Saving and Investing Basics

Flashcards covering the basics of saving and investing, including savings options, investment options, and strategies for setting financial goals.

Saving

Restricting expenses and keeping unspent money to accumulate it, fulfilling short- to intermediate-term goals.

Liquidity

Describes how quickly an asset can be bought without affecting its price, important for handling tough situations.

Investing

Buying an asset to generate returns over time, considering risk and volatility, and aiming to beat inflation.

Inflation

The rate at which the general level of prices for goods and services is rising, decreasing purchasing power.

Interest

A reward for lending money, collected from certain bank accounts where money is available for the bank to use.

Simple Interest

Interest computed only on the principal amount.

Compound Interest

interest calculated on the initial principal and the accumulated interest of previous periods

Compounding

When investment earnings generate further earnings on their own, a powerful way to grow investments, especially when started early.

Financial Institutions

Companies dealing with monetary transactions like deposits, loans, investments, and currency exchange.

Commercial Banks

Financial institutions providing security, accepting deposits, offering loans, and serving as payment agents.

Investment Banks

Financial intermediaries offering services like underwriting debt, acting as intermediaries, and providing financial advice.

Insurance Companies

Corporations pooling risk by collecting premiums to protect against particular losses, helping manage risk and preserve wealth.

Brokerages

Intermediaries between buyers and sellers, facilitating securities transactions and compensated via commission.

Regulatory Agencies

Government agencies overseeing the financial market, such as the Federal Reserve and SEC.

Federal Reserve

The central bank of the United States which provides the nation with a safe, flexible and stable monetary financial system

Savings Account

An interest-bearing deposit account held at a bank or credit union, generally for money not used for daily expenses. Offers FDIC coverage.

High-Yield Bank Account

A savings account that earns a higher interest rate than a standard savings account

Certificate of Deposit (CD)

A saving certificate with a fixed maturity date and specified fixed interest rate.

Money Market Fund

A type of mutual fund that invests in low-risk securities and provides a return similar to short-term interest rates. Not FDIC insured.

Annuity

Is a contract between an investor and an insurance company where the company promises to make periodic payments to the investor.

Qualified Tuition Plan

A tax-advantaged savings plan (529 plan) designed to encourage saving for future college costs.

401K Plan

An employer-sponsored retirement savings plan that allows employees to save and invest a portion of their paycheck before taxes.

Short-Term Goals

Goals set to be achieved in less than a year, focusing on present financial improvements.

Medium-Term Goals

Goals set to be achieved in about five years, requiring careful planning.

Long-Term Goals

Goals set to be achieved in about ten or more years, requiring thorough and specific planning.

Bond

A loan an investor makes to an organization in exchange for interest payments over a specified term plus the repayment of principal at the bond’s maturity date

Stock

A portion of ownership in a corporation.

Mutual Fund

A pool of funds collected from many investors to invest in securities

Exchange-Traded Funds

A bundle of securities matching a specific index

Index Funds

A type of mutual or exchange-traded fund to match the performance of a financial market index

Real Estate

Land, as well as any physical property affixed to the land.

Precious Metals

Metals which are rare and have a high economic value

Collectible

An item valued and sought by collectors.

Risk

The potential of losing something of value results in an uncertain, unpredictable and uncontrollable outcome

Return

The profit on an investment.

Diversification

A risk management technique which spreads assets into a portfolio with a wide variety of investments