PF Midterm Study Guide

What is a Credit Report?

A detailed report of an individual's credit history prepared by a credit bureau
and used by a lender to in determining a loan applicant's creditworthiness.
Includes borrowing and bill paying history.
Get a free credit report from: * be careful of free
o annualcreditreport com
o creditkarma.com
o Open a discover card
o Open a capital one account

FICO Credit Score: A score between 300 and 850 that measures how likely
you are to repay a loan. >600/650 will get you a loan >700 Loans still
competitively priced >750 Best terms. Higher FICO scores mean lower
interest rates.
Mutual Fund A pool of assets (stocks, bond and other securities) owned by a
group of investors and owned by a professional investment company.
Hidden Fee in Mutual Fund: 12B1 Fee, Internal Expense Fee
Net Worth = Assets (cash, stocks, home, car) Liabilities (loans, mortgages,
credit card balalnces)
Emerging Market: An emerging market is a country that has some
characteristics of a developed market, but does not meet standards to be a
developed market. An economy with low to middle per capita income.
o China
o India
o Russia
o Turkey
o S. Korea
o Poland
o Taiwan
o Indonesia
o Brazil
o Mexico
Benefits of a 401K:
o Matching Contributions: Many employers will match a portion of your
savings. Its basically free money
o Tax-Deferred Earnings: your contribution comes out of your paycheck
before income taxes are deducted. That means your taxable income is
less (tax break!)
o Loans: borrow from your account for specific reasons
o Tax Deferred Growth
If your credit card is stolen provided you inform company within 48 hrs then
max loss is usually $50. You can also contest unauthorized credit card
payments

Rule of 72: Time it takes to double your money (portfolio) = 72 8%

(expected return) regardless of starting balance
Rebalancing: The process of realigning the weightings of one's portfolio of
assets by buying or selling assets/funds in your portfolio to adjust back to
your original desired level of asset allocation.
o (For example, say your original target asset allocation was 50% stocks
and 50% bonds. If your stocks performed well during the period, it
could have increased the stock weighting of your portfolio to 70%. You
may then decide to sell some of your stocks and buy bonds to get it
back to your original target allocation of 50/50.)
Advantages of common stock vs preferred stock:
Top 3 widely held stocks in mutual funds, trust bank a/cs and individual
portfolios:
o Google 30%
o Apple 23%
o Microsoft 21%
o JP Morgan Chase 17%
o Johnson and Johnson 17%
o Wells Fargo 16%
Advantages of Common Stock Vs Preferred Stock:
o Can increase dividends
o Voting rights for shareholders
o Can enjoy possible stock splits or even takeovers
Common stock dividends are paid quarterly
Dollar Cost Averaging: fixed amount of money invested each time/month
buy more hsares when prices are low and less when prices are high. In the
end avg cost per share will be less. Turns fluctuations of the market into an
advantage
When Investing:
o Due diligence (An investigation or audit of a potential investment)
o Transparency (ability to know all of the bid prices, ask prices, and
trading quantities for a given stock, good, or service at any point in
time)
o Diversify your portfolio of stocks and mutual funds (investing in
various companies across different sectors, industries or even
countries)
The Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 per
depositor, per insured bank, for each account ownership category
Consumer spending increases employment, stock prices and dividends
A mutual fund prospectus is a document detailing the investment objectives
and strategies of a particular fund or group of funds, as well as the finer
points of the fund's past performance, managers and financial information.
Stock Split - an issue of new shares in a company to existing shareholders in
proportion to their current holdings.
A companys board of directors determine the stock splits, dividend
increases, changes in management etc
The best source for picking mutual funds is the morning star report

Debit cards are convenient and interest free but avoid using it for online
purchases, tickets, hotels, car rentals
ETF Like a mutual fund but fees are less, trade during the day and can
purchase a smaller number of shares