LEVEL 1 GLOSSARY
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Bonds
When you buy bonds, you're basically lending money to municipalities, states, and other government entities, which they use for construction projects and other fun stuff. They then pay you back with interest. These aren’t the biggest money makers, but bonds are fairly stable for those of you who think “risk” is a dirty word.
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NASDAQ
It's known as The National Association of Securities Dealers Automated Quotation System, but suffice to say this stock exchange is one of the biggies.
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Return
Gain (or loss) from an investment. Unless you're fiscally masochistic, you're going to cross your fingers for a gain.
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Revenue
The money generated from sales. If you own a lemonade stand and charge 25 cents per cup, add up all the sales for the day and—voila!—that's the revenue (just to keep you on your toes, sometimes people just refer to this as sales).
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Stock
This is your piece of the corporate pie, and it entitles the holder to a share of assets and earnings.
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Bull Market
Like a bull charging forward, a “bull market” is typically a market on the upswing. Olé!
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Debt
It's a bad word in personal finance, but it's pretty common in the corporate world. This is the money that a company owes to a lender.
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Dow Jones Industrial Average
The grandaddy of them all when it comes to indices only because it’s the oldest and most popular—not the largest or most representative. The Dow only represents the prices of 30 largest and most widely held companies in the U.S.
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IPO
Short for Initial Public Offering, this is a private company's way of saying, "Do you want a piece of this?" This is when a company offers shares to the public to get more dough to grow the business. Also known as "going public."
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NYSE
The New York Stock Exchange, a.k.a. Wall Street, is where stocks are bought and sold.
See full glossary
In Level 1 we'll introduce you to some of the basic concepts of investing. Each concept features a brief description and a case study, so you can see how each concept works in what financial analysts call "the real world." When you've mastered a concept, click the link at the bottom of the page to add it to your Report Card and move to the next one. Master all the concepts in each level, and then take the quiz to see just how smart you are.
- What is money?
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The uses of money
- Function of a bank
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What is a company?
- Is that company any good?
- How companies make money
- Brands
- Stocks vs. bonds
- What is a stock?
- Compounding interest
- What is the market?
- LEVEL 1 QUIZ
Stocks vs. bonds
What we'll learn:
1) Why a bank is better than your mattress
2) Why you should be thankful for all those savings bonds
3) How a stock is like a baseball player
We know you're undoubtedly dying to go out and buy that 50-inch plasma flat-screen HD TV. If you have the money, go ahead. But you know you should probably save some money, too.
You have a few choices: One choice is to keep your cash in your piggy bank (or tucked under your mattress). Another choice is to take it to the bank down the block, which is guaranteed by the federal government.
Not only is your money in this bank protected by FDIC insurance (up to a point), but it will grow in value as well.
So your $100 in that piggy bank will stay at exactly $100 — if your greedy friends or nosy kids don't get to it first. But at a real bank, a deposit of $100 will be worth about $104 at the end of the year. You'll be $4 better off, and your money will be guaranteed.
OK, fair enough. But what else is there to do? Because while $4 at the corner bank is nice, a bank that delivers a higher rate of return might be worth a look.
So in addition to banks, there are bonds, which some of us received as gifts for elementary-school graduation or first Communion. Called bonds, notes, or T-bills, these are issued by the U.S. Treasury or corporations. When you give your money to a bank for safe-keeping, they return a fixed amount.
But when you buy a bond, you give your money to the government, the state, or a company, and they agree to pay you back a fixed percentage.
These rates fluctuate, but you lock in your rate when you make the investment — sort of like signing a car loan. A month after you buy a car, you may be able to get a different loan rate, but you're locked in at where you signed on the dotted line.
Now, what if you had the opportunity to invest in a company, but instead of earning a predetermined return on your investment, your profit depended on how well (or how poorly) that company performed? Essentially, that's a stock.
A stock is similar to a bond at the outset, as investors loan money to the companies. The key difference is that stock buyers don't know their return rate in advance, and there is no guarantee that they will even make a profit. Yes, the return could be higher than $4 — it could be $20, $40, or even $200.
Historically, the companies that make up the U.S. economy have earned about three percent higher than bonds.
But it could also be a negative return. Swing for the fences, and you sometimes strike out.
Three Facts to Wow Your Friends at a Party
1) The first publicly traded securities in the U.S. were $80 million in U.S. Government bonds that were issued in 1790 to refinance Revolutionary War debt.
2) The oldest Dow Jones Industrial Average component is General Electric (GE), which was added in November 1907.
3) The first stock ticker was invented by Edward A. Calahan in 1867.
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