Financial Markets & Investments

Financial Markets & Investments

• Stock (equity) signifies ownership in a corporation, potentially granting voting rights and dividends.
• A stockbroker is a professional who executes buy and sell orders for securities on behalf of investors.
• The Efficient Market Hypothesis (EMH) asserts stock prices already reflect all available information, making undervalued stock identification difficult.
• Portfolio diversification is the practice of spreading investments across various assets, mitigating risk.
• A mutual fund pools funds from multiple investors to purchase a diversified portfolio of stocks/bonds, professionally managed.
• A 401(k) plan is a tax-deferred retirement savings plan which may include employer contributions.

Bonds & Fixed-Income Securities

• A bond is a formal loan where the issuer is obligated to make periodic interest payments and repay the principal at maturity.
• Par value is the face value of a bond.
• The coupon rate is the fixed interest rate paid on bond.
• Maturity is the date when a bond's principal is repaid.
• A junk bond is a high-risk bond, characterized by a lower credit rating but offering higher potential returns.
• Municipal bonds are bonds issued by state and local governments, often offering tax-exempt status.

Market Types

• The capital market is where long-term financial securities, such as stocks and bonds, are traded.
• The money market facilitates short-term loans and borrowing through instruments like Treasury Bills and Certificates of Deposit (CDs).
• The primary market is where newly issued securities, like those from IPOs, are sold.
• The secondary market is where existing financial assets are traded on exchanges like the NYSE and NASDAQ.

Stock Market Indicators

• The Dow Jones Industrial Average (DJIA) tracks 30 major U.S. stocks to gauge market trends.
• The S&P 500 index includes 500 leading companies, offering a representation of overall market performance.

Market Trends

• A bull market occurs when stock prices rise over a sustained period of months or years.
• A bear market occurs when stock prices decline over a sustained period of months or years.

Investment Strategies

• Growth investing focuses on stocks expected to rapidly increase in value.
• Income investing involves selecting assets known to provide regular income, such as from dividends and bonds.
• Risk management includes diversifying investments to minimize exposure to potential losses.

Retirement & Savings

• An Individual Retirement Account (IRA) is a tax-advantaged savings account designed for retirement.
• Treasury Bills (T-Bills) are short-term government securities that mature in up to one year.

Financial Terms

• Net Asset Value (NAV) is the market value of a mutual fund share.
• Spot market transactions occur immediately at current prices.
• A futures contract is an agreement to buy/sell an asset at a predetermined future date and price.
• A call option grants the buyer the right, but not the obligation, to buy an asset at a set price in the future.
• A put option grants the buyer the right to sell an asset at a set price in the future.
• Vesting is the period an employee must work to be entitled to employer contributions in a retirement plan.