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Saving and Investing

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Question
Answer
Saving   Setting money aside for later use  
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Investing   Taking risks with savings in order to earn a higher rate of return  
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Principal   The original amount of your investment (how much you put in originally)  
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Interest   The price for borrowing money  
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Maturity   Time required for money to be in a particular investment  
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Liquidity   The ability to turn an investment into cash (how quickly it can pay out)  
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Capital Gain   Selling an investment for more than you paid for it  
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Capital Loss   Selling an investment for less than you paid for it  
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Savings Accounts   Used to save money for large purchases, also used for a rainy day (emergencies)  
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Passbook Savings Account   Regular savings account  
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Money Market Account   Earns a higher amount of interest than a normal savings account  
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Certificates of Deposit (CDs)   Time deposit in which you agree to deposit a sum of money with a financial institution for a certain amount of time  
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Stocks   Buying partial ownership in a company  
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Dividends   A sum of money paid regularly by a company to its shareholders out of its profits  
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Mutual Funds   Pools of money from many people  
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The Dow (Stock Indexes)   Tracks prices of 30 representative stocks, tracks the price of 500 stocks  
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Bull Market   Optimism in market; stock prices are generally climbing  
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Bear Market   Pessimism in market; stock prices falling  
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Corporate bonds   Debt security issued by a corporation and sold to investors  
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Government bonds   A bond issued by a national government, generally with a promise to pay periodic interest payments and to repay the face value on the maturity date  
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Bonds   - Loan (no ownership) - No voting rights - Less liquid (maturity date) - Less risk (lower potential for gain/loss) - Profit through  
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Stocks   - Ownership - Voting rights - More liquid (sell anytime) - More risk - Profit through - Dividends (buy low & sell) - Selling high (high = capital gain)  
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Dividends & selling high   How do you profit in the Stock Market?  
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Predetermined interest rate   How do you profit in the Bond Market?  
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