Investment Return

Total return is the profit (or loss) on an investment. It is a combination of current income (cash received from interest, dividends, etc.) and capital gains or losses (the change in value of the investment between the time you bought and sold it). The published rate of return for a selected investment is usually expressed as a percentage of the current price on an annual basis. However, the real rate of return is the rate of return earned after inflation, …

Stock

In finance: A certificate representing a share of ownership in a company. Stock is the ownership of a corporation represented by shares that are a claim on the corporation’s earnings and assets. There are many kinds of stocks, the most widely known being common stock, which usually entitles a stockholder to vote in the election of directors and other corporate matters.

In viticulture: Grape variety used as the underground portion of a grafted vine onto which the scion

Blue-Chip Stock

A term, derived from the most expensive chips in a poker game, used to indicate the stock of companies with long records of growth and profitability; i.e., the company has been growing and has been paying dividends for a long time.…

Annual Report

A report that public companies are required to file annually that describes the preceding year’s financial results and plans for the upcoming year. Annual reports include information about a company’s assets, liabilities, earnings, profits, and other year-end statistics. If the public can buy stock in a company, that company has to issue a report every year that explains how well it did in the past year and what its strategy is for next year. The report includes what the company …

Asset Allocation

Asset Allocation

Asset allocation is dividing a portfolio among major asset categories such as bonds, stocks, real estate, and cash to reduce the risk of the portfolio. If one investment loses a lot of value, diversifying limits how much money will be lost and reduces the risk of giving up everything you put in. The downside of diversification is that if one investment gains a lot of value, not too much money will be made.

In the final analysis, your …

The Risk / Rate-Of-Return Relationship

Generally speaking, risk and rate-of-return are directly related. As the risk level of an investment increases, the potential return usually increases as well. The pyramid of investment risk illustrates the risk and return associated with various types of investment options. As investors move up the pyramid, they incur a greater risk of loss of principal along with the potential for higher returns.

Pyramid of Investment Risk
Pyramid of Investment Risk


Source: National Institute for Consumer Education, 1998

Financial Security: Saving and Investing

Even though the words “saving” and “investing” are often used interchangeably, there are differences between the two.

Saving provides funds for emergencies and for making specific purchases in the relatively near future (usually three years or less). Safety of the principal and liquidity of the funds (ease of converting to cash) are important aspects of savings dollars. Because of these characteristics, savings dollars generally yield a low rate of return and do not maintain purchasing power.

time and money

Investing, on the other …