Savings & Investing

savings

Portion of income not spent on consumption, part of income set aside for future use

Investing

The process of setting money aside to increase wealth over time for long-term financial goals such as retirement

compound interest

interest calculated on both the principal and the accrued interest

annual percentage yield

tells you how much interest a financial institution would pay on a $100 deposit for one year (A % of interest you earn)

time value of money

the increase of an amount of money due to earned interest or dividends

Volatility

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

Inflation

a general increase in prices and fall in the purchasing value of money.

Liquidity

the ease with which an asset can be converted into cash

diversification

a risk mangement technique that mixes a wide variety of investments within a portfolio.

investment portfolio

A list of your investments

mutual fund

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

Bonds

A certificate issued by a government or private company which promises to pay back with interest the money borrowed from the buyer of the certificate: The city issued bonds to raise money for putting in new sewers.

Certificate of Deposit (CD)

An interest-earning deposit that requires the funds to remain deposited for a fixed term (time). Withdrawal of the funds before the term expires results in a financial penalty (fee).

Stocks

Securities that represent part ownership or equity in a corporation

Dividends

Company's share profits to the shareholders based on the corporation's performance.

capital gain

the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the seller

tax shelter

The income tax savings that an investment can produce for its owner.

tax deferred

income that is not subject to taxes immediately but that will later be subject to taxes.

tax deductible

able to be deducted from taxable income when calculating income tax due.

Index funds

A fund that follow the choices of an existing index (like the S & P 500). You buy in to the fund and it is automatically diversified for you.