Savings and Investment Strategies

1. Chapter 19 CHAPTER 19 Savings and Investment Strategies 19-1 Saving and investment planning 19-2Stock investments 19-3Bonds and mutual funds 19-4Real estate investments 19-5Other investments

2. Chapter 19 19-1 Saving and Investment Planning Goals Explain the basics of saving and investing. Identify types of savings and investments. Discuss factors to consider when evaluating savings and investment alternatives.

3. Chapter 19 Key Terms • saving • investing • yield • liquidity

4. Chapter 19 SAVING AND INVESTMENT BASICS • Savings and investment activities • Determine investment goals • The growth of savings • Interest • Compound interest

5. Chapter 19 Quarterly Compound Interest

6. How does saving influence economic activity? Chapter 19 Checkpoint >> Answer • Saving benefits the economy by making more money available for borrowing by individuals, businesses, and governments. • When this money is spent, demand for goods and services increases, resulting in more jobs and more spending by workers.

7. Chapter 19 SAVING AND INVESTMENT CHOICES • Savings plans • Savings account • Certificate of deposit • Money market account • Securities • Stock investments • Bond investments • Mutual funds

8. Chapter 19 SAVING AND INVESTMENT CHOICES (continued) • Alternative investments • Real estate • Commodities • Collectibles

9. What are the nine main categories of saving and investment alternatives? Answer • Savings accounts • Certificates of deposit • Money market accounts • Stock investments • Bond investments • Mutual funds • Real estate • Commodities • Collectibles Chapter 19 Checkpoint >>

10. Chapter 19 EVALUATING SAVINGS AND INVESTMENTS • Safety and risk • Potential return • Liquidity • Taxes

11. Chapter 19 $100 Invested for 20 Yearsat Different Yields with Annual Compounding

12. Chapter 19 InvestmentPyramid

13. What are four factors to consider when selecting an investment? Chapter 19 Checkpoint >> Answer • Safety • Return • Liquidity • Taxes

14. Chapter 19 19-2 Stock Investments Goals Compare the two major types of stock. Describe the activities involved with buying or selling stock. Identify factors that affect the value of a stock.

15. Chapter 19 Key Terms • preferred stock • common stock • stockbroker • stock exchange • market value

16. Chapter 19 TYPES OF STOCK • Preferred stock • Common stock

17. How does preferred stock differ from common stock? Chapter 19 Checkpoint >> Answer • Preferred stock has priority over common stock in the payment of dividends. • Investing in preferred stock is less risky than common stock, but preferred stockholders generally have no voting rights within the corporation. • Common stock represents general ownership in a corporation and a right to share in its profits. • Common stockholders are entitled to one vote per share. • Although preferred stockholders are paid first, their dividends usually are limited to a set rate.

18. Chapter 19 STOCK TRANSACTIONS • Using a stockbroker • Online investing • Stock exchanges • Changing stock values

19. Chapter 19 Example of Stock Market Quotations

20. What is the purpose of a stock exchange? Chapter 19 Checkpoint >> Answer • The purpose of a stock exchange is to accommodate the buying and selling of securities.

21. Chapter 19 STOCK SELECTION • Stock information sources • Economic factors • Inflation • Interest rates • Consumer spending • Employment • Company factors

22. Chapter 19 PROCESS FOR DECIDING STOCK PURCHASES 1. Observe and analyze economic and social trends. 2. Determine industries that will be affected. 3. Identify companies in those industries. 4. Decide whether to buy, sell, or hold the stock of those companies.

23. How do various economic factors affect stock prices? Chapter 19 Checkpoint >> Answer • Inflation affects stock prices by causing lower spending by consumers, reducing company profits out of which dividends are paid. • Falling or rising interest rates can also increase or decrease company profits as the cost of money changes. • The employment rate also affects stock prices; when more people are employed, they spend more money on a company’s products and stock prices rise.

24. Chapter 19 19-3 Bonds and Mutual Funds Goals List types of government bonds. Describe features of corporate bonds. Describe various types of mutual funds.

25. Chapter 19 Key Terms • municipal bond • corporate bond • mutual fund

26. Chapter 19 GOVERNMENT BONDS • Municipal bonds • U.S. savings bonds • Other federal securities • Federal notes (T-notes) • Treasury bills (T-bills) • Treasury bonds (T-bonds)

27. List the types of bonds issued by the federal government of the United States. Chapter 19 Checkpoint >> Answer • The types of U.S. savings bonds issued by the federal government are Series EE bonds, Series HH bonds, and I bonds. • The federal government also issues Treasury bills and Treasury notes.

28. Chapter 19 CORPORATE BONDS • Bond components • Bond values

29. What affects the value of a bond? Chapter 19 Checkpoint >> Answer • The value of a bond is affected by changing interest rates. • If the bond’s stated rate is lower than interest rates on similar bonds, investors will want to buy the bond for less than its face value. • If the bond’s stated interest rate is higher than interest rates on similar bonds, the seller of the bond will want to receive more than its face value.

30. Chapter 19 MUTUAL FUNDS • A mutual fund is an investment fund set up and managed by companies that receive money from many investors.

31. Chapter 19 TYPES OF MUTUAL FUNDS • Aggressive-growth stock funds • Income funds • International funds • Sector funds • Bond funds • Balanced funds

32. Chapter 19 MUTUAL FUND VALUES • Shares of the mutual fund • Value of each share • Net asset value (NAV) • Operating expenses • Earnings

33. What are the main types of mutual funds? Chapter 19 Checkpoint >> Answer • The main types of mutual funds are aggressive-growth stock funds, income funds, international funds, sector funds, bond funds, and balanced funds.

34. Chapter 19 19-4 Real Estate Investments Goals Describe home buying activities. Explain the benefits of home ownership. Discuss the costs of home ownership.

35. Chapter 19 Key Terms • real estate • mortgage • equity • assessed value

36. Chapter 19 SELECTING HOUSING • Renting your residence • Owning a mobile home • Buying a home • Services of real estate agents • Other real estate professionals • Buying a condominium

37. What are four available housing alternatives? Chapter 19 Checkpoint >> Answer • Renting • Owning a mobile home • Buying a traditional home • Buying a condominium

38. Chapter 19 BENEFITS OF HOME OWNERSHIP • Tax benefits • Increased equity • Pride of ownership

39. What are the main benefits of home ownership? Chapter 19 Checkpoint >> Answer • Tax benefits • Increased equity • Pride of ownership

40. Chapter 19 COSTS OF HOME OWNERSHIP • Property taxes • Interest payments • Property insurance • Maintenance

41. What are common costs of home ownership? Chapter 19 Checkpoint >> Answer • Common costs of home ownership are property taxes, interest payments, property insurance, and maintenance.

42. Chapter 19 19-5 Other Investments Goals Discuss types of commodity investments. Explain the use of collectibles as an investment.

43. Chapter 19 Key Terms • commodities • futures contract • collectibles

44. Chapter 19 COMMODITIES AND FUTURES • Commodity exchanges • Agricultural commodities • Gold, silver, and precious metals • Currency and financial instruments

45. What types of commodities are commonly used with futures contracts? Chapter 19 Checkpoint >> Answer • Types of commodities commonly used with futures contracts are agricultural commodities, such as grain and livestock, and precious metals.

46. Chapter 19 COLLECTIBLES • Types of collectibles • Collectible values

47. What are common types of collectibles? Chapter 19 Checkpoint >> Answer • Common types of collectibles are stamps, coins, sport trading cards, and antiques, as well as unusual items purchased as investments.