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Saving and Investing

Saving and Investing. Why Save? And How?. Teacher/Parent Interview. Do you have a written budget? What strategies do you use to allocate your financial capital(money)? Do you have a plan to save money? What are the biggest obstacles to saving money? Do you have any investment accounts?

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Saving and Investing

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  1. Saving and Investing Why Save? And How?

  2. Teacher/Parent Interview • Do you have a written budget? • What strategies do you use to allocate your financial capital(money)? • Do you have a plan to save money? • What are the biggest obstacles to saving money? • Do you have any investment accounts? • Give one example of an investment account that you use.

  3. Key Vocabulary • Disposable Income • Discretionary Income • Fixed Expenses • Variable Expenses • Tradeoffs • Opportunity Cost • Budget

  4. Why? • Large Annual or Semi-annual Payments • Examples: • Car insurance • Property Taxes • Vacation / Christmas

  5. Why? • Unexpected Expenses • Examples: • Speeding ticket • Car trouble • Home repairs

  6. Why? • Major Purchases • Examples: • Car • Furniture / Appliances • Engagement Ring • Down Payments

  7. Why? • Future Expenses • Examples: • Children • College • Retirement • Funeral

  8. Why? • To accumulate wealth

  9. How? 1. Savings Account • Low interest • High Liquidity • FDIC protected • Emergency Fund • Life Change Fund

  10. How? 2. Money Market • Little more return (yield) than SA • Less liquid • Limits on withdraws • Minimum balances • Can write checks

  11. How? 3. Time Deposits • Examples: CD, Savings Bonds, Gov’t Securities • Time requirements called maturity dates • Longer the maturity date or higher the minimum balances the higher the yield.

  12. Savings Bonds • Pay less than face value now - collect face value at maturity. • Rule of 72 • Example: $50 savings bond that pays 4%. 72/4 = 18 (reaches maturity in 18 yrs).

  13. Government Securities • T-Bills - short-term (3m - 1 yr) high minimum. • T-Notes (1 - 10 yrs) $1000 - $10,000 • T-Bonds (10+ years) $1000 increments.

  14. How? 4. Corporate Bonds • Little to a lot more risk. • You are basically a lender to the corporation. • Bond Ratings - AAA, AA, A, BBB, etc • Junk Bonds - extreme risk, basically worthless.

  15. Bond Listing

  16. How? 5. Mutual Funds • Investment into Company Stocks • Diversification • Way to invest without putting all your eggs in one basket. • Less control over who you are investing in, but still have control over what type investing you do.

  17. Mutual Fund • A mutual fund is a professionally managed investment that pools money from many investors and invests in stocks, bonds, & other mutual funds. The mutual fund will have a fund manager that trades (buys and sells) the fund's investments in accordance with the fund's investment objective.

  18. Answers to FE - 17 • 1075 1090 91,92,93 • 1153 1068 90, 94-99 • 1242 1100 safer, better short term • 1335 1276 long-term better return • 1435 1506 • 1543 1807 • 1659 2150 • 1783 2774 • 1917 3162 • 2061 4396

  19. How? 6. Stocks • Ownership in a company • Buy low sell high • Dividends • Broker - go between for buyers and sellers in the market.

  20. Exchanges • NYSE • NASDAQ • AMEX • Regional Exchanges • World Exchanges

  21. Index • Gives you an idea on how the whole market is doing. • Examples: • Dow Jones Industrial Average • S&P 500 (100)(50) • Internet 50 • Bull and Bear

  22. Investment Game Google – NYSE, Small Cap Companies Pick 3, write down stock symbol Open New Window www.yahoo.com Go to Finance Enter Stock Symbol Write down current Price Go to Historical Prices

  23. Commodities • Agricultural Products (Pork Bellies, soybeans) • Precious Metals (Gold, silver)

  24. Other Investments • Real Estate • Annuities / Pension Plans • 401k • 403b • IRA (Roth IRA) Tax Free • Keogh Plans • College Plans • 529 Plan • Small Business

  25. Saving vs Investing • Saving - putting money aside for future expenses • Investing - putting money aside for the purpose of making money

  26. Capital Gains/Losses • Capital Gains - tax on money made through investments. • Capital Losses - deduction on taxes

  27. Where to invest? • 1. You have $5000 to invest. No other information is available. • 2. You have $4000 that you will need six months from now • 3. You inherited $10000 from a great-aunt; she has suggested that you save it for use in your old age.

  28. Where to invest? • 4. You are just starting a career and can save $50 per month for retirement. • 5. A new baby arrives, and mom and dad plan to save $100 a month for the child’s college education.

  29. Quiz • Which has more liquidity? • CD or Money Market • Which has more liquidity? • Savings Account or Checking • Which has more liquidity? • T-bill or T-Bond

  30. Quiz • What is the relationship between liquidity and rate of return? • Which has more risk? • Mutual Fund or Stocks • Which has more risk? • AAA Bond or AA Bond

  31. Quiz • Which has more risk? • Junk Bond or Mutual Fund • What is the relationship between risk and rate of return? • What plan would someone who is self-employed use to defer taxes? • What type of IRA is Tax free?

  32. Which is harder to get? • Secure loan or • Unsecured loan? • Why? • Collateral

  33. Goods that last 3 or more years? • Durable • Opposite of durable goods? • Consumption or perishable goods

  34. The “T” in T-Bills stands for: • Treasury

  35. How do Savings Bonds pay their interest? • Pay less than face value, then when bond matures, you get face value.

  36. Pension plan for self employed? • Keough plan

  37. Spreading out investments to lessen risk? • Diversification

  38. Finance company that specializes in home loans? • Mortgage Company

  39. Which should come first? • Saving or • Investing

  40. Cost of credit expressed in dollars and cents? • APR or • Finance charge

  41. Financial institution that is member owned? • Commercial bank or • Credit Union

  42. Credit cards are issued by? • Banks or • Credit card companies • Is a debit card the same as a credit card?

  43. What happens to the monthly payment when you decrease the length of loan? • Increases • Total of payments? • Decreases

  44. A Roth IRA is? • Tax deferred or • Tax free

  45. Which has more risk? • Mutual fund or • Bond • Lender? • Bond • Owner? • Stock

  46. The Dow Jones is a? • Stock Index or • Stock Exchange

  47. Largest exchange? • NYSE • Name another exchange. • NASDAQ or AMEX

  48. Payment from company to shareholders? • Dividend • IF you make money on an investment it is called? • Capital Gain

  49. Advantages of retirement plans • Tax deferred • Tax free • Other names for retirement plans? • IRA • Annuity • Pension plan • 401K, 403B, Keough plan

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