Download Chapter 6- 2013

Chapter 6
Saving & Investing
Deciding to Save
There are many reasons to save:
 for purchases that require more
funds than you usually have at one
time.
 in case of emergencies.
 for your retirement.
When an individual saves, the economy
as a whole benefits.
 Saving provides money for others to invest
or spend.
 Saving also allows businesses to expand,
which provides increased income for
consumers and raises the standard of
living.
Savings
Setting aside income for a period of
time so it can be used later.
 Where to save ?
 Where money can grow (interest)
FDIC- (Federal Deposit Insurance
Corp.)- the federal government
guarantees the safety of your
deposits in member banks up to
$250,000.
Interest- the payment
people receive when they
lend money or allow
someone else to use their
money.
The Power of Compounding
Compounding- the ability of an investment
to generate earnings that can be
reinvested to earn still more earnings.
Compound Interest- interest paid on the
original amount deposited in saving
accounts, but also on all interest earned by
those savings.
$1000- 6% interest
1st year- $60 ($1,000 X 0.06)= $1060
2nd year- $63.60 + $1060= $1,123.60
Rule of 72
To find the number of years required to double
your money at a given interest rate, you divide
the compound return into 72. The result is the
approximate number of years that it will take
for your investment to double.
For example, if you want to know how long it
will take to double your money at 12% interest,
divide 12 into 72 and you get six years.
Savings Accounts
Money Market-account that pays
relatively high interest rates,
requires a minimum balance, and
allows immediate access to money.
Certificates of Deposit (CD’s)savings plans that require savers to
leave their money on deposit for
certain periods of time.
• Low Risk
• Can open with as little as $1000.
• You agree you won’t touch money
you deposited for a specific period of
time.
Maturity-period of time at the end of
which time deposits will pay a stated
rate of interest.
Stocks- Investors buy shares, each
of which is a unit of ownership in
the company. Shareholders receive
a portion of the company’s profit in
the form of dividend.
• Risk is high
• Return is high
Stocks lose value if the company
loses money.
The Dow- Dow Jones & Co.- Stock market
index that shows how 30 large publicly owned
companies based in the United States have
traded.
Standard & Poor’s (S&P) -Stock market index
based on the market capitalizations of 500
leading companies publicly traded in the U.S.
stock market, as determined by Standard &
Poor's.
NASDAQ- Stock market index that shows both
U.S. and non-U.S. companies.
Bonds- a certificate issued by a
company or the government in
exchange for borrowed money.
Government Bonds- Investors loan
the government money by buying a
bond and are paid back with interest
after a fixed period of time.
• Savings Bonds
• Low Risk
• Low Return
Corporate Bonds- Investors loan money
to a company by buying a bond
and are paid back with interest after a
fixed period of time.
• Increased risk because companies
can, and do, go out of business.
• Risk-Moderate
• Return- Moderate to High
Mutual Fund- Collections of stocks
and bonds that are professionally
managed. They help investors
diversify (spreading of investments
in several different types of accounts
to lower overall risk.)
• Money Market Fund- uses
investors’ money to buy the
short-term debt of businesses and
banks
Pension Plans-company plans
that provide retirement
income for their workers
401(k)- is most common
company retirement plan.
• Money is taken out of an
employee’s paycheck and put
into a retirement account.
• Employers often match all
or part of an employee’s
contributions.
Other Retirement Plans
IRAs (individual retirement account )-private
retirement accounts sponsored
by the government. Individuals can deduct
IRA contributions from taxable incomes or
take the money out tax free when they retire.
$5,500/$6,500 Seniors.
Keogh Plan- people who are self-employed
can set aside a specified amount each year
and deduct that amount from their yearly
taxable income.
Social Security- government
program provides cash payments
to retired workers.
• Taxes paid by workers and
employers fund social security.
• It is a pay-as-you go system.
Taxes paid now go to current
retirees.
Real Estate
Buying a House
Investment Brochure