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22 Cards in this Set
- Front
- Back
- 3rd side (hint)
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4a. What is Saving?
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Putting money aside for future buying or emergencies.
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Rainy Day
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4a. What is Investing?
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To take money you have and try to make more money from it. [Investing can also be done outside of a bank setting. For example, buying a lawn mower so you can start a lawn mowing business and earn money.]
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Buy Low, Sell High!
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4a. What is the difference between Saving and Investing?
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Savings Accounts are safe, virtually risk free, but do not earn a lot of extra money (Interest). Investing has more risks and rules, you can even lose money, but you can make more money (Interest, Dividends, Stock Price increase).
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High Risk or Low Risk? Take your money out anytime, or have to wait?
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4a. What is a Savings Account?
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A place in a bank where you put your money, and that money earns money as long as it stays in the bank. You can withdraw your money at any time. |
Rainy Day that grows slowly.
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4b. What is Return on Investment (ROI)?
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ROI is the profit (increase in value) of your investment. In other words, the money that is 'returned' to you for making your investment. Get it?
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4b. What is Risk?
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Risk means you are NOT GUARANTEED to make Profit (more money) from your Investment. You can LOSE money. That's why it is called Risk.
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Not the board game....
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4b. What is Principal?
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Your original amount of money. That is, the money you invest before it makes or loses money.
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What's in your wallet? |
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4b. What is Profit?
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The money you make from an Investment, clear and free of any additional charges. Does not count the original money you invested, does not count any expenses. Also called Net. |
Not the kind from the Bible...
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4b. What is Total Return?
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Some investments have more than one way of earning profit. Stocks can increase/decrease in price, AND they can have Dividends, for example. So Total Return would be to add that all up. |
Boring - no great hint, sorry!
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4a. What is Inflation?
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Inflation is the rise in cost of stuff (also called Goods). Example: gas used to be $0.25 per gallon! When Inflation makes Goods more expensive, salaries and paychecks (Income) have to rise IF you want to afford to buy ALL THE SAME STUFF you buy today. If your Income does not rise, you CANNOT AFFORD to buy the same stuff (GOODS). |
Not talking about blowing up balloons here...
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4c. What is the difference between Simple Interest and Compound Interest?
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You earn more money with Compound Interest.
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4a. Saving versus Investing: Which is typically for short-term? Which is typically for long-term?
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Savings is typically for short-term goals. Investing is typically for long-term goals.
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4c. What is Simple Interest?
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Simple Interest is the money earned (Interest) on your original money (Principle). Example: $100 into Savings Account that has a 6% interest annually (yearly). After one year, you would have $106. THAT is SIMPLE INTEREST. |
Earning money simply.
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4c. What is Compound Interest?
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Compound Interest = Simple Interest (interest on just the principle) + Interest on your Interest! Using the Simple Interest Example: $100 into Savings Account that has a 6% interest annually (yearly). After one year, you would have $106. After two years, you now earn 6% on the $106 = $112.36 (Simple would only give you $112 because it would not give you interest on the $6 of interest per year). THAT is COMPOUND INTEREST. |
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6a. What is Common Stock?
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Stock is a piece of a company that you buy. These are called Shares. Shares can increase (go up) or decrease (go down) in value, depending on the fortunes of the company. This has a lot of parts to it. Example: You can start up your own company. You put your own money into it, you own it. But what if you need or want to get bigger? You need more money to do that. So you decide to 'Go Public'. This means you work with lawyers to figure out how much your company is worth now, and how many pieces to break it into with respect to dollars. These 'pieces' of a company are called 'Shares' or just simple referred to as 'Stock' or 'Stock Shares'. Once you Go Public, anyone can buy a Share of your company. The Stock Price is the Price per Share. So if your company is named Google, you will have a Stock Symbol (makes it quicker to find online and identify) of GOOG, and your Stock/Share Price might be $250 per Share (EXAMPLE).
Once you buy Stock (Shares), each Week Day, the Stock Market shows you how much that Share is 'Trading' for that day, which means what it is worth now. Lots of things affect stock prices. Your stock price will hopefully go up per share, but can also go down per share, even to zero. At any time you can then sell your Stock/Shares. |
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6b. What are Mutual Funds?
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Mutual Funds are Investments you can buy Shares of (pieces of), in the very same way you buys Shares of Stock in a company. The difference here is that Mutual Funds are a big group of already-purchased Stock Shares, purchased by professional financial managers, so they create a whole 'package' of various types of Stocks. The package usually has a 'theme', such as 'Emerging Markets', 'Growth', 'Retirement in the year 2045', etc. Since there is more than one company Stock in the Mutual Fund, they have an advantage in that if one of the Stocks in the fund does bad, the others might be doing well so overall you still earn money. |
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6c. What is Life Insurance?
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Life Insurance is money you pay to a company so that when you die, the people you specify (Beneficiaries) will get money. There are all kinds of Life Insurance - some that are like Savings Account, some that you pay and then they expire after so many years. Some common types of Life Insurance Polices are: 1.) Term and 2.) Whole Life. You usually pay a small amount each month. There are various rules. But usually the amount payed-out is large - $50,000 and higher. For example, if you are young, you might buy a 30 year Term Life Insurance policy, pay $33 per month, and after 30 years it expires. But if you die during that 30 years, your Beneficiaries would bet $250,000. |
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6d. What is a Certificate of Deposit (CD)?
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Issued by banks. Have to keep your money in the bank for a set period of time, and if you do, you earn more Interest than with a regular Savings Account. Penalties (cost you money) if you withdraw (take out) before the specified date.
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Not to be used to play music...
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6e. What is a U.S. Savings Bond?
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Government Savings Bonds are safe Investments. Similar to CDs, you buy there for a period of time. You pay one low price for them, wait, and when they 'Mature', you cash them in for the price they told you about when you bought them. For example, you pay $25 for a Series EE U.S. Savings Bond, knowing that if you let it Mature (wait in this case for 6 months) it will be worth $50. You wait six month. It is now mature and ready to cash in. You get $50. You earned $25 in Profit. |
Uncle Sam wants you!!!
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4 and 6. What are Dividends?
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Stock Shares (pieces of companies that you can buy) and even some bank accounts can pay you Dividends, which is passing small Profits of theirs to you.
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4 - 6. When to buy Bonds versus Stocks?
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General rule: When Bond Yield high Returns, Stock yield low Returns. When Stock Yield High Returns, Bond Yield low Returns. What does this mean? Bonds are so 'SAFE' that people buy them when they are nervous our world will collapse - Negative feelings toward Economy and world. The more people buy, the higher their Interest Rate offered by the government. When the Economy/Things seem to be going good - lots of new jobs around, paychecks are high, people buy Stocks because they feel they can afford to take more risk - Optimism toward Economy and world. When this happens, the government lowers the Interest Rate for Bonds. Remember: When Bonds are high, Stocks are Low, and Visa Versa. |
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6. Why buy Mutual Fund Shares instead of single-company Stock Shares?
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Mutual Funds are big 'pools' of many Stock Shares, various Stocks, various amounts (Shares) of these stocks. They tend to weather better than putting all your money into one single-company stock. Tend to be less risky since they are a mixture.
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