Investing- Honors Economics

Bull Market

period in financial market where prices are rising and expected to keep rising often aligns with strong economic indicators

Principal

initial amt of money invested or borrowed, upon which interest is calculated

Compound interest

Interest calculated on the initial principal amt and on all accumulated interest from previous periods

What does compound interest do?

allows interest to grow overtime because interest earns more interest

Portfolio Liquidity

Speed and ease with which the investments in a financial portfolio can be converted to cash at their fair market price without a large loss in value

Stockbroker

An agent who buys and sells stocks and other securities on behalf of investors in exchange for a fee or commission

Diversification

Investment Strategy that involves spreading investments across a range of asset classes and industries to reduce overall risk

Stock Symbol/Ticker

unique abbreviation, typically a sequence of letters used to identify a publicly traded security on a particular stock exchange

Inflation

Increase in general price of goods and services in an economy. (Money purchases power goes downs)

Interest

Monetary charge for borrowing money, typically expressed as a percentage of the principal. CONVERSELY, it’s the return earned on an investment or savings acc

Rule of 72

Formula used to provide a quick approximation of how long it will take for an investment or sum of money to double in value

Rule of 72 Formula

72/annual interest rate(as a whole #) = years to double

Common Stock

Type of security that represents ownership in a corporation

Municipal bonds

Investor loans money to a state or a city, interest is federal , tax free, and generally safer than stocks

Savings Acc

Very safe and liquid but has low returns/ growth

Mutual Funds

Basket of stocks and bonds that are professionally managed.

Offers diversification and more growth than savings account, but has more risk and fees.

IRA

Personal saving plan that offers a tax benefit to encourage retirement savings

What does IRA stand for?

Individual retirement account

401K

Retirement plan offered by private for profit companies.

You contribute part of your paycheck for tax-advantaged growth, letting your money build up for retirement

403b

Retirement plan for employees of public schools or non profits

Lets employees contribute pre-tax or after-tax money from their paychecks, with investments until retirement

Capital Gains

Profit you make when you sell an asset (like a stock, bond, or real estate) for more than you paid for it

Opportunity cost

Value of the next best alternative that you give up when you make a choice (EX. Opportunity cost of going to the movies before a test is the value of the time you could’ve spent studying.)

Investment portfolio

Collection of all the investments and assets, you own, such as stock bonds and real estate

Maturity (bonds)

Date when a bond‘s life ends and the issuer is required to repay the original principle to the bond holder

Time value of money

Economic principle that a sum of money is worth more now than the exact sum will be worth in the future due to its potential earning capacity

Mutual funds

Pulls money for many investors to purchase a diversified collection (or basket) of stocks, bonds, and other securities

Allows investors to achieve diversification with professional management