Chapter 1 Vocabulary
Investment
Any asset you put money into with the expectation that it will generate income or increase in value.
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Portfolio
A collection of different investments owned by an investor.
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Return
The reward earned from an investment through income and/or an increase in value.
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Income
Money earned from an investment, such as interest, dividends, or rent.
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Capital Gain
The increase in the value of an investment when it is sold for more than its purchase price.
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Security
A financial investment issued by a business, government, or organization that represents a financial claim.
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Property
A real asset that is generally less liquid than a security.
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Real Property
Land, buildings, and anything permanently attached to the land.
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Tangible Personal Property
Physical assets such as gold, artwork, antiques, jewelry, and collectibles.
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Liquidity
The ability to quickly buy or sell an investment without losing much of its value.
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Direct Investment
An investment in which the investor directly owns the asset.
Example: Buying shares of stock yourself.
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Indirect Investment
An investment in which ownership is obtained through a professional investment manager.
Example: Investing in a mutual fund.
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Debt Security
An investment in which the investor lends money and receives interest plus repayment of the loan.
Example: Bonds.
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Bond
A debt security that pays interest and returns the principal at maturity.
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Equity Security
An investment that represents ownership in a business.
Example: Common stock.
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Common Stock
A security that represents ownership in a corporation and may provide dividends and capital gains.
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Preferred Stock
A type of stock that pays fixed dividends but usually has no voting rights.
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Derivative Security
A financial security whose value comes from another underlying asset.
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Option
A derivative that gives the holder the right to buy or sell an asset at a specific price before a certain date.
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Futures Contract
A legally binding agreement to buy or sell an asset at a specified price on a future date.
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Risk
The uncertainty about the return an investment will earn.
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Low-Risk Investment
An investment with more predictable returns but generally lower average returns.
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High-Risk Investment
An investment with less predictable returns but higher potential returns.
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Diversification
Owning different types of investments to reduce overall investment risk.
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Short-Term Investment
An investment with a maturity of one year or less.
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Long-Term Investment
An investment with a maturity of more than one year.
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Domestic Investment
An investment issued by companies or governments within your own country.
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Foreign Investment
An investment issued by companies or governments outside your own country.
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Financial Institution
An organization that pools money from investors and makes loans or investments.
Examples:
* Banks
* Insurance companies
* Mutual funds
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Financial Market
A marketplace where buyers and sellers trade financial assets.
Examples:
* Stock market
* Bond market
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Individual Investor
A person who manages and invests their own money.
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Institutional Investor
A professional organization that invests money on behalf of others.
Examples:
* Banks
* Mutual funds
* Pension funds
* Hedge funds
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Short-Term Investments
Investments that mature in one year or less and have low risk.
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Treasury Bill (T-Bill)
A short-term U.S. government security sold at a discount and considered virtually risk-free.
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Fixed-Income Security
An investment that provides regular interest or dividend payments.
Examples:
* Bonds
* Preferred stock
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Mutual Fund
A professionally managed investment that pools money from many investors to buy a diversified portfolio.
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Exchange-Traded Fund (ETF)
A diversified investment fund that trades on a stock exchange like a stock.
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Hedge Fund
A privately managed investment fund with higher minimum investments and greater risk than mutual funds.
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Real Estate
Land and buildings purchased as investments to earn rental income or increase in value.
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Tangibles
Physical investment assets other than real estate.
Examples:
* Gold
* Silver
* Artwork
* Collectibles
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Investment Horizon
The length of time an investor expects to keep an investment before selling it.
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Dividend
A payment made by a corporation to its shareholders from company profits.
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Capital Appreciation
An increase in the value of an investment over time.
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