Copyright 2007 Thomson South-Western Chapter 11 Saving and Investing Options.

Copyright 2007 Thomson South-Western

Chapter 11

Saving and Investing Options

Savings

• Saving is setting aside money to meet future needs

• Some savings should be liquid to handle short-term needs– Savings accounts

– Money market accounts

• Accounts insured by the FDIC are low-risk

11-1 Low-Risk Investment Options

Savings

• Certificates of deposit– The money is set aside for a set time – The money earns a set interest rate– A CD is low-risk (insured by the FDIC)

– A CD is not a liquid investment


Withdrawal Penalty Example


Certificate of DepositAmount Deposited: $5,000.00Interest Rate: 5% yearlyTerm: 5 yearsPenalty for Early WithdrawalIf the money is withdrawn before 5 years, the penalty imposed will equal 365 days’ interest, whether earned or not.Sample Scenario The money is withdrawn after 180 days.

$5,000.00 x 0.05 x 180 / 365 = $123.29 Interest Earned$5,000.00 x 0.05 x 365 / 365 = $250.00 Penalty$5,000.00 Amount Deposited + 123.29 Interest Earned

$5,123.29 – 250.00 Penalty$4,873.29 Amount Received

Investments

• Investments vary in term, risk, and return rates• Low-risk options typically pay lower rates than

those with higher risk – Savings bonds– Corporate bonds– Government bonds– Brokerage accounts– Annuities– Life insurance plans


Building Communications Skills

Bad News Messages• The reader will not find the news favorable • Use an indirect approach• Begin the message with supporting facts• State the bad news in the second paragraph • State the action you want the reader to take• Close the letter on a positive note


Retirement Accounts

• Individual plans– IRA accounts

– SEP accounts

– Keogh accounts

• Employer-sponsored plans– 401(k) accounts

– 403(b) accounts

– Pension plans

11-2 Medium-Risk Investment Options

Portability

• A portable account can be taken with you when you leave a job

• You must be vested to move the account

• Rollover is the process of moving an investment balance to another qualified account


Investments With Medium Risk

• Mutual funds– Operated by professional investment firms– A form of indirect investing– Investors can select the asset allocation


Sample Asset Allocation


ASSET ALLOCATION

Percent of Holdings

Type of Fund Reason for Choice

25% Bond fund For stability and to offset risk of other funds

25% Growth fund To invest in high-risk choices that could grow greatly over time

25% Global fund To benefit from world economic growth

25% Money market fund

To provide liquidity and short-term gains

Investments With Medium Risk

• Family home– Long-term investment – Not liquid– Fairly safe investment – Typically grows in value faster than

inflation


Ethics

Breaking Commitments • Some companies do not fully fund their pension

plans

• Retired workers may not receive the benefits promised

• The Pension Benefit Guaranty Corporation protects American workers with pension plans

• The Pension Protection Act of 2006 sets new rules for pension funding


Technology Corner

Tracking Investments in a Spreadsheet • Using a spreadsheet is a good way to track

investments

• Changes can be shown weekly, monthly, or yearly

• Comparing returns is easy

• Microsoft Excel® has a feature that allows you to

get updated stock quotes in a worksheet


Stocks

• Common stocks

• Preferred stocks

• Direct investing

11-3 High-Risk Investment Options

When you own stock, you have an ownership interest in a corporation.

Business Ventures

• Start a small business

• Invest in a small business

• Business ventures are high-risk

• Returns can be high if the business is a success

• A business plan outlines how a business plans to succeed


Collectibles

• Collectibles are items bought for their investment value

• Examples– Art objects

– Coins

– Decorative plates

– Books

– Baseball cards


Rental Property

• Returns come in the form of rent and increased property value– Apartments– Duplexes– Vacation properties


Rental property can be a profitable investment.

Futures Contracts and Commodities

• Futures contract – An agreement to buy or sell a specific

commodity or currency– A price is set– A date in the future is set for buying or

selling

• Investing in futures contracts and commodities is very risky


Real Estate Investment Trusts

• A real estate investment trust (REIT) is a corporation

• A REIT owns or operates income-producing property

• Investors can buy shares in a REIT (similar to shares in a mutual fund)


Investment Clubs

• Groups of people who pool their money and buy and sell investments

• Direct investing– Individual stocks– Real estate

• Indirect investing– Mutual funds– REIT shares


Focus on...

Day Traders • Day traders attempt to make money by

buying and selling securities

• They hold investments just long enough to make a profit

• They must be very knowledgeable about market conditions and trends


Success Skills

Managing Stress • Stress is a state of mental or physical

tension • Stress is a part of everyday life

• Too much stress can be harmful

• You can learn techniques to help cope with stress


Copyright 2007 Thomson South-Western Chapter 11 Saving and Investing Options.

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Transcript of Copyright 2007 Thomson South-Western Chapter 11 Saving and Investing Options.