Koofers

test3review - Flashcards

Flashcard Deck Information

Class:PFP 3301 - Introduction to Personal Finance
Subject:PERSONAL FINANCIAL PLANNING
University:Texas Tech University
Term:Fall 2012
- of -
INCORRECT CORRECT
- INCORRECT     - CORRECT     - SKIPPED
Shuffle Remaining Cards Show Definitions First Take Quiz (NEW)
Hide Keyboard shortcuts
Next card
Previous card
Mark correct
Mark incorrect
Flip card
Start Over
Shuffle
      Mode:   CARDS LIST       ? pages   PRINT EXIT
MUTUAL FUNDS
  • An investment company that pools funds by selling shares to investors and makes diversified investments to achieve financial goals of income, growth, or both
  • Why invest in it? -----> benefits the small investor (for diversification and reduced risk)
  • Disadvantages: lower-than-market performance, costs, risks, capital gain taxes
  • Balanced MF invest in- common stock, preferred stock, and bonds
Exchange-Traded Fund (ETF)
  • its a mutual fund that trades as a listed security
  • usually structured as an index fund that is set up to match the performance of certain market segment
  • Is a basket of passively managed securities structured like an index fund as it owns all or a representative set of securities that duplicate the performance of a market segment or index
  • 800+ ETFs  
  • can be sold or traded as a common stock (close-end fund) or back to the company (open end fund)
  • 1/10th of actual
FDIC (Federal Deposit Insurance Corporation)
  • an agency of the federal government that administers a fund to insure accounts at commercial banks and certain other depository institutions
  • $250,000- Individual account
  • $500,000- Joint Acount
CDs specific dollar amount deposited for a specific amount of time
-similar to saving accounts in that they are insured---> thus they are virtually risk-free
-insured by: FDIC (banks) and the NCUA (credit unions)
-they are different from savings accounts in that they have a specific, fixed term (often monthly, 3mo, 6mo, 1-5yrs) and usually a fixed IR
-intended to be held until maturity, at which time the money may be withdrawn together with the accrued interest
Generated by Koofers.com
RETIREMENT
  • the time in life when the major sources of income changed from earned income to employer-based retirement benefits, private savings & investments, SS benefits, etc.
STOCKS
  • a type of security that signifies ownership in a corporation and represents a claim on part of the corporations assets and earnings
  • a form of equity--taxes are paid on dividends
BONDS
  • a debt investment in which an investor loans money to an entity (corp. or gov.) that borrows the funds for a defined period of time at a fixed IR
  • used by companies, municipalities, states/US/foreign govs to finance a variety of projects and activities
  •  liabilities. typically paid every 6 months + the return of the face value of the bond. a bond
  • can be sold before maturity
  • basically "IOU's"
401K --tax deferred; a retirement savings plan in which employees of private corp. may contribute a portion of their wages up to a max amount set by law
-employers may contribute a full or partially matching amount and may limit the prop. of the annual salary (typically to 15%)
-limits imposed by: employers and/or US GOV
-company match: may require vesting
-withdrawals taxed at: ordinary tax rate; penalty on early withdrawals
Generated by Koofers.com
Individual Retirement Account (IRA)
  • An account designed for retirement into which people contribute money that grows tax-free; A personal retirement vehicle in which a person can make annual tax-deductible contributions
  • you can invest in it if you have no retirement plan at work--> deducts the entire amount from your taxes
  • the interest accumulates tax-free until you start taking it out
  • (the traditional individual retirement account (IRA), Roth IRA, Keogh, and SEP-IRA.)
ROTH IRA - A retirement account where people contribute after-tax money that grows tax-free and from which withdrawals are tax-freE
- A personal retirement vehicle in which a person can make annual contributions that are not tax-deductible, but the funds in the account grow tax-free and are not taxed when withdrawn"
- Individual---(no employer); limited contributions made w/ after taxed dollars (you were already taxed) earnings on contributions:tax free after 5 years
no taxes required at withdrawal; no penalty access to contributions
           *some restrictions
withdrawals not required
DIVERSIFICATION
  • The process of reducing risk by spreading investment assets among several investments.
  • avgs out the high and low returns
  • enhances when investors invest in stock mutual fund rather than individual stocks
  • "dont put all your eggs in 1 basket"
  • a mix of stocks and bonds
  • invest across "uncorrelated" assets
  • owning numerous securties reduces risk
3 KEY DECISIONS WHEN CHOOSING INVESTMENTS:
  1. Do you want to lend your money or own an asset?
  2. Do you want to invest for the short- term or long-term?
  3. Which types of investment do you prefer?
Generated by Koofers.com
SECURITIES
  • stocks/bonds/mutual funds
  • negotiable instruments of ownership or debt by corporations
RISK
  • uncertainty that the yield on an investment will deviate from what is expected
  • investments  (> risk)  savings
RETURN
  • any investment vehicle (whether it is a share of stock, a bond, a piece of real state, or a mutual fund) has 2 basic forms of return: current income and capital gains. 
  • Capital Gain: from selling whole at a higher price
  • Current Income: received with some degree of regulatory. (ex rent, interest from bonds)
RISK TOLERANCE
  • the ability to weather changes in the value of your investments--> may affect how much time you need before reaching your investment goals
Generated by Koofers.com
For a risk neutral investor, the degree of risk acceptable primarily depends on...

