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Ch11 PersonalFinance

Investment Planning

QuestionAnswer
What is Investing? The process of placing money in some medium such as stocks or bonds in the expectation of receiving some future benefit.
What is Speculating? A form of investing in which future value and expected returns are highly uncertain.
What is Risk Averse? The average investor’s attitude toward risk is such that, when presented with two investments having same expected return, the one with the lowest risk will be chosen.
What is Investment Plan? A statement—preferably written—that specifies how investment capital will be invested to achieve a specified goal.
What is Securities Markets? The marketplace in which stocks, bonds, and other financial instruments are traded.
What is Prospectus? A document made available to prospective security buyers that describes the firm and a new security issue.
What is Bid Price? The price at which one can sell a security.
What is Ask Price? The price at which one can purchase a security.
What is Securities & Exchange Commission (SEC)? An agency of the federal government that regulates the disclosure of information about securities and generally oversees the operation of securities exchanges and markets.
What is National Association of Securities Dealers (NASD)? An agency made up of brokers and dealers in over-the-counter securities that regulates OTC market operations.
What is Bull Market? A market condition normally associated with investor optimism, economic recovery, and expansion: characterized by generally rising securities prices.
What is Bear Market? A condition of the market typically associated with investor pessimism and economic slowdown; characterized by generally falling securities prices.
What is a Stock Broker? (Account Executive/Financial Consultant) A person who buys and sells securities on behalf of clients and gives them investment advice and information.
What is a Full-Service Broker? A broker who, in addition to executing clients’ transactions, offers a full array of brokerage services.
What is a Discount Broker? A broker with low over-head who charges low commissions and offers little or no services to investors.
What is a Online Broker? Typically a discount broker through which investors can execute trades electronically/online through a commercial service or on the Internet; also called Internet broker or electronic broker.
What is a Odd Lot? A quantity of fewer than 100 shares of stock.
What is a Round Lot? A quantity of 100 shares of stock, or multiples thereof.
What is Securities Investor Protection Corporation (SIPC)? A nonprofit corporation, created by Congress and subject to SEC and congressional oversight, that insures customer accounts against the financial failure of a brokerage firm.
What is Arbitration? A procedure used to settle disputes between a brokerage firm and its clients; both sides present their positions to a board of arbitration, which makes a final and often binding decision on the matter.
What is Market Order? An order to buy or sell a security at the best price available at the time it is placed.
What is Limit Order? An order to either buy a security at a specified or lower price or to sell a security at or above a specified price.
What is a Stop Loss? An order to sell a stock when the market price reaches or drops below a specified level. (Stop Order)
What is Short Sale? A transaction that involves selling borrowed securities with the expectation that they can be replaced at a lower price at some future date; made in anticipation of a decline in the security’s price.
What is Annual Stockholders' Report? A report made available to stockholders and other interested parties that includes a variety of financial and descriptive information about a firm’s operations in the recent past.
What is Dow Jones Industrial Average (DJIA)? The most widely followed measure of stock market performance; consists of 30 blue-chip stocks listed mostly on NYSE.
What is Standard & Poor’s (S&P) Indexes? Indexes compiled by Standard & Poor’s that are similar to the DJIA, but employ different computational methods and consist of far more stocks.
What is NYCE Index? An index of the performance of all stocks listed on the New York Stock Exchange.
What is Dow Jones Wilshire 5000 Index? An index of the total market value of the approximately 6,000-7,000 most actively traded stocks in the United States.
What is Day Trader? An investor who buys and sells tocks (and other securities) rapidly throughout the day in hopes of making quick profits.
What is Portfolio? A collection of securities assembled for the purpose of meeting common investment goals.
What is Diversification? The process of choosing securities with dissimilar risk-return characteristics in order to create a portfolio that provides an acceptable level of return and an acceptable exposure to risk.
What is Asset Allocation? A plan for dividing a portfolio among different classes of securities in order to preserve capital by protecting the portfolio against negative market developments.
What are your Investment Objectives? (1)Accumulate funds for retirement, (2)Save for a major purchase, (3)Enhance current income, and (4)Seek shelter from taxes.
What are different ways to invest? (1)Common stock, (2)Bonds, (3)Preferreds & Convertibles, (4)Mutual Funds, Exchange Traded Funds, & Exchange Traded Notes, and (5)Real Estate.
What is Common Stock? Represents a share of ownership in a corporation, greater potential returns with a higher level of risk, and the return to stockholders comes from dividends and/or appreciation in share price.
What are Bonds? Bonds are liabilities—they’re IOUs of the issuer, an individual who invests in a bond receives a interest income. Lower level of risk than stocks, with lower expected returns
What are Preferred Securities? are issued as stock and, represent an equity position in a corporation. But unlike common stock, preferreds have a fixed dividend rate. Like bonds, preferred stocks are usually purchased for the current income (dividends) they pay.
What are Convertible Securities? is a special type of fixed-income obligation permitting the investor to convert it into shares of common stock. Thus, provide the fixed-income benefits (interest) of a bond while offering the price appreciation (capital gains) potential of common stock.
What are Mutual Funds? Professionally managed portfolio by an investment company, Returns and risk depend on portfolio.
What is Exchange Traded Funds? They are portfolios of securities. They are commonly designed to track a basket or index of equity securities.
What are Exchange Traded Notes? They are senior, unsecured, unsubordinated debt securities issued by an underwriting bank.
What is Real Estate? Invest directly or through shares in a REIT. Difficult to estimate risk and return. Investors must be aware of economic cycles. The returns on real estate comes from rents, capital gains, and certain tax benefits.
What 2 trades can Securities Markets be broken up into? Capital Market & Money Market.
What is Capital Market Where long-term securities are traded, and maturities greater than 1 year.
What is Money Market? Where low-risk, short-term securities are traded, and maturities less than 1 year.
What 2 segments can Securities Markets be divided into? Primary Market & Secondary Market.
What is Primary Market? New securities are sold to the public. Investment banking firm underwrites (selling) new security issues. Issuing company gets proceeds. An investor in a new issue must be given a prospectus, which is a document describing the firm and the issue.
What is Secondary Market? Trading previously issued securities. Securities exchanges, in which the buyers and sellers of securities are brought together for the purpose of executing trades: NASDAQ & OTC Markets
What 2 segments are Secondary Markets divided into? Broker Markets & Dealer Markets.
What are Broker Markets? Consists of national and regional “securities exchanges." When traded, the two sides of the transaction—the buyer and the seller—are brought together and the trade takes place at that point: Party A sells his securities directly to the buyer, Party B.
What are Dealer Markets? Is made up of both the NASDAQ market and the OTC market. The buyer and seller never meet, their buy/sell orders are separately executed through securities dealers, who act as market makers.
Describe Foreign Securities Markets? Organized securities exchanges exist in over 100 countries. NYSE Euronext (biggest stock market in the world), followed by Tokyo stock market, and then the NASDAQ market. Found in major industrialized nations and in emerging economies around the globe
Created by: mecasey87