private enterprise and investing

Investment is the act of redirecting resources (money) from being consumed today

so that they may create benefits in the future

Investment matters because it

creates a pool of money for innovation; innovation is what drives the economy

In short, investment is the use

of assets to earn income or profit

When people save or invest their money, their funds become available

for businesses to use to expand to grow. In this way, investment promotes economic growth

A financial system is a system that

allows the transfer of money between savers and borrowers

Diversification is the

spreading out of investments to reduce RISK. everyone’s risk tolerance is different

A savings account or CD is very safe and will not lose money, however

your ROI will be extremely low

Money in the stock market, whether through buying the S&P 500, individual stocks, ETFs, or mutual funds

will bring a higher return, but more risk

Return is the money an investor

receives above and beyond the sum of money first invested

ROI is

return on investment

A savings account return is generally less than

1% to 4%, depending on the interest rates

The stock market has average

11% over the last 75 years

Bonds are basically

loans or IOUs, that represent debt the government or corporation must repay

The return on most bonds can vary generally from

1% to 5%

Corporations can raise money by issuing stock, which represents

ownership in the corporation

A portion of stock is called a

share

Stocks are also called

equities

Stockowners can earn profit in two ways:

1.Dividends which are portions of a corporation’s profits, are paid out to stockholders of many corporations;

the higher the corporate profit, the higher the dividend

Stockowners can earn profit in two ways:

2.Capital gain is earned when

a stockholder sells stock for more than he or she paid for it. a stockholder that sells stock at a lower price than the purchase price suffers a capital loss

Bull and Bear Markets

when the stock market RISES steadily over time,

a bull market exists

Bull and Bear Markets

when the stock market FALLS over a period of time

it’s called a bear market

The Dow Jones Industrial Average

The Dow is an index that shows

how stocks of 30 companies in various industries have changed in value

The Three Uses of Money

1.Money as Medium of Exchange (buying something)

medium of exchange is anything that is used to determine value during the exchange of goods and services

The Three Uses of Money

2.Money as a Unit of Account (prices/yardstick)

a unit of account is a means for comparing the values of goods and services

The Three Uses of Money

3.Money as a Store Value (stored away)

a store of value is something that keeps its value if it is stored rather than used

The coins and paper bills used as money in a society are called

currency

Commodity money consists of objects that

have value in themselves

-example: gold and silver

Commodity money has

intrinsic value

Flat money also called “legal tender,” has value because

the government decreed that it is an acceptable means to pay debts

example: all the currencies in the world

M1 consists of

assets that have liquidity, or the ability to be used as, or easily converted into cash

Components of M1 include all

currency, traveler’s checks, and demand deposits. demand deposits are the money in checking accounts