Investing: Vocabulary 2

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Compound Return

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The growth of an investment where earnings, such as dividends or interest, are reinvested to generate additional earnings over time.

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Diversification

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The practice of investing in a large variety of stocks, bonds, and/or funds as a way to reduce your overall risk.

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Dividend

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Money from the profits of a company that is paid out to its shareholders, typically on a quarterly basis.

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Exchange-Traded Fund (ETF)

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A collection of stocks and/or bonds that are traded on securities exchanges. Unlike mutual funds, they can be traded throughout the day like an individual stock.

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Index Fund

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A low-fee portfolio of stocks chosen to track or mimic a stock market index, thereby removing the human element of investing because no one is choosing the individual stocks.

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Individual Retirement Account (IRA)

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An investing tool for individuals to earmark funds specifically for their retirement.

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Inflation

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The rate at which the price of goods increases and consumer purchasing power decreases over time.

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Investing

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The process of setting money aside to increase wealth over time for long-term financial goals such as retirement.

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Investment

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An asset or item that is acquired with the goal of making a profit

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Municipal Bond

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A bond, often having tax advantages for individual investors, issued by a state or local government which typically uses the loan to pay for public works to benefit its citizens