securities and investments-- fbla

mutual funds

-pools from multiple investors -fund manager invest the based upon fund's objective

why invest in mutual funds

-diversification
-professional management/expertise
-higher expected returns
-smaller investment
-easy investing

how to find good mutual funds

-morningstar (5 star - 1 star)
-moody's
-financial publication (i.e. WSJ)

open-end mutual fund

-*vast majority of funds*
-sell an unlimited # of shares
-purchase shares thru an agent/distributor of mutual fund
-mutual fund will buy back shares
-net asset value (NAV)

net asset value (NAV) formula

(market value of all owned securities - loans) / number of shares in mutual fund

closed-end mutual fund

-*very few funds*
-can sell to a limited # of shares
-shares trade on stock exchanges, buy and sell with other investors
-share priced determined by NAV and supply andn demand
-no real advertising

commission should be a ___ factor in deciding between mutual funds

small

load funds

*mutual funds that charge a commission*
-up to 8.5% on purchase
-front end pay commission when you purchase
-back end pay commission when you sell
-level load pay commission annually
-low load discounted commission

no load funds

mutual funds that do not charge a commission when you buy or sell

hidden load funds (12b-1)

special fees for marketing and advertising *also called distribution fee*

load funds can charge up to

1% annually

no load funds can charge up to

.25% annually

management fee

annual fee paid to mutual fund's money manager; does not depend on performance

classes of shares

-class A: front end costs + fees
-class B: back end costs + fees
-class C: level load

mutual fund services

- automatic investment plan (bank acct/paycheck)
-automatic reinvestment plan for dividends/capital gains
-systemic withdrawal plan (retirement checks)
-exchange privilege (switch funds w/in the same family of funds)

family of mutual funds

all of the different mutual funds offered by the same investment management comapany

unit investment trust

created and assembles an unmanaged (no fees) portfolio of securities. investor can sell when they want at current market value.

Real Estate Investment Trust (REIT)

-closed end purchase shares on an exchange
-used stock proceeds to purchase real estate and mortgages
-by law has to pay out 90% of profits as dividends
(property REITS invest in shopping centers, apartments, etc; mortgage REITS invest in mortgages, and hybrid REITS do both)

Certificate of deposit

An account at a depository institution that is used for a fixed period of time and allows restricted access to the funds deposited

Checking account

An account that allows quick access to funds for transactions

Depository institution

Businesses that provide financial services

Liquidity

How quickly and easily an asset can be converted into cash

Money market deposit account

An account at a depository institution that usually has minimum balance requirements and tiered interest rates

Savings account

An account at a depository institution that is designed to hold money not spent on current consumption

Savings tools

Accounts offered by depository institutions whose main purpose is to help people manage their money

Tiered interest rate

The amount of interest earned depends on the account balance

Bond

A form of lending to a company or the government

Brokerage firm

Facilitates the buying and selling of investments from a stock exchange

Capital gain

Unearned income received from the sale of an asset above its purchase price

Discount brokerage firm

Only completes orders to buy and sell investments

Dividend

The share of profits distributed in cash

Financial advisor

A trained professional that helps people make investing decisions

Full-service brokerage firm

Offer investment transactions as well as investment advice and a financial advisor

Index

A group of similar stocks and bonds

Index fund

A mutual fund that was designed to reduce fees by investing on the stocks and bonds that make up an index

Inflation

The rise in the general level of prices

Inflation risk

The danger that money won't be worth as much in the future as it is today

Investment

Assets purchased with the goal of providing additional income from the asset itself but with the risk of loss

Investment philosophy

An individual's general approach to investment risk

Investment risk

The possibility that an investment will fail to pay the expected return or fail to pay a return at all

Market price

The current price that a buyer is willing to pay

Maturity date

The specified time in the future when the principal amount of the bond is repaid to the bondholder

Mutual date

The specified time in the future when the principal amount of the bond is repaid to the bondholder

Mutual fund

Created when a company combines the funds of many different investors and then invests that money in a diversified portfolio of investments

Portfolio diversification

Reduces risk by spreading money among a wide array of investments

Rate of return

The total return on an investment expressed as a percentage of the amount of money saved

Rent

A fee charged for the use of property or land

Return

The profit or income generated by saving and investing

Risk

The chance of loss from an event that cannot be entirely controlled

Speculative investments

Have the potential for significant fluctuations in return over a short period of time

Stock

A share of ownership in a company

Stockholder or shareholder

The owner of stock

Stock exchange

An organized, central service to buy and sell stocks, bonds and other investments that are traded

Tax-advantaged investments

Reduce, defer, or adjust the current year tax liablility

Asset

A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.

