Download Savings and Investment

T009-01.01
9.01
Summarize the various types of
short-term and long-term investments.
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Investing
 Putting
your money to use in order to make
money on it.
 Simple Interest vs. Compound Interest
 Simple – interest that is computed only on the
amount saved.
 Compound – interest that is computed on the
amount saved plus interest previously earned.
 Securities refers to bonds, stocks, and other
documents sold by corporations and
governments to raise large sums of money.
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 Savings
is money put aside for future use.
 Most common reasons to save are:
–Major purchases
–Emergencies
•Saves money for a “rainy day”
–Retirement
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Investing Through Banks
•Savings Account
–Simplest form of saving
–Offered by all institutions (banks, credit unions, etc.)
–Generally, a low minimum deposit is required
–Interest is low and varies from institution to institution
•Certificate of Deposit
–Requires a minimum deposit for a minimum amount of time
–Interest rates are higher than a savings account
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Investing Through Banks
Continued
 Money
Market Fund
–Kind of mutual fund, or pool of money, put into a
variety of short-term debt by business and
government.
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9.02 Summarize the investing in stocks and bonds.
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Investing in Bonds
 Bonds

Promise to pay a definite amount of money
at a stated interest rate on a specified
maturity date.
 Bondholder

Individual who lends money to a
corporation.
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Bond Terms
 Face

Value
Amount being borrowed by the seller of the
bond.
 Coupon

Rate
Rate of interest on the bond.
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Types of Bonds
 Corporate


Issued by corporations
Used to finance buildings and equipment.
 Municipal


Bonds
Bonds
Issued by local and state governments.
Used to finance schools, roads, airports, etc.
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Types of Bonds
 Treasury
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Bonds
 Issued
by federal government.
 Known as Savings or Federal Bonds
 Types:
 Series


EE Bonds
Cost half the face value.
After a specified number of years the bond becomes
worth the face value.
 Treasury

Issued for three months to one year.
 Treasury

Notes
Issued for two to ten years.
 Treasury

Bills
Bonds
Issued for ten or more years.
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Investing in Stocks
 Stock

Share of ownership in a business.
 Stock

Certificate
Proof of ownership in a corporation
 Market

Value
Price at which a stock can be bought or
sold.
 Dividends

Part of profits shared with stockholders.
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Types of Stocks
 Preferred


Priority over common stockholders in the
payment of dividends.
No voting rights.
 Common


General ownership in a corporation and a
right to share in the corporation’s profits
Right to vote at shareholder meetings

One vote per share.
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Reading a Stock Quotation
Table
 52
Week Hi – Highest price during previous
52 weeks
 52 Week Lo – Lowest price during previous
52 weeks
 Stock – Company name abbreviated
 Stock Symbol – Ticker symbol
 Dividend – Current dividend in dollars per
share based on the last dividend paid
 Yield – Dividend yield based on the
current selling prices per share
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Reading a Stock Quotation Table
 PE – (Price/Earnings ratio, comparing the price of
the stock with earnings per share).
 Volume – Number of shares traded.
 High – Highest price during the day.
 Low – Lowest price during the day.
 Close – Closing price for the day.
 Net Change – Change in the closing price today
compared with closing price on the previous
day.
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Typical transactions follow these steps:
1. Account executive receives your order to sell stock
and relays to the brokerage firm’s representative at
the stock exchange.
2.
Floor broker (buyer) goes to the trading post at which time
this specific stock is traded. It is traded with the floor
broker (seller) who has an order to buy.
3. A clerk signals the transaction to a floor broker on the
stock exchange floor.
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4. Floor broker (buyer) signals the transaction back to the
clerk. Then a floor reporter – an employee of the
exchange – collects the information about the transaction
and inputs it into the ticker system.
5. The sale appears on the price board, and a confirmation is
relayed back to your account executive, who then notifies
you of the completed transaction.
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Brokerage Firm
Sells stocks for consumers
 Broker

Person who acts as a go between for
buyers and sellers of securities.
 Commission

Fee charged by a brokerage firm for the
buying and/or selling of a security.
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Stock Exchanges
 Marketplace
where brokers who
represent investors meet to buy and sell
securities.
 Examples:




NYSE
NASDAQ
AMEX
Exchanges in San Francisco, Boston,
Chicago
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Types of Markets
 Bull

Market
Occurs when investors are optimistic about
the economy.
 Bear

Market
Occurs when investors are pessimistic about
the economy.
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Numerical Measures for a
Corporation
 Current

Yield
Annual dividend divided by current market
value.
 Price/Earnings

Ratio
Price of one share of stock divided by the
earnings per share.
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Selling a Stock
 Total

Return
Calculation that includes the annual dividend
as well as any increase or decrease in the
original purchase price of the investment.
 Capital

Profit from the sale of an asset such as stocks,
bonds, or real estate. Taxed as income.
 Capital

Gains
Loss
Sale of an investment for less than its purchase
price. Subtract up to $3,000 in losses from your
income.
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9.03 Summarize other types
of investments.
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Investing Through Insurance
 Life

Insurance
Cash-value insurance provides both savings and
death benefits.
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Investing in Your Future
 Pension

Series of regular payments made to a retired worker under
an organized plan.
 Individual


Retirement Account (IRA)
Tax sheltered retirement plan in which people can annually
invest earnings.
Types:
 401k or 403b contributions are tax deductible and funds
are taxed as regular income when they are withdrawn
after age 59 ½.
 Roth IRA contributions are not tax deductible, but
investment gains and all funds on which taxes are
prepaid are tax free when they are withdrawn after age
59 ½.
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Investing in Your Future
 Annuity

Amount of money that an insurance company will
pay at definite intervals to a person who has
previously deposited money with the company.
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Investing Through Other Sources
 Real



Estate
Land and anything that is attached to it.
Mortgage
 Legal document giving the lender a claim against the
property.
Home Equity
 Difference between the price at which you could
currently sell your house and the amount owed on the
mortgage.
 Appreciation – general increase in value of a property.
 Depreciation – general decrease in value of a property.
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Investing Through Other
Sources
 Types
of Property

Undeveloped Property (Land)
 Unused

land intended only for investment purposes.
Commercial Property
 Land
and buildings that produce lease or rental
income.

