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Chapter 6

Chapter 6. Saving and Investing. Section 6-1: Why Save?. Deciding to save People save for purchases that require more funds than available, for emergencies, and for retirement.

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Chapter 6

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  1. Chapter 6 Saving and Investing

  2. Section 6-1: Why Save? • Deciding to save • People save for purchases that require more funds than available, for emergencies, and for retirement. • Economies benefit from individuals who save because people have more money to invest or spend, leading to expanding business. • When choosing a place to save, think about trade-offs.

  3. Savings Accounts • Passbook, regular, or statement savings accounts accrue a low interest but allow immediate access to funds. • Money market accounts accrue high interest with immediate access through checks, but have a high minimum balance requirement.

  4. Time Deposits • Time deposits refer to a wide range of savings plans or certificates of deposit (CDs) with a high interest rate that increases over time, but a person cannot remove funds before a certain time period or maturity without paying a penalty. • Before the 1930s, people could lose all the money in their accounts if the bank failed. • Now the federal government insures bank accounts (in FDIC member banks) up to $100,000, giving people security when making deposits.

  5. Section 6-2: Investing: Taking Risks with your Savings • Stocks and Bonds • Stocks entitle the buyer to future profits and assets of the corporation. • Stockholders make money through dividends, return on bought stock, or by speculating- buying stock hoping it will increase in price so they can sell it at profit. • A capital gain is money earned by selling stock for more than you paid for it. • A capital loss is money lost by selling stock for less than you paid for it.

  6. Stocks and Bonds cont… • A bond is a certificate promising to repay a loan at a stated interest rate. • A bondholder is NOT part-owner of the organization. • Tax-Exempt bonds earn tax-free interest. • With savings bonds you pay half of the bond’s face value and the interest increases yearly until the face value is reached. • T-Bills, T-Notes, and T-Bonds are government bonds exempt from state and local tax and mainly for larger investments.

  7. Stock and Bond Markets • Stocks are bought/sold through brokers. • Stocks are traded at stock exchanges. • Stocks that are not traded in specific place are called over-the-counter stocks. • Bonds are sold on exchanges and over-the-counter markets. • Mutual funds are investment companies that combine many investors’ funds to buy a large variety and quantity of stocks.

  8. Stock and Bond Markets cont… • Some mutual funds mirror index funds. • Managed mutual funds have managers who adjust and mix the stocks bought, attempting to generate the highest yields. • Money market mutual funds allow inventors to write checks against the money in the fund.

  9. Government Regulations • The Securities and Exchange Commission regulates brokerage firms, stock exchanges, and most businesses that issue stock. • Congress passed the Securities Act to avoid another stock market crash. • The Act requires a prospectus to be given to each potential buyer of stocks or bonds.

  10. Section 6-3: Special Savings Plans and Goals • Investing for Retirement • Most companies have pension plans, such as 401k, that provide retirement income. • Some people will combine a retirement plan with their Social Security checks because Social Security alone is not enough. • Personal or private pension plans have the benefit of tax savings.

  11. Investing for Retirement cont… • The Keogh plan is an individual retirement plan for self-employed people where they can save up to 15% of income. • Traditional IRAs allow you to contribute up to $5000 per year, which is not taxed when put in, and any earnings and interest are not taxed until money is withdrawn. • Roth IRAs allow you to save up to $5000 per year, which is taxed when put in, interest and earnings are never taxed, and money is not taxed when withdrawn.

  12. Investing for Retirement cont… • Real estate is a popular form of investing for the future. • Housing generally increases in value over time. • Buying undeveloped land is a more risky investment. • It is hard to turn real estate into cash on short notice.

  13. How much to save and invest? • There are many factors involved in deciding how much to save versus how much to invest • Invest in several different types of accounts to lower your overall risk (diversify) • If you cannot afford any losses, use banks or savings bonds. • Your values may affect your investment choices.

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