EPF Unit 4 Financial Security (Investing) Important Vocabulary PDF

EPF Unit 4 Financial Security (Investing) Important Vocabulary Certificate Of Deposit (CD) A savings certificate with a fixed interest rate and maturity date, holding the saver's money until the CD fully matures Compound Interest Interest earned on both the principal amount and any interest alre...

EPF Unit 4 Financial Security (Investing) Important Vocabulary Certificate Of Deposit (CD) A savings certificate with a fixed interest rate and maturity date, holding the saver's money until the CD fully matures Compound Interest Interest earned on both the principal amount and any interest already earned Emergency Fund Money set aside for unanticipated expenses or loss of income Health Savings Account (HSA) An account in which you can save pre-tax dollars to pay for out-of-pocket health care expenses Inflation The rate at which the price of goods increases and consumer purchasing power decreases over time Interest The amount you earn as the benefit of depositing money in an interest bearing account Money Market Savings Account An account similar to a traditional savings account but that typically pays higher interest, requires a higher minimum balance, and may allow check writing Online Savings Account A savings account, typically offering higher interest rates, that is managed entirely online with no physical bank branch Pay Yourself First A method of saving whereby you put a fixed amount of income into a savings account before you pay monthly bills or make purchases Principal Original amount of money saved or invested, separate from interest or earnings Simple Interest Interest paid on the principal alone Rule Of 72 A popular trick to find out how long it will take your money to double depending on what interest rate you are receiving Wealth A measurement of your assets (money you've saved or things of value you own) minus your liabilities (money you owe others); also called net worth Sinking Fund Saving money over time for a large purchase 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). Security A financial asset, such as a stock or a bond, that can be bought and sold in a financial market 401(k) Plan A retirement savings plan, sponsored through your employer who will often match your contributions, that allows an individual to save for retirement and have the savings grow while deferring taxes until funds are withdrawn 401(K) Match An employer contribution made to their employees' 401(k) plan based on individual employee's contributions Bond A security in which the investor loans money to a company or government, which then pays regular interest to the bondholder and returns the principal on the bond's maturity date Bond Rating A measurement of the likelihood that a bondholder will be paid back Capital Gain Profit from the sale of an asset, such as a stock or a bond, calculated by subtracting the price you initially paid from the price you then sold it for Diversification The practice of investing in a large variety of stocks, bonds, and/or funds as a way to as a way to reduce your overall risk Dividend Money from the profits of a company that is paid out to its shareholders, typically on a quarterly basis 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 Municipal Bond A bond, often having tax advantages for individual investors, issued by a state or local government which typically uses the loan to pay for public works to benefit its citizens Mutual Fund A collection of stocks and/or bonds combined into one fund which will be traded as a unit, typically chosen and actively managed by an "expert" in exchange for a fee from each investor Nasdaq The second largest stock exchange in the world behind the NYSE New York Stock Exchange (NYSE) The world's largest stock exchange, physically located in New York City, with its 2800 traded companies valued at over $21 trillion (in 2017) Pension A retirement account, offered in some job sectors or companies, that an employer maintains to give an employee a fixed payout at retirement Roth IRA An individual retirement account that allows a person to set aside after-tax income up to a specified amount each year S&P 500 An index of 500 large cap companies chosen based on their size, industry, and other factors, used to represent the entire market 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 Stock Exchange A market where shares in corporations are bought and sold through an organized system Treasury Bond A bond, generally considered to be a risk-free investment, issued by the U.S. Treasury with a maturity of more than 10 years Traditional IRA An individual retirement account that allows a person to set aside pre-tax income up to a specified amount each year Risk Degree of uncertainty on how likely the investor is to make money on an investment Investing The process of setting money aside to increase wealth over time for long-term financial goals such as retirement Portfolio A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including mutual funds and ETFs Capital Gains Tax A tax levied on profit from the sale of property or an investment Investment The act of redirecting resources from being consumed today so that they may create benefits in the future; the use of assets to earn income or profit Liquidity The ease with which an asset can be converted into cash Risk-Return Ratio Relationship of substantial reward compared to the amount of risk taken Share Piece of ownership in a company, mutual fund or other investment Tax-Favored Dollars Money that is invested, either tax deferred or tax free, within a retirement plan Asset A valuable resource that is owned by a person, company, or government in order to get an economic benefit. Liability Something a person or company owes, usually a sum of money Net Worth Assets minus liabilities Time Value of Money Money's potential to grow in value over time. The relationship between time, money, a rate of return, and earnings growth. Bear Market A steady drop or stagnation in the stock market over a period of time Bull Market A steady rise in the stock market over a period of time Public Company A company that sells its stock to the general public. Capital Loss The sale of an investment for less than its purchase price Blue Chip Stock the stock of a large, well-established and financially sound company that has operated for many years Growth Stock A stock from a company which has a consistent record of relatively rapid growth and earnings in all economic conditions. Usually reinvests profits instead of paying them out as dividends. Coupon Rate The interest rate that a bond issuer will pay to a bondholder Bond Face Value The principal amount of a bond that is repaid at the end of the term. Also called par value. Bond Maturity The length of time until the debt has been paid off for a bond in its entirety Retirement The time of life when one chooses to leave the workforce behind permanently. Exchange Traded Fund (ETF) A collection of stocks and/or bonds that are traded on securities exchanges. Unlike mutual funds, they can be traded throughout the day like an individual stock. Insider Trading The buying or selling of a company's securities by individuals who possess material, nonpublic information about that company. Target Date Fund (TDF) A type of investment fund that rebalances its asset mix over time based on a projected retirement year Brokerage Account An account that lets individual investors trade stocks, bonds, mutual funds, and other investments Dollar Cost Averaging The practice of putting a fixed amount into an investment over a period of time, regardless of the price of that investment Micro-Investing Platform An application that allows users to regularly save small sums of money Nominal Rate of Return The total return on an investment before adjusting for expenses like taxes, inflation, and investment fees. Individual Retirement Account (IRA) An investing tool for individuals to earmark funds specifically for their retirement. Asset Allocation Dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash Asset Class A group of financial instruments which have similar financial characteristics and behave similarly in the marketplace (like stocks, bonds, and cash) Market Capitalization Market value of a company's outstanding shares calculated by multiplying the current share price by number of shares outstanding Social Security A federal program that provides monthly benefits to millions of Americans, including retirees, military families, surviving families of deceased workers, and disabled individuals Real 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) Coupon The annual interest payment on a bond, usually expressed as a percentage of its face value