INVESTMENT

Investments

Ways in which people try to earn profits from their savings

Diversification

Spreading investments across different assets to reduce risk. The goal is to have a portfolio with a variety of investments that have different expected risks and returns.

Risk

The degree of uncertainty and/or potential financial loss inherent in an investment (ALL have some risk)

Compound Interest

Interest that applies not only to the initial principal of an investment or a loan, but also to the accumulated interest

Stocks

An investment of shares, or part ownership, of a company

Bonds

An investment in which you loan money to a company or government

Mutual Funds

An investment in which you are buying into a portfolio of different Stocks, bonds, and other types of diversified investments

IRA

Individual Retirement Account, is a tax-advantaged savings account that helps people save for retirement

Stock Market

General term for a place where stocks are bought and sold

NYSE

New York Stock Exchange, This is the largest stock exchange in the world, on Wall St.

Wall Street

Term for the location of a major financial district in NYC's Manhattan

Federal Reserve

Name of the central banking system of the United States, in charge of Interest Rates

Index Funds-

A type of investment that tracks the performance of a specific market index, like the S&P 500 or

Dividends-

Portion of profits paid by companies to shareholders

Inflation Rate-

the percentage increase in the price of goods and services over a period of time. It's a key indicator of a country's economic health (FED target is 2%/year)

Know what it means to Diversify your investments and why it's so important to do.

Proper asset allocation (Diversification) is seen as critical to becoming a successful investor. It helps offset poorly performing assets so you're not forced to sell low and experience damaging losses that impact your financial goals.

Be able to explain the difference between a Roth and Traditional IRA

It's all about WHEN you pay TAXES on your contributions and withdrawals:

Traditional- Contributions are tax deductible, pay taxes when you withdraw (Tax Benefit NOW)

Roth- Contributions have already been taxed, but withdrawals will be tax free (Tax Benefit LATER)

At what age can you start investing? At what age can you take out of a retirement account without penalty?

• Any, but 18 without parents.

• 59 1/2

Why is it important for your investments to have a rate of return that "beats inflation"?

Rising inflation means most things cost more. And the effect of that is that any savings you have won't buy as much in the future, UNLESS the interest that you are earning on them outpaces the rate of inflation. (Fed goal is 2% inflation per year- Investment goal is to earn interest as high above that as possible)