Personal Finance Chapter 8

Diversification The practice of dividing the money a person invests between several different types of investments in order to lower risk.
Investing The process of setting money aside to increase wealth over time for long-term financial goals such as retirement.
Investment Account or arrangement in which a person puts his/her money for long-term growth; invested money should not be used for a suggested minimum of five years.
Liquidity Quality of an asset that permits it to be converted quickly into cash without loss of value; availability of money.
Portfolio A list of your investments
Risk Degree of uncertainty of return on an asset; in business, the likelihood of loss or reduced profit
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
Stocks Securities that represent part ownership or equity in a corporation
Tax-Favored Dollars Money that is invested, either tax deferred or tax free, within a retirement plan.
U.S. Securities and Exchange Commission (SEC) The government agency responsible for regulating the stock market.
Federal Deposit Insurance Corporation (FDIC) The U.S. federal agency that insures deposits in commercial banks.
Federal Reserve The central (federal) banking system of the United States
Internal Revenue Service (IRS) A U.S. federal agency responsible for collecting taxes and for the interpretation and enforcement of the Internal Revenue Code (laws).
Certificate of Deposit (CD) A savings account with a time commitment and slightly higher interest rate.
Money Market Account Low-risk bank savings account with check-writing privileges.
Single Stock Buying a small piece of ownership of a company
Bond A debt instrument where a company owes you money. Examples include Treasury bonds, savings bonds, and War bonds.
Dividend Distribution of a portion of a company’s earnings to its shareholders
Mutual Fund An investment vehicle made up of a pool of money collected from many investors for the purpose of investing
Growth Stock Mutual Fund Fund that buys stock in medium-sized companies (Mid-Cap)
Growth and Income Stock Mutual Fund Fund that buys stock in large. well-established companies (Large-Cap)
Aggressive Growth Stock Mutual Fund Fund that buys stock in smaller companies (Small-Cap)
International Stock Mutual Fund Fund that contains international companies.
Qualified Plan A tax-favored investment
Annuity A savings account sold by an insurance company
Education Savings Plan (529 Plan) A savings plan operated by a state or educational institution designed to help families set aside funds for future college costs.
Rule of 72 A quick way to calculate the length of time it will take to double a sum of money. 72 is divided by the expected interest rate.
Individual Retirement Arrangement (IRA) A special type of tax treatment for investments intended for retirement.
Tax-Deferred When money is received and taxes are paid on it later
Real Estate Land plus anything permanently fixed to it
Commodities Agricultural or mining products
Speculative Purchasing risky investments that present the possibility of large profits, but also post a higher-than-average possibility of loss.
Viaticals Selling a life insurance policy for less than face value.
Day Trading Buying and selling stocks each day
Stock Market A generic term that encompasses the trading of securities.
Security A financial asset that can be bought and sold
Employee Benefits Non-wage compensations provided to employees in addition to their normal wages or salaries.
Simplified Employee Pension Plan (SEP) Employee retirement plan for self-employed people
401(k) Employee retirement plan for employees of businesses
403(b) Employee retirement plan for employees of non-profit organizations
457 Employee retirement plan for government employees
Guaranteed Investment Contract (GIC) A CD inside of a 401(k)

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