Saving & Investing

Achieving Financial Success

What does it mean?

Saving Putting money aside for

future use Investing

Using money so that it earns income

Why should you save or invest?

For major purchases Education, car, home Avoid finance charges

For emergencies Unable to work Repair costs No time to arrange loan

For retirement Meet expenses Supplement retirement

income

Starting Your Savings Program

Set a goal Work towards goal Make saving a habit. Decide what to do

with savings. Decide how to invest

your savings.

Guidelines for Wise Investing

Identify available investment options

Identify your goals

Identify acceptable level of risk for you

Wise Investing – Questions to Ask

What is the risk? The possibility you will lose your investment.

What is the rate of return? the amount of money it earns (yield ) Expressed as % Fixed-rate (unchanging rate of return) Variable-rate (rate changes) Higher rate of return usually means higher risk

Wise Investing – Questions to Ask

How available is the money? Respond to emergencies Liquidity

– how quickly it can be converted to cash Should keep some money in highly liquid

investments

How inflation-proof is the investment? Will earnings keep up with rising costs? Rate of return > inflation rate?

Wise Investing – Questions to Ask

Are there tax advantages? Interest on some government bonds is not

taxable Mortgage interest/ real estate taxes may be tax

deductible Special retirement plans defer taxes until

retirement when income is lower

Wise Investing – Questions to Ask

Will you be comfortable with the investment? Should I take a smaller return for a smaller risk? Should I take a greater risk for a greater return? Will I worry about the safety of the investment? Am I depending on it to fund a future expense? Can I afford to lose all the money I invest? Do I know enough to make an informed decision?

Common Investment Choices

Certificate of Deposit Less liquid

$ must stay in bank for set time period End date of time period = Maturity Date

Higher rate of interest Penalty for early withdrawal Relatively low-risk

Common Investment Choices

Securities – investments sold by corporations and governments to finance growth.

Stocks – sold by corporations to finance expansion Bonds – issued by corporations or government to

borrow large amount of $ for a long time

Stocks - sold by corporations to finance expansion

Shareholders Owner of stock earn $ two ways

Dividends • returns on each share• depends on profit & decisions made by board

of directorsSale of stock

• profit - capital gain• loss – capital loss

Stocks - Continued

2 types Common

all corporations must issue holders help select board of directors holders have voice in mergers, acquisitions and takeovers Holders have no say in dividends or company assets.

Preferred stock gives holders certain privileges dividends paid on it first limited voting privileges smaller role in company’s affairs.

Stocks - concluded

Stock certificate is proof of ownership Stock broker, pay fee for service Can be risky Mutual funds help limit risk

Bonds

Written promises to repay loans Corporate bonds Government bonds

Municipal bonds (considered safe investments) Treasury bills (T bills) – 3 months to 1 year Treasury notes – 2 to 10 years Treasury Bonds – 10 or more years

No fee to purchase or sell

Real Estate Land and all buildings attached to it Reasons to invest in it vary

Considered safe investment by some Represents security to some To make a lot of money To build up equity (difference between value and

amount owed on mortgage) Tax advantages

Types Home Ownership Income Property Undeveloped Property