Saving and Investing for Students

Capital Gain
—
This is the profit that comes when an investment 
is sold for more than the price the investor paid to buy it. 
Cash
—
Money that can be used to pay for goods or services. Cash 
equivalents or “near cash” items are very safe holdings that can be 
easily converted to cash. 

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SAVING AND INVESTING
Certificate of Deposit
—
Interest-bearing accounts offered by 
banks and savings and loans, which are federally insured. CDs are 
like savings accounts but pay higher interest rates in exchange for 
tying up money for a set amount of time, which can be a period of 
months or up to five years. If the money is removed before the CD 
matures, the account holder will be subject to a financial penalty. 
Commission
—
The fee paid to a broker to execute a trade, some-
times based on the size of the order and/or its dollar value. Dis-
count and online brokerage firms may charge the same flat fee to 
execute trades, regardless of how large or small the order is.
Compound Interest
—
Interest paid on principal and on accu-
mulated interest. 
Diversification
—
Dividing investments among different kinds of 
assets, such as stocks and bonds, with different risks and rewards, so 
as to minimize the potential harm from any one asset.
Dividends
—
A portion of a company’s profit paid to sharehold-
ers. Public companies that pay dividends usually do so on a fixed 
schedule although they can issue them at any time. Unscheduled 
dividend payments are known as special dividends. 
Exchange Traded Fund
—
A
security that tracks price changes for 
an index, such as the Standard & Poor’s 500 Index, or a commodity 
or a basket of assets, and which trades like a stock on an exchange.