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FUNdamental Investing Terms

We know investing and financial planning can be perplexing, overwhelming and not FUN. But, that’s why we’re here! Do you need help getting started? Feel overwhelmed? Let’s start at the beginning by looking at some FUNdamental investing terms and what they mean.

IPO: Initial Public Offering is when an entrepreneur decides to raise money for a venture and looks to outside investors to do so. The company will divide itself into pieces or “shares.” The shares are then sold to investors (like you) as “stocks.”

Shareholder: When you purchase stock in a company, you become a shareholder or partial owner of that company.


Stock Market: The stock market lets buyers and sellers negotiate prices for different stocks and bonds for various companies through a network of exchanges, such as the NY Stock Exchange, Nasdaq, Dow Jones and others.

Bonds: Bonds serve as long-term IOUs issued by federal, state and local governments, agencies of the U.S. government or corporations. When you purchase a bond, you are financing a loan to the bond issuer. The borrower then pays interest to you, the lender. (Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.)


Annuities: Annuities are contracts with insurance companies. In exchange for a premium or a series of premiums, the insurance company agrees to make regular payments to the contract holder to use immediately or in the future. With an annuity, you can receive payments monthly, quarterly or annually. (Fixed and variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.)


Retirement Plans: There are numerous retirement plans depending on your employer and your financial goals. Some plans include IRAs, 401(k)s, Roth IRAs, pensions, 403(b)s, SIMPLE plans and profit sharing.


Social Security: Social Security is another source of retirement income. The government created it as a self-financing program to collect payroll taxes from workers and then immediately pay out to retirees. If you have questions about Social Security, join us on Thursday, May 12 at 5:30 PM to learn more.


Our goal at Sterling Financial Management is to help you understand your finances and make the process feel less intimidating and overwhelming. Our advisors are all down-to-earth, knowledgeable and strive to help you meet your financial goals.


We also believe strongly in offering various educational opportunities throughout the year. Be sure to visit our Events page for a list of the different educational offerings we provide our clients and the community.

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