Investment Definitions

Class Objective Students will gain a knowledge of financial terms and relate them to what was going on in the 1920’s. Students will gain a knowledge of financial terms and relate them to what was going on in the 1920’s.

What’s the difference What is the difference between saving and investing? What is the difference between saving and investing?

Saving Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in a bank or pension plan.[1] Saving also includes reducing expenditures, such as recurring costs. In terms of personal finance, saving specifies low-risk preservation of money, as in a deposit account, versus investment, wherein risk is higher. Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in a bank or pension plan.[1] Saving also includes reducing expenditures, such as recurring costs. In terms of personal finance, saving specifies low-risk preservation of money, as in a deposit account, versus investment, wherein risk is higher.pension[1]personal finance deposit accountinvestmentpension[1]personal finance deposit accountinvestment

Invest Investment is putting money into something with the expectation of profit. More specifically, investment is the commitment of money or capital to the purchase of financial instruments or other assets so as to gain profitable returns in the form of interest, income (dividends), or appreciation (capital gains) of the value of the instrument Investment is putting money into something with the expectation of profit. More specifically, investment is the commitment of money or capital to the purchase of financial instruments or other assets so as to gain profitable returns in the form of interest, income (dividends), or appreciation (capital gains) of the value of the instrumentmoneyinterestincomedividendscapital gainsmoneyinterestincomedividendscapital gains

The time value of money is the value of money figuring in a given amount of interest earned over a given amount of time. The time value of money is the value of money figuring in a given amount of interest earned over a given amount of time. interest Earned Interest- The payment you receive for allowing a financial institution or corporation to use your money. Earned Interest- The payment you receive for allowing a financial institution or corporation to use your money.

Compound Interest The idea of earning interest on interest. The idea of earning interest on interest. A bank account, for example, may have its interest compounded every year: in this case, an account with $1000 initial principal and 20% interest per year would have a balance of $1200 at the end of the first year, $1440 at the end of the second year, and so on. A bank account, for example, may have its interest compounded every year: in this case, an account with $1000 initial principal and 20% interest per year would have a balance of $1200 at the end of the first year, $1440 at the end of the second year, and so on.

Rule of 72 Tells you how long it takes your money to double in value. Tells you how long it takes your money to double in value. Divide 72 by interest rate to determine number of years to double. Divide 72 by interest rate to determine number of years to double. Divide 72 by years to determine rate needed to double your money in a given time period. Divide 72 by years to determine rate needed to double your money in a given time period.

Try It! Apply the Rule of 72 to find the time or rate. Assume you can earn 6% on your money. How long will it take $100 to grow to $200? Assume you can earn 6% on your money. How long will it take $100 to grow to $200? 72 ÷ 6% interest = 72 ÷ 6% interest = 12 years

Rate of Return Is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. Is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested.money investmentmoney investment

Diversification/ Inflation Means reducing risk by investing in a variety of assets. Means reducing risk by investing in a variety of assets.riskinvestingassetsriskinvestingassets Is a rise in the general level of prices of goods and services in an economy over a period of time. Is a rise in the general level of prices of goods and services in an economy over a period of time.level of priceseconomylevel of priceseconomy

Taxes Is to impose a financial charge or other levy upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law. Is to impose a financial charge or other levy upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law. legal entitystate legal entitystate

Interest/ Bond The payment you receive for allowing a financial institution or corporation to use your money. The payment you receive for allowing a financial institution or corporation to use your money. Is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) and/or to repay the principal at a later date, termed maturity Is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) and/or to repay the principal at a later date, termed maturitysecurityinterest couponmaturitysecurityinterest couponmaturity

Stocks Represents the original capital paid into or invested in the business by its founders. Represents the original capital paid into or invested in the business by its founders. Owning a part of a company. Owning a part of a company. Ex. Come up with your own example. Ex. Come up with your own example.

Capital Gain Profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price. Profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price.rofit capital assetrofit capital asset Come up with an example. Come up with an example.

Mutual Fund A professionally-managed type of collective investment scheme that pools money from many investors to buy securities (stocks, bonds, short-term money market instruments, and/or other securities). A professionally-managed type of collective investment scheme that pools money from many investors to buy securities (stocks, bonds, short-term money market instruments, and/or other securities). collective investment scheme securitiesstocksbonds money market collective investment scheme securitiesstocksbonds money market