Know Yo' Lingo
The sharing of profits from a corporation to stockholders
Dividend
This is an extremely safe option with a bank and is very liquid, however it has a low rate of return (1-2%)
Savings Account
(or Money Market Account)
What are 2 ways to make money in the stock market?
Dividends and Capital Gains (Stock Appreciation)
At what age will you be able to collect full Social Security retirement benefits?
67
What does "IRA" stand for?
Individual Retirement Account
The ability to turn an investment into cash (the ease of cashing out an investment)
Liquidity
This investment allows people to have a small share of ownership of a corporation
Stock
This a stock market index that follows 30 large (Blue Chip) corporations
The Dow
(The Dow Jones Industrial Average)
What % is taken out of YOUR paycheck for Social Security?
6.2%
What retirement plan (named after the tax code) is set up by your employer?
401-K
The time required for an investment to pay off
Maturity (Maturity time)
This investment is a bank product that has a fixed maturity time and interest rate
CD (Certificate of Deposit)
This investment is a loan to a corporation or government. It has a fixed rate of interest and maturity time
Bonds
(Corporate Bonds & / or Government Bonds)
What 2 programs are paid with the FICA tax?
Social Security and Medicare
What is a retirement account that takes out income taxes BEFORE it is invested?
Roth IRA
Explain the difference between Simple Interest and Compound Interest
Simple interest is interest on principal (only)
Compound Interest is interest on principal and past interest ("Interest on interest")
This index fund invests in the entire stock market and can better protect you from a Bear Market
VTSAX
(Vanguard Total Stock Market Index Fund)
Identify 2 advantages of investing in stocks (or stock mutual funds) over Bonds
1. More Liquid
2. More potential for gain (market appreciation)
3. Can pay dividends
What is the grand total of the FICA tax (from you and your employer)?
15.3%
(half from you and half from your employer)
What are 3 keys to having a solid retirement account decades from now?
- Start saving EARLY
- Save a regular % each month (aim for 10%)
- Compound Interest
- Diversify (not into a single stock)
- Be somewhat aggressive (index funds rather than just CD's or Savings Account)
Explain the Rule of 72 and provide an example
72 divided by Rate of Return
Provides the time needed for an investment to double
(i.e. 72 / 8%) = 9 years
Bonds; CDs; Individual Stock; Index Fund; Savings Account
5. Individual Stock
4. Index Funds
3. Bonds
2. CDs
1. Savings Account
Identify 2 advantages of Bonds over Stocks
1. Established rate of return (interest rate)
2. Known maturity time
3. Safer (more predictable)
What does "OASDI" stand for
Old Age Survivors and Disability Insurance
Name 2 advantages of investing in a 401-K program (if it is available to you)?
1. Tax Deferred (Pre-tax and grows faster)
2. Might have a company match program
3. Variety of investment options
4. Can invest more per year than IRA