Chapter 4 - Investing
Terms in this set (30)
Something of value that can be changed into cash.
Earning interest on previously earned interest plus the principal amount.
Spreading your money among different savings and investments.
A type of income investment.
A type of growth investment.
A system where the public can buy or sell stock shares.
Time Value of Money
A dollar today is worth more than a dollar tomorrow. The value (purchasing power) of a dollar decreases over time due to inflation.
An unexpected increase in cash to save or invest (inheritance, tax refund, work bonus, lottery, etc.)
What is the difference between saving and investing?
Savings is setting aside money you don't spend now so it can be used later. Investing is buying something with the expectation that it will make money for you.
List reasons to save money in a bank or credit union savings account rather than hiding it in an envelope in your room.
1. Safety because the savings account is insured.
2. Interest is earned on the amount saved.
3. Easy to keep track of account balance online.
4. Less tempted to spend the money.
The three steps to build wealth include
Make enough money
Have a plan to save and invest
What is the average rate of inflation?
Highest to lowest investments
1. Start up stocks
2. Balanced mutual fund
3. US Savings bonds
4. Certificate of deposit
5. Money market deposit account
Highest to lowest risk investments
2. Stock (in one company)
3. Mutual Fund
4. Corporate bond
5. Savings Account
On $400 earning 4 percent APY, calculate the ending balance after two years if interest is compounded semiannually.
Use www.thecalculatorsite.com = $432.97 NOTE: Switch to compound interval - half yearly
Give reasons why investment experts recommend diversifying investments.
1. Minimize risk of losing money because money is invested in different types of investments.
2. Minimize risk of losing money because money is invested in different types of industries.
3. Boost odds that at least one type of investment will show growth.
Besides diversifying investments, what are other recommended investing practices.
1. Develop an investing strategy.
2. Start now/early.
3. Invest for the long-term.
4. Invest regularly.
5. Do homework before investing in something.
What strategies should a new investor avoid when investing.
1. Flipping stock
2. Blind trust in sources of information.
3. Getting emotional about holdings.
4. Relying ONLY on past performances.
5. Holding only one type of investment.
6. Borrowing to invest.
Dollar cost averaging investing strategy
1. Invest a set amount of money at regular intervals.
2. Invest consistently rather than investing one lump sum.
3. This strategy can involve large or small amounts.
New York Stock Exchange
Ticker symbol for company (Twitter)
The current purchase price offered by a buyer, $55.50 per share.
The current selling price offer by the seller, $60.00 a share.
The last price paid for share of stock, $63.50
Vote for members of the Board of Directors
You don't make day-to-day business decisions.
How can minors invest in stocks and bonds?
Parents/guardians can set up "custodial accounts"
Which investment option is likely to grow at a rate higher than inflation?
Convenient and professionally managed investments.
Who can invest in a retirement fund?
Anyone who earns an income.
When is the best time to invest?
Sooner rather than later.