...the *time horizon for the investment goal




*length of time to invest
S&P 500
  • the standard and poor indexes are similar to the DOW jones avg- both are used to capture the overall performance of the market
  • S&P uses a lot more stocks (500). DIJA uses 30. they are also large stock.
    is an index
CDs pay higher IR's than most other deposit accounts because...


  • you agree to leave the money on deposit for a definite period of time
INVESTMENT FUNDAMENTALS Spend<earn & sacrifice some of ur income to invest for ur future lifestyle;Use stocks,bonds,mutual funds,& real estate to build ur inv portfolio, not life insurance or annuities;Start early in life to invest in a diversified portfolio of assets consistent w/ ur inv phil. in order to obtain a high avg return at a level of risk u are willing to accept;Use an asset allocation strategy & invest regularly using dollar-cost avging thru ur employer's retirement plan;Follow the buy-and-hold long-term approach to investing thru both good&bad eco. times, &keep ur inv. well diversified;Never allow ownership in your employers stock to amount to more than 15 percent of your portfolio.
Generated by Koofers.com
SHORT-TERM Savings Options

  • Checking Account
  • Money Market Account
  • Savings Account
  • CD
CAREER
  • the lifework chosen by a person to use personal talent, education, and training
CAREER PLANNING
  • finding employment that will use your interests and abilities and that will support you financially
STEPS:
  1. assess values and interests
  2. identify 1 or more appropriate and desirable career fields
  3. match your abilities, experiences, and edu. w/ your chosen career field
  4.  take adv. of networking opportunities
  5. align yourself w/ tomorrows employment trends
  6. finalize your plan and begin your career
PROFESSIONAL INTERESTS
  • long standing topics and activities that engage your attention
Generated by Koofers.com
INTEREST INVENTORIES
  • scaled surveys that assess career interests and activities
Generated by Koofers.com