Real Estate Investment Trusts (REITs)
 Works
like a mutual fund.
 Combines funds to invest in real estate.
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Collectibles
 Items
of personal interest to collectors.
 Rare coins, works of art, antiques, stamps,
rare books, comic books, sports
memorabilia, rugs, ceramics, paintings,
and other items that appeal to collector
and investors.
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Commodities
 Include
grain, livestock, precious metals,
currency, and financial instruments.
 Futures

Commodity contract purchased in
anticipation of higher market prices for the
commodity in the near future.
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Investing With Others
 Investment

Small group of people who organize to
study stocks and to invest their money.
 Mutual

Clubs
Fund
Created by an investment company that
raises money from many shareholders and
invests it in a variety of stocks.
 Limit
risk by diversifying investment.
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Speculative Investment
 Speculator

One that has an unusually high risk.
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9.04 Analyze the factors that affect the rate of return on
a given savings or investment plan and calculate the
rate of return.
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Savings Plan
 Putting
money aside in a systematic order.
 Ways to put money aside:



Regular deposit
Automatic deposit
Electronic funds transfer
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Starting a Program
 Factors
 Safety
T009-04.03
determining a program
 Assurance
that the money you have invested will be
returned to you.

Liquidity
 Ease
with which an investment can be changed into cash
without losing any of its value.

Yield
 Rate
of return (percentage of interest that will be added to
you r savings over a period of time).

Diversification
 Process
of spreading your assets among several different
types of investments to lessen risk.
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Factors That Affect the
Rate of Return on an
Investment
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 Risk
- Chance of loss.
 Rate of Return (yield)
 Amount
of money the investment earns.
 Compounding frequency is the interest
computed on the amount saved plus the interest
previously earned.
 Liquidity
 Ease
with which an investment can be changed
into cash.
 Resistance
 Will
 Tax
to inflation
rate of return keep
up with inflation?
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considerations
Factors that Affect the
Selection of Financial
Institutions
 Services
offered
• Business hours
• Location
• On line services
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Financial Security Investments
(low risk)
 Cash
 Savings
Accounts
 Money Market Accounts
 Certificate of Deposit
 US Government Bonds
 Retirement Accounts
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Safety and Income
Investments
 US
Treasury Securities
 Conservative Corporate Bonds
 State and Municipal Bonds
 Income and Utility Stocks
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Growth Investments
 Income
and Growth Stocks
 Mutual Funds
 Real Estate
 Convertible Bonds
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Speculation Investments
(high risk)
 Options
 Commodities
 Precious
Metals and Gems
 Speculative Stocks
 Junk Bonds
 Collectibles
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Calculating Rate of Return
 Rate
of Return = Total Interest Earned divide by
Original Deposit
 Example:


If you deposited $100 in account that paid $6.18
interest for one year. What is the rate of return?
$6.18/$100 = .0618 = 6.18%
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9.05 Analyze how saving
and investing influences
economic growth.
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Savings and Economic Growth
 Individual


savings allow:
Businesses to expand and create more jobs.
Demand for goods and services to increase.
 Failure
to save will cause less money to be invested
and the economy may slow as a result.
 Savings contribute to our economic stability
 Government uses savings to build highways, schools,
and public services
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9.06 Describe wills and
other legal documents.
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Wills
 Legal
document that specifies how you
want your property to be distributed after
your death.
 Intestate
 Die
without a legal will
 State will step in and control the distribution of
your estate.
 Probate
 Legal
procedure of proving a will to be valid or
invalid.
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Wills
 Simple

Leaves everything to your spouse
 Formal

Will
Will
Prepared by an attorney.
 Holographic


Will
Handwritten will that you prepare yourself
Needs to be written, dated, and signed
entirely in your own handwriting.
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Other Legal Documents
 Trusts
 Legal
arrangement that helps manage
the assets of your estate for you benefit
or that of your beneficiaries.
 Living
Will
 Document
in which you state whether
you want to be kept alive by artificial
means if you become terminally ill and
unable to make such a decision.
 Power
 Legal
of Attorney
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document that
authorizes
someone to act on your behalf.
Guardian
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Person who accepts the responsibility
of:
1. Providing children with personal
care
after their parents’ death
2. Managing the parents’ estate for
the
children until they reach a
certain age
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9.07 Explain how agencies
regulate financial markets
and protect investors.
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Regulators
Securities
and Exchange
Commission (www.sec.gov)

Protect investors and maintain the integrity
of the securities markets.
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Regulators
NASD



(www.nasd.com)
Registers member firms, writes rules to
govern their behavior, examines them for
compliance and disciplines those that fail
to comply.
Largest private sector provider of financial
regulatory services.
Has helped bring integrity to the markets
and confidence in investors.
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Protecting Investors
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 Department
of the Secretary of State
(www.secretary.state.nc.us /sec )
 State Securities Laws
 Known
as “blue sky” laws
 Intent of laws is to protect the investing public
by requiring a satisfactory investigation of both
the people who offer securities as investments
and of the securities themselves.
 Securities division addresses investor
complaints concerning securities brokers and
dealers , investment advisers and commodity
dealers as well as complaints about offerings
of particular investment
H101 vehicles.