Investment Options: Risks and Rewards Flashcards

Investment Terminology

• Stock: Represents ownership in a corporation, quantified through shares.
• Dividends: Earnings distributed to shareholders, can be cash or additional stock.
• Capital Gain: Profit from selling assets like stocks or real estate; the difference between the selling price and the purchase price.
• Capital Loss: The loss incurred when an asset sells for less than its purchase price.

Types of Stocks

• Common Stock: Grants voting rights and common dividends after preferred stockholders.
• Preferred Stock: No voting rights, fixed dividends paid before common stock dividends.

Stock Markets

• New York Stock Exchange (NYSE): Largest stock market globally by dollar volume.
• NASDAQ: Largest U.S. market by number of listed companies and daily share trading; operates electronically.

Investment Characteristics

• Blue-Chip Stocks: Investments in large, established, and financially sound companies.
• Dow Jones Industrial Average: Index of stock prices for 30 significant U.S. blue-chip companies.
• Bull Market: Market condition characterized by rising stock prices and investor optimism.
• Bear Market: Condition of declining market prices and investor pessimism.

Market Performance Indicators

• S&P 500 Index: Measures performance of 500 major U.S. companies; indicates overall market trends.
• Fortune 500: Annual listing of the 500 U.S. companies with the highest earnings.

Investment Contracts

• Futures: Agreements to buy or sell commodities at a predetermined price and date.
• Options: Contracts giving the right to buy/sell stock without obligation at a set price.

Risky Investments

• Penny Stocks: High-risk stocks priced under $1, often on the lower end of the market.

Bonds

• Bond: A formal loan where a corporation or government promises to pay back with interest.
• Corporate Bonds: Must be fully repaid upon maturity; considered higher risk than government bonds.
• Municipal Bonds: Tax-exempt bonds that also must be repaid in full at maturity.

Investment Funds

• Mutual Fund: Pooled investment from multiple investors managed by professionals.
• No-Load Funds: Mutual funds without upfront fees.
• Load Funds: Charge commissions at the point of buying or selling shares.

Other Investment Forms

• Real Estate: Includes land and structures, often considered a tangible investment.
• Collectibles: Unique items valued by collectors, including art and sports memorabilia.

Retirement Plans

• Pension: Employer-backed retirement plan.
• Vested: Eligibility for employee benefits after a set period.
• Profit-Sharing Plan: Employees share in company profits as part of their retirement plan.
• Stock-Bonus Plan: Rewards employees with company stock as part of profit-sharing.
• 401(k) Plan: Tax-deferred plan funded by employee contributions.
• 403(b) Plan: Similar to a 401(k), designed for public and nonprofit organization employees.
• Individual Retirement Account (IRA): Personal retirement savings with tax benefits upon withdrawal.
• Simplified Employee Pension (SEP-IRA): Retirement plan for small businesses, where employers directly contribute to employee IRAs.

Professional Roles

• Broker: Mediator for buying and selling investments for clients.
• Financial Adviser: Expert who provides tailored financial advice based on individual circumstances.

Company Financials

• Annual Report: Comprehensive yearly report detailing a company's financial health and operations.