finance unit 3

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fixed income investments

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40 Terms

1

fixed income investments

Mutual funds and ETFs

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2

traded on stock exchange

ETFs

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3

capitalization weighting

weighted based on market cap size

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4

equal weighting

all stocks weighted equally

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5

ETF and stock similarities

trade on stock exchange, bought and sold throughout trading day, purchased through brokerage account

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6

ETF and stock differences

etf share has basket of securities based on market index or sector, built in diversification with ETFs and less volatility

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7

mutual funds and ETF similarities

pool money from investors to buy investments, diversification, variety of investments

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8

stocks

trade on stock market, high volatility with some stocks, personal diversification

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9

ETFs

traded on stock exchange, bought and sold through trading day, diverse, variety and less volatility, directly track and follow an index. PASSIVE

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10

mutual funds

not traded on stock market, diversification, wide variety of investments, bought and sold once per day, actively managed. ACTIVE

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11

mutual fund and etf differences

MF bought and sold once per day and actively managed. ETF actively bought and sold, passively manged

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12

MER

higher on mutual fund because actively managed

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13

Costs of buying and selling MF

management and operational fees, minimum investment amount

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14

costs of buying and selling ETFs

trading fees, brokerage commisions

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15

Passive

ETFs- replicated performance of index

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16

Active

MF- actively managed by managers each day

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17

tips for choosing your ETF or MF

fund size, age, costs, past performance, current news

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18

morning star ratings conditions

min 3 years established, min 20 funds, rating based on risk and return

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19

Bonds

loans to financial institutions in exchange for interest and principal returned, conservative income, low risk, more liquid

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20

GIC

loans to financial institution in exchange for principal + interest, low risk, less liquid, higher rate of guaranteed return

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21

T bills

sold at discount, issued by govt, short term investment

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22

commercial paper

issued by financial institution or corporation, alternative for bank borrowing by large corps

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23

laddering your investments

have investments mature at different times

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24

lowest to highest risk

t bills, GIC, commercial paper, bonds

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25

zero coupon bond (strip bond)

coupon stripped from principal and interest is sold seperately

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26

default risk

chance that bond issuer will go bankrupt and unable to pay back obligations

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27

currency risk

possibility of losing money due to unfavorable currency exchange rate

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28

interest rate risk

the fixed rate of interest may be unfavorable compared to current risk

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29

inflation rate risk

the interest does not equal the inflation

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30

high risk bond rating

CCC

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31

low risk bond rating

AAA

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32

stages of saving and investing

put and take account, beginning to invest, systematic investing, strategic investing, speculate investing

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33

put and take account

regular spending account

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34

beginning to invest

low risk investments

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35

systematic investing

investing on regular and planned basis

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36

strategic investing

balancing loss and gains through diversification

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37

speculative investing

high risk investing

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38

tips for new investors

choose low risk, diversify, blue chip to start

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39

dollar cost averaging

investing on regularly scheduled basis regardless of price, risk of high trading fees

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40

couch potato investing (index investing)

purchase a few index MF/ETF that follow a benchmark and offer diversification, re-balance once a year

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