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 …
Investing Action Steps
The steps below suggest important actions for you to take to establish a solid foundation for future investing activity. Once completed, you will be ready to begin developing a personal investment plan.
Check each action step as it is completed.
- Review your current financial holdings and determine if they are in saving or investment vehicles.
- Determine the rate of return for your current financial holdings.
- Establish short-, intermediate-, and long-term financial goals for you and your family. Estimate the length
How Time Affects The Value Of Money
Investor A invests $2,000 a year for 10 years, beginning at age 25. Investor B waits 10 years, then invests $2,000 a year for 31 years. Compare the total contributions and the total value at retirement of the two investments. This example assumes a 9 percent fixed rate of return, compounded monthly. All interest is left in the account to allow interest to be earned on interest.
| Age | Years | Investor A | Investor B | ||
|---|---|---|---|---|---|
| Contributions | Year End Value | Contributions | Year End | ||
The Time-Value of Money
Here is how time can work for you:
- The longer you invest, the more money you will accumulate.
- The more money you invest, the more it will accumulate because of the magic of compound interest.
Compounding works like this . . .
The interest earned on your investments is reinvested or left on deposit. At the next calculation, interest is earned on the original principal plus the reinvested interest. Earning interest on accumulated interest over time generates more and more …
Your Investment Goals
Your Investment Goals
Goals are specific things (e.g., buy a car, put a new roof on the house) that people want to do with their money. As people move through various life stages, their needs and financial goals change. Your selection of investments should relate closely to your financial goals. Each goal will define the amount and liquidity of the money needed as well as the number of years available for the investment to grow.…
Your Tax Situation
The return on any investment is influenced by your federal, state, and local tax situation. Investment earnings may be:
- Taxable – Taxes paid yearly on interest, dividends and annual capital gain distributions from investments.
- Tax-deferred – Taxes on earnings are deferred until withdrawal. Tax-deferred earnings include contributions and returns associated with IRAs, 401(k)s, and other retirement saving plans (see Unit 7 of Investing for Your Future Learning Lesson).
- Tax-exempt – Earnings are wholly or partly free from taxes. Roth IRAs
Your Time Horizon
Your Time Horizon
Time is a very important resource to investors.
Young investors with a long time horizon may choose investments that exhibit wide price swings, knowing that time is available for fluctuations to average out. Families investing for a specific mid-life goal (e.g., funding a child’s education or purchasing a home) may choose a more moderate course which has opportunity for growth, but provides more safety for the principal. Individuals nearing retirement and those with the need to depend …
Diversification
You can do several things to offset the impact of some types of risk. Diversifying your investment portfolio by selecting a variety of securities is one frequently used strategy. Done properly, diversification can reduce about 70 percent of the total risk of investing. Think about it. If you put all your money in one place, your return will depend solely on the performance of that one investment. Alternatively, if you invest in several assets, your return will depend on an …
Emergency Cash Reserve
Emergency Cash Reserve
Setting aside money to meet unexpected expenses provides a financial safety net and allows you to take advantage of financial opportunities as they arise. Most experts recommend an emergency fund equal to 3 to 6 months living expenses; however, you do not need to set aside this total amount in a low-yielding passbook, certificate of deposit, or money market account. The amount of your emergency fund depends upon your age, health, job outlook, and personal financial situation …