Unit 1: Investments

Rate of Return

Rate of Return

The ratio of money gained or lost on an investment relative to the amount of money invested; also known as return on investment (ROI)

Inflation

The increase in the general price of goods and services in an economy over a period of time

Security

A financial asset -such as a stock or bond- that can be bought and sold in a financial market

Risk

Degree of uncertainty on how likely the investor is to make money on an investment

Diversification

Spreading your money into a variety of asset classes, with multiple investments or indexes in each asset class, so that your investment is not reliant on the success of one company. Diversifying minimizes risk.

Bear Market

A market in which prices are falling, encouraging selling

Bull Market

A market in which there is increased stock trading and risking stock prices

Stock

A share of the value of a company, which can be bought, sold, or traded as an investment and which gives the investor small partial ownership of the company

Dividend

Money from the profits of a company that is paid out to its shareholders, typically on a quarterly basis

Dow Jones Industrial Average

An index that tracks the stocks of a set group of 30 large, well-established financially sound companies that are leaders in their industries

Initial Public Offering (IPO)

The first time a company becomes publicly traded by issuing stock that may be bought and sold on the market.

Index Fund

A low-fee portfolio of stocks chosen to track or mimic a stock market index, thereby removing the human element of investing because no one is choosing the individual stocks.

New York Stock Exchange (NYSE)

The World's largest stock exchange

Nasdaq

The second largest stock exchange in the world

Rate of Return (ROI)

The ratio of money gained or lost on an investment relative to the amount of money invested; also known as return on investment.

Bonds

A debt security in which the issuer (company or government) owes the holders (investor) a debt and, depending on the terms of the bond, is obliged to pay the bondholder interest (the coupon) and/or to repay the principal at a later date, termed the bond maturity

Par Value

Amount of money you pay for the bond and are later repaid

Coupon

annual interest per year, expressed as a % of the par value

Call Privileges

Allows the issuer to return the money back before the maturity date

Maturity Date

Date where a company plans to pay back the bond value to bond owners

Default Risk

chance that a company will not be able to repay your money at a maturity date

Bond Ratings

Measures the likelihood that a bondholder will be paid back. The higher the rating for a bond, the lower the coupon rate for that bond

Treasury Bonds

Bonds issued by the US Treasury with a maturity or more that 10 years; generally considered risk-free investments

Municipal bonds

Bonds issued by state and local governments which often have tax advantages for individual investors