InvestmentsInvestments

Who wants to be a millionaire?

Who wants to be a millionaire?

What kind of an investor are you?

What kind of an investor are you?

Rate all investment options according to three characteristics: Safety - Relative risk of losing money Rate of return - percentage earned

on your investment Liquidity - ability to turn asset into

cash

Rate all investment options according to three characteristics: Safety - Relative risk of losing money Rate of return - percentage earned

on your investment Liquidity - ability to turn asset into

cash

Savings OptionsSavings Options Passbook or Statement Savings Account

Regular savings account at a bank or credit union Money is easily accessible. Guaranteed up to $100K by the Federal Government Trade - off is that interest rates earned is low (1 to 1 1/2%)

Money Market Deposit Account Savings account that pays a higher interest rate,

gives limited access to money in the form of checks, but requires the saver to maintain a minimum balance.

Also protected up to $100K Certificates of Deposit

Time deposits - seven days to eight years or more. Severe penalties for early withdrawal. Also protected up to $100K

Passbook or Statement Savings Account Regular savings account at a bank or credit union Money is easily accessible. Guaranteed up to $100K by the Federal Government Trade - off is that interest rates earned is low (1 to 1 1/2%)

Money Market Deposit Account Savings account that pays a higher interest rate,

gives limited access to money in the form of checks, but requires the saver to maintain a minimum balance.

Also protected up to $100K Certificates of Deposit

Time deposits - seven days to eight years or more. Severe penalties for early withdrawal. Also protected up to $100K

Government SecuritiesGovernment Securities Savings Bonds are issued by the Federal

Government as a way of borrowing money. Purchased at 1/2 of face value. Earns a fixed rate of interest until mature. Attractive to those with limited amounts of money to

invest. Also, earnings are tax exempt until the savings bond

is redeemed. Treasury Bills

Certificates issued by the U.S. Treasury in exchange for a minimum amount of $1,000 (in $1,000 increments) and maturing in 3 months to a year.

Treasury Notes Same as T-Bills except they take 1 - 10 years to

mature. Treasury Bonds

Same, but with a mturity date of 10 years or more. Other Government Securities

Tax-Exempt bonds, State Bonds, Local Bonds

Savings Bonds are issued by the Federal Government as a way of borrowing money. Purchased at 1/2 of face value. Earns a fixed rate of interest until mature. Attractive to those with limited amounts of money to

invest. Also, earnings are tax exempt until the savings bond

is redeemed. Treasury Bills

Certificates issued by the U.S. Treasury in exchange for a minimum amount of $1,000 (in $1,000 increments) and maturing in 3 months to a year.

Treasury Notes Same as T-Bills except they take 1 - 10 years to

mature. Treasury Bonds

Same, but with a mturity date of 10 years or more. Other Government Securities

Tax-Exempt bonds, State Bonds, Local Bonds

Corporate Stocks v. Corporate Bonds

Corporate Stocks v. Corporate Bonds All corporations issue stock.

Stock represents ownership.

Do not have a fixed dividend rate (except preferred stocks).

Dividends are paid only if the corporation makes a profit, and only then at the discretion of the board of directors.

Do not have a maturity date. Shareholders are not repaid by the corp.

Stockholders have a voice in the company by electing the board of directors (except preferred stockholders).

Shareholders have a claim against the property and income of a company, but only after claims of creditors have been met.

All corporations issue stock. Stock represents

ownership. Do not have a fixed dividend

rate (except preferred stocks).

Dividends are paid only if the corporation makes a profit, and only then at the discretion of the board of directors.

Do not have a maturity date. Shareholders are not repaid by the corp.

Stockholders have a voice in the company by electing the board of directors (except preferred stockholders).

Shareholders have a claim against the property and income of a company, but only after claims of creditors have been met.

Corporations are not required to issue bonds.

Bonds represent debt. Bonds pay a fixed rate of

interest. Interest on bonds must

always be paid, whether or not the corporation earns a profit.

Bonds have a maturity date. The bondholder is repaid the value of the bond.

Bondholders have not voice or control in how the company is run.

Bondholders have a claim against the property and income of a corp. that must be met before the claims of any stockholders (including preferred stock).

Corporations are not required to issue bonds.

Bonds represent debt. Bonds pay a fixed rate of

interest. Interest on bonds must

always be paid, whether or not the corporation earns a profit.

Bonds have a maturity date. The bondholder is repaid the value of the bond.

Bondholders have not voice or control in how the company is run.

Bondholders have a claim against the property and income of a corp. that must be met before the claims of any stockholders (including preferred stock).

Mutual FundsMutual Funds

Pools the money of many individuals to buy stocks, bonds, or other investments. Advantages

Professional investment manager. Diversifies investments resulting in lower risk.

Disadvantages Management fees. Less control of how your money is invested. Diversification may yield lower returns than

buying individual stocks, stocks, bonds, etc.

Pools the money of many individuals to buy stocks, bonds, or other investments. Advantages

Professional investment manager. Diversifies investments resulting in lower risk.

Disadvantages Management fees. Less control of how your money is invested. Diversification may yield lower returns than

buying individual stocks, stocks, bonds, etc.

Mutual Funds, Cont’dMutual Funds, Cont’d Indexed Stock Market Mutual Funds

Can minimize management fees by buying into a stock market mutual fund pegged to a stock market index. The mutual Fund mirrors a fixed list / index of

stocks such as the Standard and Poors 500. No need for a manager as changes to the fund

occur automatically as the index changes. Lower management fees. You earn “market” returns.

Bond Market Mutual Funds Money Market Funds

Mutual fund that uses investors’ money to make short-term loans to businesses and banks Can write checks, but only above a minimum

amount such as $500. Not insured like Money Market deposit accounts.

Indexed Stock Market Mutual Funds Can minimize management fees by buying

into a stock market mutual fund pegged to a stock market index. The mutual Fund mirrors a fixed list / index of

stocks such as the Standard and Poors 500. No need for a manager as changes to the fund

occur automatically as the index changes. Lower management fees. You earn “market” returns.

Bond Market Mutual Funds Money Market Funds

Mutual fund that uses investors’ money to make short-term loans to businesses and banks Can write checks, but only above a minimum

amount such as $500. Not insured like Money Market deposit accounts.

Other InvestmentsOther Investments Individual Pension Plans

Individual Retirement Account (IRA) Private retirement plan allows you to save up to

$3,000, deduct that amount from taxable income, and not pay taxes on interest earned until withdrawn after 59 1/2.

Roth IRA - Do not deduct contributions from taxes, but interest earned is tax free.

Commodities - Gold, Oil, Pork Bellies, Cocoa, Etc.

Real Estate, Coins, Art, Antiques, Beannie Babies, anything that you believe will grow in value over time.

Individual Pension Plans Individual Retirement Account (IRA)

Private retirement plan allows you to save up to $3,000, deduct that amount from taxable income, and not pay taxes on interest earned until withdrawn after 59 1/2.

Roth IRA - Do not deduct contributions from taxes, but interest earned is tax free.

Commodities - Gold, Oil, Pork Bellies, Cocoa, Etc.

Real Estate, Coins, Art, Antiques, Beannie Babies, anything that you believe will grow in value over time.