Investment Terms You Should Know

So, you’re ready to dip your toe in the world of investing. Whether you are looking to invest for a short-term goal, such as a vacation or new car, or a long-term goal, like college for your toddler or retirement, it’s a good idea to get familiar with a few industry terms first.

Short-term investing
Take the first step with a short-term investment such as a certificate account. Open one at a branch or at macu.com through our online branch. Here’s what you need to know:

Certificate account: A low-risk cash investment held for a fixed amount of time, typically 6 to 60 months, at a predetermined dividend rate. This product is also known as certificate of deposit (CD) at many banks.
 
Fixed term: A set time period for which an investment will accrue dividends.
 
Fixed rate: A dividend rate that is locked in at the beginning of the investment period.
 
Bump-up: A one-time option to increase the dividend rate to match current rates during the life of a certificate.
 
Yield: The income earned on an investment.
 
Maturity date: The date at which an investment can be cashed out or transferred into a new investment option.
 
Annual percentage yield (APY): The total dividends a deposit account can earn in a year.
 
Dividend rate: The total expected distribution from an investment, fund or portfolio, this includes earned interest and any additional non-recurring dividends.
 
Truth in Savings Act: A federal law passed by Congress in 1991 that established uniform guidelines for how financial institutions disclose information about deposit accounts. The law promotes competition between depository institutions and makes it easier for consumers to compare interest rates, fees and terms.

Long-term investing
Take your investment strategy further by thinking about retirement planning. These terms can help as you begin: 

Compound interest: The process in which interest is added to interest and the principal sum of a deposit over time. For example, $5,000 invested each year for 40 years ($200,000 total) at an average rate of 6% per year becomes over $820,000!
 
Asset allocation: This strategy seeks to balance the risk and return of funds by dividing investments into various profiles based on an investor’s timeframe and goals. Funds can be divided into cash, bonds or stocks, each holding different levels of risk.
 
Bonds: A loan an investor makes to a corporate or governmental entity for a fixed term in exchange for a variable or fixed interest rate.
 
Stocks: Represents ownership in a given publically-traded company. The company’s growth and performance will correlate to the stock’s value.
 
Mutual fund: A professionally managed pool of money collected from many investors to buy a group of stocks, bonds or other securities. This spreads risk across a variety of companies or industries.
 
Variable rate: A dividend rate that adjusts depending on the benchmark interest rate.
 
Liquidity: The degree to which an asset or security can be turned into cash without affecting the asset’s price.

For more information on investing, visit a branch or check us out online. Our advisors would be happy to meet with you to explore your financial planning options.