ngpf unit 8

investing

The process of setting money aside to increase wealth over time for long-term financial goals such as retirement

savings

money put aside for future use; growing your money is not the top objective

compound interest

interest earned on both the principal amount and any interest already earned

simple interest

interest paid on the principal alone

reasons to put money in a savings account

low risk

emergency fund

tips for first time investors

keep investments diverse

don't be too risky

keep money invested for a long period of time

diversity

variety

stock exchange

a market for buying and selling stock

two ways to profit from owning stocks

capital gains

dividends

capital gains

The positive difference between the purchase price of a stock and its sale price.

dividends

payments of cash from a corporation to its stockholders

shareholder

an owner of shares in a company

risk of purchasing stocks

stock prices may drop

stocks

securities that represent part ownership or equity in a corporation

bonds

a certificate issued by a government or private company which promises to pay back a loan with interest the money borrowed from the buyer of the certificate

what a bond holder receives

interest

asset allocation

the process of spreading your assets among several different types of investments to lessen risk

mutual funds

an investment program funded by shareholders that trades in diversified holdings and is professionally managed.

portfolio

A collection of financial assets

index fund

A mutual fund that tries to match the performance of a particular index by investing in the companies included in that index.

S&P 500

market index of U.S. equities based on the performance of 500 large-cap stocks representing various sectors of the overall equities market

financial planner

a professional consultant who provides financial advice for a fee or commission

things to consider when picking a financial planner

fees

experience

credibility

history of success

target date fund

A mutual fund that automatically resets the asset mix of stocks, bonds, & cash equivalents in its portfolio according to a selected time frame that is appropriate for a particular investor

factors to consider when picking a target date fund

retirement date

investment preferences-risky or conservative

retirement adjustments when getting close to retirement

decrease stocks

increase bonds

401K

A retirement account offered through an employer, where an employee can contribute money from his or her paycheck before or after taxes.

vesting period

required length of employment to be eligible to receive company paid pension benefits

pension

a sum paid regularly to a person, usually after retirement

401 K matching

company will contribute money into a retirement account depending on how much the employee puts in

profit sharing

incentive pay in which payments are a percentage of the organization's income and do not become part of the employees' base salary

tax deferred

income that is not subject to taxes immediately but that will later be subject to taxes.

reasons why a person would pass on a 401K

company does not match contributions

you can not commit to keeping your contributions in the 401K until 59.5

Roth IRA

an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free.

10%

penalty for early withdrawal of a Roth IRA account

Robo-Advisor

a computer based software wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners

Exchange Traded Funds

collections of stocks, bonds, and other investments that are traded on exchanges but are traded more like individual stocks than like mutual funds

risk and return relationship

the higher the risk, the higher the return

the lower the risk, the lower the return

broker

a person who is paid to buy and sell for someone else

discount broker

a broker with low overhead who charges low commissions and offers little or no services to investors

mutual fund manager

the person in charge of a pool of shareholders' money invested in an assortment of different securities

brokerage account

An account that lets individual investors to trade stocks, bonds, mutual funds, etc.

risk tolerance

how comfortable you are with the ups and downs of investing

Traditional IRA

Individual Retirement Account - A personal qualified retirement account through which eligible individuals accumulate tax-deferred income up to a certain amount each year. Withdrawals are taxed

factors that impact stock prices

supply

demand

news and anticipated news about a company

suggested asset allocation

110

• your age

=percent of stocks to bonds