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Glencoe Personal Finance
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Chapter
Saving and Investing
10
What research and planning can you do
now to help secure your financial future?
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
Saving and Investing
10
When you know about different investment opportunities and
the financial planning process, you will be able to select a
savings or investment program tailored to your goals.
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
Saving and Investing
10
emergency fund
speculative investment
dividends
retained earnings
investment liquidity
equity capital
common stock
preferred stock
corporate bond
Glencoe Personal Finance
government bond
mutual fund
diversification
financial planner
tax-exempt income
tax-deferred income
capital gain
capital loss
prospectus
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
Saving and Investing
10
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 1 Preparing for a Savings or Investment Program
Outline your financial goals and evaluate how they align with
your values.
Summarize ways to prepare for and survive a financial crisis.
Identify sources of money you can invest.
Describe the factors that affect your investment choices.
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 1 Preparing for a Savings or Investment Program
Establishing Your Financial Goals
Plan
Carefully
Have
SelfDiscipline
Be Specific
Have an
Emergency
Fund
emergency fund
savings account that can be accessed quickly to pay for
unexpected expenses or emergencies
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 1 Preparing for a Savings or Investment Program
Performing a Financial Checkup
Preparing for a Financial Crisis
Establish a larger emergency fund.
Know what you owe.
Reduce spending.
Pay off credit cards.
Apply for a line of credit at your financial institution.
Notify creditors if you are unable to make a payment.
Monitor your investments and retirement accounts.
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 1 Preparing for a Savings or Investment Program
Getting the Money Needed to Start an
Investment Program
Sources of Money to Invest
Pay Yourself First
Employer-Sponsored Retirement Plans
Elective Savings Programs
Special Savings Effort
Gifts, Inheritances, and Windfalls
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 1 Preparing for a Savings or Investment Program
Long-Term Investment Programs
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 1 Preparing for a Savings or Investment Program
Making Investment Decisions
A speculative investment could lead to a loss
of the money you invest.
speculative investment
a high-risk investment that might earn a large
profit in a short time
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 1 Preparing for a Savings or Investment Program
Making Investment Decisions
Inflation Risk
Interest Rate Risk
Five
Components of
Risk
Business Failure Risk
Financial Market Risk
Global Investment Risk
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 1 Preparing for a Savings or Investment Program
Making Investment Decisions
Sources of Investment Income
Savings accounts
Certificates of deposit (CDs)
U.S. Savings Bonds
U.S. Treasury bills
Corporate bonds
Preferred stocks
Mutual funds
Real estate
Commodities
Precious metals
Gems
Collectibles
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 1 Preparing for a Savings or Investment Program
Making Investment Decisions
What are retained earnings?
retained earnings
profits that a company reinvests usually for expansion or
to conduct research and development
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 1 Preparing for a Savings or Investment Program
Making Investment Decisions
What is investment liquidity?
investment liquidity
the ability to buy or sell an investment quickly without
substantially reducing its value
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 2 Savings and Investment Options
Describe the two basic types of stock.
Compare corporate bonds and government bonds.
Identify the main goal of real estate investing.
Explain the purpose of diversification.
List the steps involved in developing a personal
investment plan.
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 2 Savings and Investment Options
Types of Investments
What is equity capital?
equity capital
money that a business gets from its owners
in order to operate
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 2 Savings and Investment Options
Types of Investments
Common Stock
Types of Stock
Preferred Stock
common stock
unit of ownership of a company entitling the
stockholder to voting privileges
preferred stock
a type of stock that gives an owner the advantage
of receiving cash dividends before common
stockholders receive cash dividends
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 2 Savings and Investment Options
Types of Investments
Corporate Bond
Types of Bonds
Government Bond
corporate bond
a corporation’s written pledge to repay a specific
amount of money, along with interest
government bond
written pledge of a government of a municipality to
repay a specific sum of money with interest
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 2 Savings and Investment Options
Types of Investments
Where Do Mutual Funds Invest?
Stocks
Bonds
Other Securities
mutual fund
an investment in which investors pool their money to
buy stocks, bonds, and other securities
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 2 Savings and Investment Options
Types of Investments
Questions to Ask Before Investing in a Piece of Real Estate
Why are the present owners selling?
Is the property in good condition?
What is the condition of other properties in the area?
Is there a chance the property will decrease in value?
Will you be able to find an interested buyer?
Can an interested buyer get the financing to buy the property?
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 2 Savings and Investment Options
Evaluating Investment Alternatives
Diversification in Investing Is Important
diversification
the process of spreading assets among several
different types of investments to reduce risk
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 2 Savings and Investment Options
Developing a Personal Investment Plan
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 3 Reducing Risk and Sources of Information
Explain the role of a financial planner.
Describe the actions you should take when managing your
investments.
Identify sources of investment information.
