Investing Vocabulary

Define the following terms associated with investing with the definitions from this quizlet.

Term Definition

Market Capitalization Market value of all of a company's outstanding shares, calculated by

multiplying the Current Share Price by Number of Shares.
Dividend Money from the profits of a company that is paid out to its shareholders
(typically, on a quarterly basis).
Dow Jones An index that tracks 30 large, generally successful and reliable
companies.
S&P 500 An index of 500 large cap companies chosen based on 8 factors,
including market capitalization, location, and industry.
Bond Ratings Measure the likelihood that a bondholder will be paid back. The higher
the rating for a bond, the lower the coupon rate for that bond.
Coupon The interest payment on a coupon bond. Example: A $1,000 bond with
a 5% coupon would pay the bond investor $50 per year until maturity
Bonds A debt security in which the issuer (company or government) owes the
holders (or investor) a debt and, depending on the terms of the bond, is
obliged to pay the bondholder interest (the coupon) and/or to repay the
principal at a later date, termed the bond maturity.
Treasury Bonds Bonds issued by the U.S. Treasury with a maturity of more than 10
years; generally considered risk-free investments.
Municipal Bonds Bonds issued by state and local governments which often have tax
advantages for individual investors.
Diversification Spreading your money into a variety of asset classes, with multiple
investments or indexes in each asset class, so that your investment is
not reliant on the success of one company. Diversifying minimizes risk.
NYSE New York Stock Exchange -- the world's largest stock exchange.
NASDAQ The second largest stock exchange in the world behind the NYSE.
Stock A share of stock represents a fractional ownership of a company, which
an individual buys in hopes of earning money and a company issues in
order to raise funds.
Mutual Fund A collection of stocks and/or bonds, typically chosen and actively
managed by an "expert" in exchange for a fee from each investor.
Index Fund A low-fee portfolio of stocks chosen to track or mimic a stock market
index, thereby removing the human element of investing.
Risk Degree of uncertainty on how likely the investor is to make money on
an investment.
Rate of Return The ratio of money gained or lost on an investment relative to the
amount of money invested; also known as return on investment (ROI).
Initial Public Offering (IPO) The first time a company issues stock that may be bought by the
general public.
Inflation The increase in the general price of goods and services in an economy
over a period of time.
Compound Interest Interest earned on both the principal amount and any interest already
earned
Stock Exchange A market where shares in corporations are bought and sold through an
organized system.
Security A financial asset—such as a stock or a bond—that can be bought and
sold in a financial market.
Social Security A United States federal program of social insurance and benefits
developed in 1935. The Social Security program's benefits include
retirement income, disability income, Medicare and Medicaid, and
death and survivorship benefits.
FICA The Federal Insurance Contributions Act (FICA) is the federal law that
requires an employer to withhold three separate taxes from the wages
they pay their employees: a 6.2 percent Social Security tax;
a 1.45 percent Medicare tax and beginning in 2013, a 0.9 percent
Medicare surtax when the employee earns over $200,000.
Roth IRA An individual retirement account that allows a person to set aside after-
tax income up to a specified amount each year. Both earnings on the
account and withdrawals after age 59½ are tax-free.
Traditional IRA An individual retirement account that allows a person to set aside pre-
tax income (up to a specified amount). Earnings are tax-deferred but
taxes are paid when withdrawals are made beginning at age 59 1/2 or
later (or earlier, with a 10% penalty).
401(k) Retirement Plan A retirement savings plan sponsored by an employer which lets
workers save and invest a piece of their paycheck before taxes are
taken out. Taxes aren't paid until the money is withdrawn from the
account.
Dollar-Cost Average The technique of buying a fixed dollar amount of a particular investment
on a regular schedule, regardless of its price. More shares are
purchased when prices are low, and fewer shares are bought when
prices are high.
401(k) Match An employer contribution made to their employees' 401(k) plan based
on individual employee's contributions. An employee must contribute to
the plan in order to receive a match from his/her employer.