List View: Terms & Definitions

  Hide All 25 Print
 
Front
Back
 MUTUAL FUNDS
  • An investment company that pools funds by selling shares to investors and makes diversified investments to achieve financial goals of income, growth, or both
  • Why invest in it? -----> benefits the small investor (for diversification and reduced risk)
  • Disadvantages: lower-than-market performance, costs, risks, capital gain taxes
  • Balanced MF invest in- common stock, preferred stock, and bonds
 Exchange-Traded Fund (ETF)
  • its a mutual fund that trades as a listed security
  • usually structured as an index fund that is set up to match the performance of certain market segment
  • Is a basket of passively managed securities structured like an index fund as it owns all or a representative set of securities that duplicate the performance of a market segment or index
  • 800+ ETFs  
  • can be sold or traded as a common stock (close-end fund) or back to the company (open end fund)
  • 1/10th of actual
 FDIC(Federal Deposit Insurance Corporation)
  • an agency of the federal government that administers a fund to insure accounts at commercial banks and certain other depository institutions
  • $250,000- Individual account
  • $500,000- Joint Acount
 CDsspecific dollar amount deposited for a specific amount of time
-similar to saving accounts in that they are insured---> thus they are virtually risk-free
-insured by: FDIC (banks) and the NCUA (credit unions)
-they are different from savings accounts in that they have a specific, fixed term (often monthly, 3mo, 6mo, 1-5yrs) and usually a fixed IR
-intended to be held until maturity, at which time the money may be withdrawn together with the accrued interest
 RETIREMENT
  • the time in life when the major sources of income changed from earned income to employer-based retirement benefits, private savings & investments, SS benefits, etc.
 STOCKS
  • a type of security that signifies ownership in a corporation and represents a claim on part of the corporations assets and earnings
  • a form of equity--taxes are paid on dividends
 BONDS
  • a debt investment in which an investor loans money to an entity (corp. or gov.) that borrows the funds for a defined period of time at a fixed IR
  • used by companies, municipalities, states/US/foreign govs to finance a variety of projects and activities
  •  liabilities. typically paid every 6 months + the return of the face value of the bond. a bond
  • can be sold before maturity
  • basically "IOU's"
 401K--tax deferred; a retirement savings plan in which employees of private corp. may contribute a portion of their wages up to a max amount set by law
-employers may contribute a full or partially matching amount and may limit the prop. of the annual salary (typically to 15%)
-limits imposed by: employers and/or US GOV
-company match: may require vesting
-withdrawals taxed at: ordinary tax rate; penalty on early withdrawals
 Individual Retirement Account (IRA)
  • An account designed for retirement into which people contribute money that grows tax-free; A personal retirement vehicle in which a person can make annual tax-deductible contributions
  • you can invest in it if you have no retirement plan at work--> deducts the entire amount from your taxes
  • the interest accumulates tax-free until you start taking it out
  • (the traditional individual retirement account (IRA), Roth IRA, Keogh, and SEP-IRA.)
 ROTH IRA- A retirement account where people contribute after-tax money that grows tax-free and from which withdrawals are tax-freE
- A personal retirement vehicle in which a person can make annual contributions that are not tax-deductible, but the funds in the account grow tax-free and are not taxed when withdrawn"
- Individual---(no employer); limited contributions made w/ after taxed dollars (you were already taxed) earnings on contributions:tax free after 5 years
no taxes required at withdrawal; no penalty access to contributions
           *some restrictions
withdrawals not required
 DIVERSIFICATION
  • The process of reducing risk by spreading investment assets among several investments.
  • avgs out the high and low returns
  • enhances when investors invest in stock mutual fund rather than individual stocks
  • "dont put all your eggs in 1 basket"
  • a mix of stocks and bonds
  • invest across "uncorrelated" assets
  • owning numerous securties reduces risk
 3 KEY DECISIONS WHEN CHOOSING INVESTMENTS:
  1. Do you want to lend your money or own an asset?
  2. Do you want to invest for the short- term or long-term?
  3. Which types of investment do you prefer?
 SECURITIES
  • stocks/bonds/mutual funds
  • negotiable instruments of ownership or debt by corporations
 RISK
  • uncertainty that the yield on an investment will deviate from what is expected
  • investments  (> risk)  savings
 RETURN
  • any investment vehicle (whether it is a share of stock, a bond, a piece of real state, or a mutual fund) has 2 basic forms of return: current income and capital gains. 
  • Capital Gain: from selling whole at a higher price
  • Current Income: received with some degree of regulatory. (ex rent, interest from bonds)
 RISK TOLERANCE
  • the ability to weather changes in the value of your investments--> may affect how much time you need before reaching your investment goals
 For a risk neutral investor, the degree of risk acceptable primarily depends on...

...the *time horizon for the investment goal




*length of time to invest
 S&P 500
  • the standard and poor indexes are similar to the DOW jones avg- both are used to capture the overall performance of the market
  • S&P uses a lot more stocks (500). DIJA uses 30. they are also large stock.
    is an index
 CDs pay higher IR's than most other deposit accounts because...


  • you agree to leave the money on deposit for a definite period of time
 INVESTMENT FUNDAMENTALSSpend<earn & sacrifice some of ur income to invest for ur future lifestyle;Use stocks,bonds,mutual funds,& real estate to build ur inv portfolio, not life insurance or annuities;Start early in life to invest in a diversified portfolio of assets consistent w/ ur inv phil. in order to obtain a high avg return at a level of risk u are willing to accept;Use an asset allocation strategy & invest regularly using dollar-cost avging thru ur employer's retirement plan;Follow the buy-and-hold long-term approach to investing thru both good&bad eco. times, &keep ur inv. well diversified;Never allow ownership in your employers stock to amount to more than 15 percent of your portfolio.
 SHORT-TERM Savings Options

  • Checking Account
  • Money Market Account
  • Savings Account
  • CD
 CAREER
  • the lifework chosen by a person to use personal talent, education, and training
 CAREER PLANNING
  • finding employment that will use your interests and abilities and that will support you financially
STEPS:
  1. assess values and interests
  2. identify 1 or more appropriate and desirable career fields
  3. match your abilities, experiences, and edu. w/ your chosen career field
  4.  take adv. of networking opportunities
  5. align yourself w/ tomorrows employment trends
  6. finalize your plan and begin your career
 PROFESSIONAL INTERESTS
  • long standing topics and activities that engage your attention
 INTEREST INVENTORIES
  • scaled surveys that assess career interests and activities
36, "/var/app/current/tmp/"