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Financial Planning - The Fundamentals of Investing - Vocabulary Terms

Emergency Fund- money that you can access quickly for an immediate need to help you pay for unexpected events, such as not being able to work. !eculative Investment- a highrisk investment made in the hope of earning a relatively large profit in a short time. "etained Earnings- a companys profits that are reinvested, often to fund expansion or research and development. Investment #i$uidity- the ability to buy and sell an investment quickly without substantially affecting its value. E$uity %a!ital-money that a business gets from its owners in order to operate. Dividends- distributions of money, stock, or other property that a corporation sometimes pays to stockholders. %ommon toc&-stock that provides the most basic form or corporate ownership, and it entitles you to voting privileges. Preferred toc&- stock that gives the owner the advantage or receiving cash dividends before common stockholders receive any. %or!orate 'ond- a corporations written pledge to repay a specified amount of money. (overnment 'ond- the written pledge of a government or a municipality to repay a specified sum of money with interest. )utual Fund- an investment alternative in which investors pool their money to buy stocks, bonds, and other securities based on the selection of professional managers who work for an investment company.

Diversification- the process of spreading your assets among several different types of investments to lessen risk. Financial Planner- a specialist who is trained to offer specific financial help and advice. Ta*-E*em!t Income- income that is not taxed. For example, the interest you receive on most state and municipality bonds is exempt from federal income tax. Ta*-Deferred Income- income that will be taxed at a later date. he most common type of tax-deferred income is that which is earned on a traditional individual retirement account !"#$%. %a!ital (ain- the profit from the sale of an asset such as stocks, bonds, or real estate. %a!ital #oss- the sale of an investment for less than its purchase price. Pros!ectus- a document that discloses information about a companys earnings, assets and liabilities, its products or services, and the qualifications of its management.