Investment Jeopardy ® Joan Koonce, Ph.D., AFC ® Extension Financial Planning Specialist

Terminology & Concepts Stocks Bonds Mutual Funds Emergencies, Education & Retirement

back This represents the total value (in percentage terms) of what you earn on your investments. What is rate of return? Terminology & Concepts - 100

back Dividends, interest and rent are examples of this. What is investment income? Terminology & Concepts - 200

back Doing this to your investment portfolio will reduce risk, but it will also reduce return. What is diversifying? Terminology & Concepts - 300

back This is what you are doing when you invest an equal amount of money at regular intervals. What is dollar-cost averaging? Terminology & Concepts - 400

back This is your inability to convert your investments to cash without a capital loss. What is liquidity risk? Terminology & Concepts - 500

back This is what shares of stock represent to the buyer. What is ownership? Stocks - 100

back This is what you receive when you sell shares of stock for more than or less than you paid for them. What are capital gains and capital losses? Stocks - 200

back Stocks issued by well-known companies with sound financial histories are called this. What are blue-chip stocks? Stocks - 300

back These stocks are issued by companies whose earnings tend to move inversely to the broader economy and may actually increase during economic downturns. What are defensive stocks? Stocks - 400

back For a fee, these two plans allow shareholders to purchase stock directly from the company. What are Dividend Reinvestment Plans (DRIPs) and Direct Stock Purchase Plans (DSPP) or Direct Investment Plans (DIPs)? Stocks - 500

back You are doing this when you invest in bonds. What is loaning money? Bonds - 100

back The amount returned to the bondholder at maturity is called this. What is face value or par value? Bonds - 200

back This is what bonds issued by the state and local government are called. What are municipal bonds or muni’s? Bonds - 300

back This does not have to be paid on interest earned on treasury bills, notes and bonds. What is state income tax? Bonds - 400

back Bond rating companies rate bonds based on this risk. What is default risk? Bonds - 500

back A mutual fund is this type of company. What is an investment company? Mutual Funds - 100

back These are sales commissions charged to the investor of a mutual fund. What are loads? Mutual Funds - 200

back These funds invest in short-term securities such as treasury bills and certificates of deposit. What are money market mutual funds? Mutual Funds - 300

back The primary objective of these funds is preservation of capital invested. What are balanced mutual funds? Mutual Funds - 400

back The name of the fees mutual fund investors are charged for fund management and fund advertising and marketing. What are management fees and 12b-1 fees? Mutual Funds - 500

back Because liquidity is important for this type account, money market accounts and short-term certificates of deposit are good choices. What is an emergency account? Investing for Emergencies, Education & Retirement - 100

back Contributions to this retirement account are not tax deductible, but earnings are tax-free. What is a Roth IRA? Investing for Emergencies, Education & Retirement - 200

back If you have this type of employer- sponsored retirement plan, your benefit payment is based on the account balance at retirement. 401(k), 403(b) and 457 plans are examples of this type plan. What is a defined-contribution plan? Investing for Emergencies, Education & Retirement - 300

back With this type of employer-sponsored retirement plan, the benefit payment that you receive at retirement is specified based on the plan’s formula. The Teacher’s Retirement System (TRS) and Employee Retirement System of Georgia (ERSGA) are examples of this type plan. What is a defined-benefit plan? Investing for Emergencies, Education & Retirement - 400

back These education plans have tax-deferred growth and distributions from these plans are excludible from gross income if used to pay certain educational expenses. What are qualified tuition plans or 529 plans? Investing for Emergencies, Education & Retirement - 500

back Investment Terminology and Concepts What is Investing? –Investing is putting your money into an asset that generates a rate of return. –Some examples of investments are stocks, bonds, mutual funds, and real estate.