Liability

A company's legal debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services.

Investment Planning

The process of defining an investment objective and establishing a systematic approach to achieving it.

Net Worth

The difference between the total value of a person's assets and possessions (e.g. home, land, savings, investments) and a person's total indebtedness (e.g. mortgage, car loan, credit cards, student loans).

Financial Profile

An assessment of an investor's assets, liabilities, investment objectives, and willingness to bear risk.

Cash Dividends

Part of a company's after-tax earnings that its board of directors decides, usually quarterly, to distribute to the shareholders.

Cost Basis

The price, for tax purposes, paid for a security, including commissions, markups, and other cost adjustments.

Capital Gain

The profit that results when the proceeds from the sale of a stock are higher than the stock's cost basis.

Capital Appreciation

An increase in the market value of a stock or the overall market.

Total Return

The yield or percentage return on an investment that considers both the income made from dividends and the capital gains made on the stock's appreciation.

Cash Flow

A revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of three activities - financing, operations or investing - although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance.

Diversification

Investing in different securities, different industries, or a mutual fund portfolio containing various securities in order to diminish the risk associated with investing in too few securities.

Business Risk

The capital risk that the company in whose stock you invest may not generate the sales and earnings growth that you expected.

Stock-specific Risk

The capital risk associated with "putting too many eggs in one basket". If all capital is invested in one company's stock and the stock price declines by 30%, the overall portfolio declines by 30%.

Price Volatility

The relative amount or percentage by which a stock's price rises and falls during a period of time.

Thin Market (Illiquid Market)

A market in which there are few buyers or sellers of a security and that is characterized by increased price volatility.

Liquidity and Marketability Risk

The capital risk associated with not being able to liquidate or close out a securities position because there are no buyers.

Interest Rate Risk

The capital risk associated with fluctuation in the interest rate. Due to the nature of supply and demand, interest rates and the prices of outstanding fixed-income securities are inversely proportional.

Bond

A long term debt security issued by a corporation, a municipality, or the U.S. government in which the issuer promises to pay the holder a fixed rate of interest at regular intervals and to repay the face value of the security at maturity.

Yield

The percentage or rate of return that an investor makes on capital invested in a security or in a portfolio of securities.

Systematic Risk

The capital risk associated with the movement of the overall market.

Hedging

Protecting against or limiting losses on an existing stock position or portfolio by establishing an opposite position in the same security.

Inflationary or Purchasing Power Risk

The capital risk associated with the erosion of purchasing power of money over time.

Political Risk

The capital risk associated with investing in the stock of companies located in politically unstable areas.

Taxation Risk

The capital risk associated with the changes in tax rules for dividend income and capital gains that could change the demand for stocks as an investment vehicle.

Junk Bond

Low-quality, high-risk long-term debt security. Can also be called high-yield bond, noninvestment-grade bond, and below investment-grade bond.

Wealth Building

An investment strategy designed to increase one's net worth over time.

Individual Savings Accounts

A tax free savings account available to residents in the United Kingdom.

Pensions

payments made to employees after they have retired, similar to a retirement plan; regulated by the Employee Retirement Income Security Act (ERISA)

Tax

a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay, or evasion of or resistance to collection, is punishable by law DIRECT and INDIRECT

Investment bonds

A bond is a debt security, similar to an I.O.U. When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency or other entity known as an issuer.* In return for that money, the issuer provides you with a bond in which it promises to pay a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it matures, or comes due.

savings account

a specific kind of savings account that earns interest

deposit

Checks, currency, or coins put into a banking account, savings and loan, credit union, or brokerage firm.

withdrawal

Money taken out of a bank account.

account statement

A bank statement that shows the status of your account, including all deposits to, withdrawals from, and interest earned and credited to your accounts.

interest

The amount of money paid for the use of a lender's money.

simple interest

Interest paid only on the original principal.

principal

The amount of money earning interest.

annual interest rate

The percent of the principal earned as interest in one year.

compound interest

Interest earned not only on the original principal but also on the interest earned during previous interest periods, earning interest on interest.

compound interest table

A tool to calculate compound interest quickly.

daily compounding

Interest that is computed each day and added to the account balance.

annuity

An account into which someone deposits an equal amount of money at equal periods or equal intervals of time.

ordinary annuity

An account in which equal deposits are made at the end of each interest period.

annuity due

An account in which equal deposits are made at the beginning of the interest period and start earning interest immediately.

unfunded projected benefit obligation

Pension liability reported at each balance sheet date. This is the projected benefit obligation, less pension plan assets at fair value.