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 3 Reducing Risk and Sources of Information
Financial Planners
Factors to Consider When Deciding if You Need a
Financial Planner
Your
income level
Your willingness to
make your own financial
decisions.
financial planner
a specialist who is trained to offer specific financial help
and advice
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 3 Reducing Risk and Sources of Information
Financial Planners
Types of Financial Planners
Fee-Only
Planners
Fee-Offset
Planners
Fee-and-Commission
Planners
Commission-Only
Planners
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 3 Reducing Risk and Sources of Information
Financial Planners
Basic Services of a Good Financial Planner
Assess your current financial position
Offer a clearly written plan with recommendations
Discuss the plan with you and answer questions
Help you keep track of your progress
Guide you to other financial experts as needed
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 3 Reducing Risk and Sources of Information
Financial Planners
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 3 Reducing Risk and Sources of Information
Managing Your Investments
What Should You Do to Manage Your Investments?
Evaluate
Investments
Glencoe Personal Finance
Monitor
Investments
Think
About Tax
Considerations
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 3 Reducing Risk and Sources of Information
Managing Your Investments
Three Categories of Investment Income:
Tax-Exempt
Income
Tax-Deferred
Income
tax-exempt income
income that is not taxed
Glencoe Personal Finance
Taxable
Income
tax-deferred income
income that is taxed at a later date
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 3 Reducing Risk and Sources of Information
Managing Your Investments
Taxable Income Includes
Dividends
Glencoe Personal Finance
Interest
Income
Rental
Income
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 3 Reducing Risk and Sources of Information
Managing Your Investments
Capital
Gain
capital gain
profit from the sale of
assets such as stocks,
bonds, or real estate
Glencoe Personal Finance
Capital
Loss
capital loss
sale of an investment for
less than its purchase price
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
10
Saving and Investing
Section 3 Reducing Risk and Sources of Information
Sources of Investment Information
Finding Information About Investments
The Internet and Online Services
Newspapers and News Programs
– The Wall Street Journal
Business and Government Publications
– Barron’s, Forbes, Fortune, Harvard Business Review, Money
– The Federal Reserve Bulletin
Corporate Reports
– Prospectus
Statistical Averages
Investor Services
– Standard & Poor’s Stock and Bond Guide, Morningstar Mutual Funds™
prospectus
document that discloses information about a company’s
earnings, assets, and liabilities
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
Saving and Investing
10
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
HIGHER ORDER THINKING QUESTIONS p.347-348:
(see next slide for answers)
2. Explain How could owning real estate cause you to
lose money every month? How could it make money
for you every month?
3. Pose If you have debts, such as credit cards or
student loans, how can you put money in savings or
investments?
4. Compare Describe a demographic group that may
not prefer investment risk. Describe another
demographic group that may be more comfortable with
a greater degree of risk.
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
ANSWERS TO H.O.T. QUESTIONS 2, 3, & 4
2. You could lose money on a vacant lot or rental property that
requires taxes and maintenance.
You could make money on rental property where tenants pay rent
each month. You pay the expenses and keep the difference as the
profit.
3. PRIORITIZE: pay off credit cards and other high-interest loans
before setting aside cash for investment. List all debt and interest
rates on those debts to determine which should be paid first. After
paying off debt research investment options.
4. Averse to risk: people who have had bad financial experiences
(loss in stock market during early 2000s), people close to retirement,
retirees.
More comfortable with risk: high-income earners with firm financial
base, young people with fewer financial responsibilities.
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
H.O.T. QUESTIONS (continued)
(see next slide for answers)
6. Assess Explain which level of the investment
pyramid would be most appropriate for: gold, stock in a
hydroelectric power company, and beachfront rental
property.
8. Justify Assess and defend the importance of
personal investment monitoring.
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
ANSWERS TO H.O.T. QUESTIONS #6 AND # 8
6. (See Investment Pyramid, Slide 10, textbook pg. 323)
Gold: Level 4, because gold is a speculative and therefore risky
commodity.
Power company: Level 2, because utility stocks are generally safe.
Rental: Level 3, because real estate can be risky and should be
reserved for experienced investors.
8. It is in your best interest to track your investments so you can
adjust to changing circumstances. People think they are too busy and
leave their investments to chance, or they think since they have a
financial planner, they think they don’t have to do anything. WHO
CARES MORE, you or your planner…?
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
H.O.T. QUESTIONS (continued)
11. Tima earns $5,000 per month and is saving 8
percent of her earnings in an investment account on
a monthly basis. After twelve months, she
purchased stock with the saved money in her
investment account for $24.00 per share. Six
months later, she sold all of her shares for $26.45
per share. Tima is in the 15 percent tax bracket.
How many shares of stock did Tima purchase?
What was the capital gains tax on her sale of stock?
----
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
ANSWER TO H.O.T. QUESTION 11:
Savings and Tax on Capital Gains
Monthly savings = $5,000 x .08 (8%) = $400
Annual savings = $400 x 12 = $4800
Shares purchased = $4,800/$24.00 = 200 shares
Proceeds from sale = $26.45 x 200 shares = $5,290
Capital gains tax = ($5290 – 4800) x (15%) =
490
x
.15 = $73.50
(profit)
Glencoe Personal Finance
tax bracket
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End of
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.