given rate of return.

Portfolio

A collection of investments.

Investing Risk

The chance that an investment’s value will decrease.

Diversification

Spreading of risk among many types of investments.

Temporary Investments

Investment choices that will be reevaluated within a year or less.

Permanent Investments

Investment choices that will be held for the long run.

Put-and-Take Account

When a paycheck is received, you will put in money and take it out as needed to pay your bills.

Initial Investing

When you start to have 'excess' savings.

Systematic Investing

Making investments on a regular and planned basis.

Strategic Investing

The careful management of investment alternatives to maximize the growth of your portfolio.

Speculative Investing

When you make bold and high-risk investment choices.

Interest-Rate Risk

The chance that inflation will rise faster than the return on your investments.

Political Risk

Actions the government might take that would reduce the value of your investment.

Market Risk

Caused by economic growth or decline.

Nonmarket Risk

Unrelated to market trends; unpredictable and uncontrollable.

Company and Industry Risk

Owning one company’s stock; if that company fails you lose your investment.

Degree of Safety

Risk of loss.

Degree of Liquidity

Ability to get your money quickly.

Expected Dividends

Expected income from dividends or interest.

Tax Benefits

Savings or postponing tax liability.

Annual Report

A summary of a corporation’s financial results for the year and its prospects for the future.

Bonds

Debt obligations of corporations/state/local governments.

Discount Bond

Purchased for less than the maturity rate.

Common Stock

A type of stock that pays a variable dividend and gives the holder voting rights.

Preferred Stock

A type of stock that pays a fixed dividend but has no voting rights.

Income Stocks

Stocks that have a consistent history of paying high dividends.

Growth Stocks

Stock in corporations that reinvest their profit into the business so that it can grow.

Euro Stocks

Stocks in young, often small corporations that have higher overall risks than stocks of companies that have been successful for many years.

Blue Chip Stocks

Stocks of large, well-established corporations with a solid record of profitability.

Defensive Stocks

Stocks that remain stable and pay dividends during an economic decline.

Cyclical Stocks

Stocks that do well when the economy is stable or growing, but often do poorly during recessions.

Short-Term Techniques

Investment strategies like buying on margin or selling short.

Long-Term Techniques

Investment strategies like dollar-cost averaging and reinvesting dividends.

Mutual Fund

A professionally managed group of investments bought using a pool of money from many investors.

Family of Funds

A variety of funds covering a whole range of investment objectives.

Net Asset Value

The market price for a share of a mutual fund.

Prospectus

A legal document that offers securities or mutual fund shares for sale.

Real Estate

Buying land and any buildings on it.

Real Estate Investment Trusts (REITs)

A corporation that pools the money of many individuals to invest in real estate.

Reverse Mortgage

A loan against the equity in the borrower’s home.

Estate

All that a person owns, less debts owed, at the time of the person’s death.

Will

A legal document that tells how an estate is to be distributed when a person dies.

Trust

A legal document in which an individual gives someone else control of property for distribution to another person.

Defined-Benefit Plan

A company-sponsored retirement plan in which retired employees receive a set monthly amount based on wages earned and the number of years of service.

Defined-Contribution Plan

A company-sponsored retirement plan in which employees can receive a periodic or lump-sum payment based on their account balance.