road to financial maturity investing & retirement vocabulary

Road to Financial MaturityInvesting & RetirementInvesting & Retirement

VocabularyVocabulary

Investing

Defined: In finance, the purchase of a financial product or other item of value with an expectation of favorable future returns. In general terms, investment means the use money in the hope of making more money.

The Rule of 72• The Rule of 72 is a guideline for determining how many years it will take an investment to double in value.• To calculate the number of years required for an investment to double in value, divide 72 by the annual percentage rate (APR)

Example:If you invest $1,000 at 3 percent interest, how long will it take for your money to double?• 72/3= 24 years to $2,000

How long will it take $10,000 to double at 8% interest?• 72/8= 9 years to $20,000

That is the power of compound interest!

Types of Investments

To learn about various types of investments and their advantages and disadvantages go to: http://library.thinkquest.org/3096/2types.htm

“Be nice to your future self and save for retirement!”

• 401(k): defined contribution plan offered by a corporation to its employees, which allows employees to set aside tax-deferred income for retirement purposes; in some cases, employers will match their contributions.

• Individual retirement Account (IRA): tax-deferred arrangement for individuals with earned income and their non-income-producing spouses; growth is not taxed until money is withdrawn; contributions to an IRA are often tax-deductible.

• Roth IRA: retirement account funded with after-tax dollars that subsequently grows tax free.

• Additional investment/retirement terms and definitions are available here: http://www.investopedia.com/terms/t/taxdeferred.asp