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.

Stage 1 of Investing

Put-and-take account: when a paycheck is received, you will put in money and take it out as needed to pay bills.

Stage 2 of Investing

Initial investing: when you start to have 'excess' savings.

Stage 3 of Investing

Systematic investing: making investments on a regular and planned basis.

Stage 4 of Investing

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

Stage 5 of Investing

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.

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.

Corporate Bonds

When a corporation sells a bond, it is borrowing from an investor.

US Government Savings Bonds

When you buy a savings bond, you are lending money to the United States government.

Treasury Securities

To invest with cash.

Stocks

A unit of ownership in a corporation.

Mutual Funds

The pooling of money from many investors to buy a large selection of securities.

Annuities

A contract that provides the investor with a series of regular payments, usually after retirement.

Real Estate

Investment in houses and land.

Futures

Contract to buy and sell commodities or stocks for a specified price on a specified date in the future.

Option

The right to buy or sell a commodity or stock for a specified price within a specified time period.

Penny Stocks

Low-priced stocks of small companies that have no track record.

Collectibles

Collectable items whose value can grow or decline.

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.

Emerging Stocks

Stock in young, often small corporations that have higher overall risks than established companies.

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 poorly during recessions.

Stock Price

The price you will pay for a share of stock.

Return on Investment

Your profit is the difference between what you paid for the stock and what you sold it for, plus any dividends earned.

Buy on Margin

Betting that the stock will increase in value; selling later for profit after repaying the loan.

Sell Short

Selling stock borrowed from a broker that must be replaced at a later time.

Dollar-Cost Averaging

Involves the systematic purchase of an equal dollar amount of the same stock at regular intervals.

Reinvesting Dividends

Using dividends earned to buy more shares.