Personal Finance Final

Diversification

an investment strategy in which you spread your investment dollars among different markets, sectors, industries, and securities. The goal of the strategy is to protect the value of your overall portfolio in case a single security or market sector takes a serious downturn and drops in price.

Industry

A group of companies producing similar products or services.

Portfolio

A collection of investments owned by one individual or organization.

Risk Tolerance

An individual investor's ability to accept the loss of some or all of the money they have invested.

Sector

A group of stocks, often in one industry.

Earnings

The amount of money that remains after subtracting the company's expenses from its revenue.

Earnings Growth Rate

How quickly in percentage terms a company is growing their earnings from year to year.

Growth Stock

Stock from a company that has a consistent record of relatively rapid growth and earnings in all economic conditions.

Fixed income stock

a stock which pays higher than average dividends because the company chooses to retain only a small portion of the profits

Price Earning Ratio

The relationship between the market value per share and earnings per share of a stock

Beta Number

A calculation that helps measure the level of risk in investing in a stock.

Risk

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

Conservative Risk

Fixed income and preferred stocks are considered conservative (Low Risk).

Moderate Risk

Include growth stocks - particularly young companies with great potential. (Between Low and High Risk).

Speculative Risk

stocks that are highly unpredictable

Volatility

Indicates how much and how quickly the value of an investment, market, or market sector changes.

Speculative Risk

A very high risk stock from a company with potential for substantial earnings in the future.

Mutual Fund

A fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets

Blue Chip Stocks

stocks of large, well-established corporations with a solid record of profitability and present a low risk.

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

Stock Index

a statistic that tracks how the prices of a specific set of stocks have changed such as the S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite.

Bond

A financial security that represents a promise to repay a fixed amount of funds

Stock

A share of ownership in a corporation.

A business owned by stockholders who share in its profits but are not personally responsible for its debts

Entrepreneur

A person who organizes, manages, and takes on the risks of a business.

Partnership

a business organization owned by two or more persons who agree on a specific division of responsibilities and profits

Private Corporation

business whose shares are not traded publicly on the stock market

Public Corporation

A corporation in which stock is sold to anyone who has the means to buy it

Sole Proprietorship

a business owned and managed by a single individual

Common stock

the most basic form of ownership, including voting rights on major issues, in a company

Dividend

The portion of corporate profits paid out to stockholders

Earnings

The amount of money that remains after subtracting the company's expenses from its revenue.

Investor

Someone who commits capital in order to gain financial returns

IPO

Initial public offering, a corporation's first offer to sell shares to the public

Preferred Stock

A special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do.

Risk

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

Tombstone Ad.

An announcement appearing in financial publications such as the Wall Street Journal announcing a company's Initial Public Offering (IPO).

Underwriter

A person who evaluates and classifies risks to accept or reject them on behalf of the insurer.

Investment Grade Bonds

bonds that are issued by financially stable companies or municipalities

Closed-end fund

a mutual fund with a fixed number of shares that are issued by an investment company when the fund is first organized

Net Asset Value

Amount that one share of a mutual fund is worth

Open-end fund

a mutual fund with an unlimited number of shares that are issued and redeemed by an investment company at the investor's request

Yield

the annual rate of return on a bond if the bond were held to maturity

Corporate Bonds

a type of debt security that is issued by a company and sold to investors. The company gets the capital it needs and in return the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate.

Default

failure to pay back a loan

Fixed-Income Investments

A type of investment that pays interest on a set schedule. These investments include corporate, municipal, agency, and U.S. Treasury bonds.

High-yield bonds

bonds with low credit quality that offer a high yield to maturity, also called junk bonds

Issuer

An entity which issues and is obligated to pay principal and interest on a debt security.

Interest rate of bond

the difference between the face value and the bond price, expressed as a percentage of the bond price. (also referred to as the coupon rate)

Maturity

the time at which payment to a bondholder is due

Par value

the value of a bond at its maturity; what the issuer promises to pay the bondholder when the bond matures

Prepayment

The unscheduled partial or complete payment of the principal amount outstanding on a mortgage or other debt before it is due.

Principal of a bond

the face value of a bond (also referred to as face or par value)

Trade Date

The date when the purchase or sale of a bond is transacted.

Exchange Traded Fund (ETF)

bundle of stocks or bonds that are in an index that tracks the overall movement of a market, but unlike a mutual fund can be traded like a stock

Mutual Funds

An investment instrument developed and managed by a company that pools members' money—often millions of dollars—to invest in a variety of stocks and bonds. Investment professionals who research companies and buy or sell stocks actively manage the funds based on what they think is best for the fund's shareholders.