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Saving and Investing


Saving and Investing Chapter 6 Deciding to Save Benefits of Saving: (6 months of housing) Make large purchases without paying interest Funds for others Allows ... – PowerPoint PPT presentation

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Title: Saving and Investing

Saving and Investing
  • Chapter 6

Deciding to Save
  • Benefits of Saving (6 months of housing)
  • Make large purchases without paying interest
  • Funds for others
  • Allows business expansion
  • Increases Income for Others
  • Allows Higher Standard of Living
  • Earns interest on savings
  • Savings Trade-offs
  • Immediate Access Low Interest Paid
  • Higher Interest Minimum Balance Required

Savings Accounts and Time Deposits
  • Savings Account Interest-earning account that
    has no set maturity
  • Immediate withdrawal no penalty
  • Money Market Deposit Account Pays high rates of
    interest and allows immediate access through
  • Usually have minimum balance (1,000-2,500)
  • Only allowed certain of withdrawals a month

Time Deposits
  • Requires deposits to remain for certain period of
  • Most Common is a CD (Certificate of Deposit)
  • States amount deposited, Length time till
    maturity, Rate of interest being paid
  • Longer term Higher interest paid
  • Advantages
  • Pays higher interest than savings account
  • Rate usually keeps with cost of living
  • Disadvantages
  • Penalty for early withdrawal

Insuring Deposits
  • 1929 Stock Market Collapse New Deal
  • Signed by Franklin Roosevelt
  • Created Federal Deposit Insurance Corporation
  • Protects Savings, MMDAs, CDs, and Checking
  • Protection up to 250,000
  • Protects some special retirement accounts
  • National Credit Union Association (NCUA)
  • Protects member owned banks

Investing Taking Risks With Your SavingsStocks
and Bonds
  • Corporations sell stock
  • Use for Expansion
  • Stock Returns
  • Stockholders (ownership) 2 benefits
  • Dividends
  • Sell higher than purchase
  • Capital Gains and Losses
  • Capital Gain Profit from sale of stock
  • Capital Loss Losses after sale of stock

  • Receipt from business or government for borrowing
  • Promise to repay borrowed funds with interest
    over stated period of time

Differences in Stocks and Bonds
  • Issued by ALL Corporations
  • Represent Ownership
  • No fixed dividend rate
  • Dividends only paid if profits
  • No maturity date
  • Stockholders elect BoD which controls corporation
  • Stockholders only have claim after all creditors
    have been paid
  • Corporations not required to issue bonds.
  • Bonds represent debt
  • Bonds pay fixed rate of interest
  • Interest must always be paid, whether profits or
  • Have a maturity date for repayment
  • No voice or control in running of corporation
  • Have claim against property and income of a
    corporations BEFORE stockholders

Types of Bonds
  • Tax-Exempt Bonds
  • Issued by State and Local Govt
  • Earnings Not Taxed by Govt (fed, state, or
  • Investment for wealthier
  • Savings Bonds
  • Issued by Fed Govt Range face value
  • Very Safe, Not taxed until cashed
  • Purchased at ½ of face value. Upon maturity paid
    face value
  • T-Bills, T-Notes, T-Bonds
  • Sold by Treasury Department
  • Interest is Tax Exempt from State and Local BUT
    NOT Federal Government
  • T-Bills
  • Mature few days to 26 weeks
  • Minimum Investment 1,000
  • T- Notes
  • Maturity dates 2 to 10 years
  • T-Bonds
  • Matures in 30 years

Stock Markets
  • Broker Go between for buyers and sellers
  • Charges a fee based on amount traded
  • Online Trading available as well
  • Stock Exchanges
  • New York Stock Exchange Largest
  • Also regional and among many countries
  • Companies are largest most profitable in world
  • Over the Counter Markets
  • Stocks not listed on organized exchanges
  • National Association of Securities Dealers
    Automated Quotations (NASDAQ) largest
  • Brokerage firms hold shares of stock and buy and
    sell for investors
  • Usually sold in amounts of 100 shares
  • Stock Market Indexes
  • Indicator used to determine what happened to
    stocks on market
  • Dow Jones Industrial Average
  • 30 major industrial companies in the United
  • Standard Poors 500
  • Tracks stock prices of 500 companies

Bond Markets
  • New York Exchange Bond Market and American
    Exchange Bond Market (2 largest)
  • Sold Over-the-Counter and Online
  • Mutual Funds
  • Pulls money from many investors
  • Diversified
  • Managed Mutual Fund
  • Individual constantly views and switches
  • Collects Fee
  • Mutual Funds are NOT Insured by the Federal

Government Regulations on Stocks, Bonds, Mutual
  • Securities and Exchange Act of 1934
  • Sets up the Securities and Exchange Commission
  • Attempt to avoid another Stock Market Crash
  • Uncover Fraud in buying and selling

Investing for Retirement
  • Social Security Act (1935)
  • Retirement account for the elderly
  • Designed to get elderly to retire and open up
    jobs for unemployed during the Great Depression
  • Today, only a supplemental
  • Encouraged to have separate retirement plan

Individual Pension Plans
  • 401(k)
  • Offered through Employer
  • Portion of check withheld
  • Matched by Employer
  • Tax-Exempt until withdrawal
  • Keogh Plan
  • Keogh Act of 1962
  • Allows Self-Employed to contribute to own
  • Max 15 of Income a year
  • Tax-Exempt until withdrawal
  • IRA
  • Only for those earning lt 30,000 a year
  • Contribute up to 4,000 a year
  • Contributions and Interest Earned not taxed until
    Withdrawal (after 59 ½)
  • Roth IRA
  • Contribute up to 4,000 a year
  • Pay taxes before money goes in
  • Interest earned is tax-free forever if taken out
    after 59 ½
  • No taxes when money gets withdrawn

Real Estate Investment
  • Advantages
  • Values tend to increase over time
  • Up 700 since 1980
  • Disadvantages
  • No guarantee for demand in future (especially on
    raw land)
  • Cannot turn into cash fast

How Much to Save and Invest?
  • Trade-Offs
  • More you save More you can buy later
  • HOWEVER Less you can buy NOW
  • Other high interest debt?
  • Pay it off first

Other Considerations
  • Amount of Risk
  • Higher Risk Greater Return
  • Liquidity
  • Spreading Out Your Investments
  • Diversification
  • Little Income Secured accounts in local banks
  • Greater Income Take greater risks
  • Values
  • Community needs more development Savings Bank
  • Companies that promote the same values and ideas
    as you?
  • Environmental Protection Companies?
  • Charitable Companies?