back Investment Terminology and Concepts Investment Income –Income that you receive from the investment while you have it from bonds you receive interest from stocks you receive dividends from real estate you receive rent

back Investment Terminology and Concepts Capital Gain or Loss –Profit or loss received when you sell an investment that has increased or decreased in value

back Investment Terminology and Concepts Rate of Return –Total return (investment income and capital gains) generated from an investment stated in percentage terms Investment Risk –Uncertainty that an investment will not perform as expected

back Investment Terminology and Concepts Types of Risk –Interest rate risk –Inflation (purchasing power) risk –Financial (default) risk –Liquidity risk –Business risk –Market risk

back Investment Terminology and Concepts Risk Capacity –The amount of risk you can afford to accept Risk Tolerance –The amount of risk you feel comfortable accepting

back Investment Terminology and Concepts What is your “risk” personality? – /riskquiz/default.asp

back Investment Terminology and Concepts Diversification –Investing in several different types of securities in an effort to reduce overall risk in your investment portfolio Dollar-Cost Averaging –Investing an equal amount of money regularly regardless of the investment’s price

back Investment Terminology and Concepts Asset Allocation –Allocating proportions of your investment portfolio to different categories of assets Leverage –Using borrowed money to make an investment Time Horizon –The period of time before you will need the money you invested

back Investment Terminology and Concepts Types of Investments –Ownership investments (Equity) Stock Real estate –Lending investments (Debt) Bonds

back What are Stocks? Stocks are shares of ownership in a company. Stock represents a claim on the company's assets and earnings.

back What Does Stock Ownership Mean? Voting Rights Owning shares in Home Depot does not mean you can go help yourself to free home improvement or other building materials!

back Buying Stocks Brokers DRIPs & DSPPs or DIPs –Dividend Reinvestment Plans (DRIPs) and –Direct Stock Purchase Plans (DSPPs) or Direct Investment Plans (DIPs) are plans with which individual companies for a minimal cost, allow shareholders to purchase stock directly from the company.

back Why Consider Stocks? Stocks can provide investors with dividends and capital gains. Over time, common stocks outperform all other investments. Stocks are somewhat liquid. Growth of your investment is determined by more than just interest rates.

back General Classifications of Stock Blue-Chip Stocks Growth Stocks Income Stocks Speculative Stocks Cyclical Stocks Defensive Stocks Large-Cap, Mid-Cap, Small-Cap and Micro-Cap Stocks

back What are Bonds? Similar to an I.O.U. When you purchase a bond, you are making a loan to a corporation, local, state or federal government, federal government agency or other entity known as the issuer. The issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal when it “matures,” or comes due.

back Why Consider Bonds? Bonds produce steady current income. Bonds can be a safe investment if held to maturity.

back Basic Bond Terminology and Features Face Value: the amount you loan (principal) and is returned to you at maturity Coupon Rate: the annual interest rate that is paid over the life of the bond Maturity date: the date the investor receives the principal back

back Types of Bonds Corporate Bonds Municipal Bonds Treasury Bills, Notes, Bonds and Treasury Inflation-Protected Securities (TIPS)

back Bond Ratings Generally ratings run from AAA or aaa for the safest to D for the extremely risky. Ratings categorize bonds by default risk. Rating Companies –Standard & Poor’s –Moody’s –Fitch

back What are Mutual Funds? An investment company that pools money from investors to buy stocks, bonds, and other investments. Investors own shares of the fund proportionate to the amount of their investment.

back Why Invest in Mutual Funds? Benefits the Small Investor –Mutual funds allow people with a limited amount of money the opportunity to invest and purchase enough investments to have a fully diversified investment portfolio.

back Advantages of Mutual Fund Investing Diversification Professional Management Minimal Transaction Costs Liquidity Flexibility Service

back Disadvantages of Mutual Fund Investing Lower Than Market Performance Costs –Loads –Management fees –12b-1 fees Capital Gains Distributions

back Types and Objectives of Mutual Funds Money Market Mutual Funds Stock Mutual Funds –Aggressive growth funds –Small company growth funds –Growth funds –Growth and income funds –Sector funds –Index funds –International funds

back Types and Objectives of Mutual Funds Balanced Mutual Funds Asset Allocation Funds Life-Cycle Funds Bond Funds

back Investing for Emergencies Savings Accounts Money Market Accounts Money Market Mutual Funds Short-term Certificates of Deposit

back Investing for Education Qualified Tuition Plans (QTPs or 529 Plans) –Prepaid Tuition Plans –Savings Plans Coverdell Education Savings Account (ESA) Series EE Savings Bonds Traditional IRA Roth IRA

back Investing for Retirement Employer-Sponsored Plans –Defined-Contribution Plans –Defined-Benefit Plans Personal Savings Plans –Traditional IRAs –Roth IRAs

back Investing for Retirement Self-Employed Plans –Keogh plan –Simplified Employee Pension Plan (SEP)

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