Copyright 2007 Thomson South-Western Chapter 11 Saving and Investing Options

Slide 2 Savings Saving is setting aside money to meet future needs Some savings should be liquid to handle short-term needs –Savings accounts –Money market accounts Accounts insured by the FDIC are low-risk 11-1 Low-Risk Investment Options

Slide 3 Savings Certificates of deposit –The money is set aside for a set time –The money earns a set interest rate – A CD is low-risk (insured by the FDIC) –A CD is not a liquid investment 11-1 Low-Risk Investment Options

Slide 4 Withdrawal Penalty Example 11-1 Low-Risk Investment Options Certificate of Deposit Amount Deposited: $5, Interest Rate: 5% yearly Term: 5 years Penalty for Early Withdrawal If the money is withdrawn before 5 years, the penalty imposed will equal 365 days’ interest, whether earned or not. Sample Scenario The money is withdrawn after 180 days. $5, x 0.05 x 180 / 365 = $ Interest Earned $5, x 0.05 x 365 / 365 = $ Penalty $5, Amount Deposited Interest Earned $5, – Penalty $4, Amount Received

Slide 5 Investments Investments vary in term, risk, and return rates Low-risk options typically pay lower rates than those with higher risk –Savings bonds –Corporate bonds –Government bonds –Brokerage accounts –Annuities –Life insurance plans 11-1 Low-Risk Investment Options

Slide 6 Building Communications Skills Bad News Messages The reader will not find the news favorable Use an indirect approach Begin the message with supporting facts State the bad news in the second paragraph State the action you want the reader to take Close the letter on a positive note 11-1 Low-Risk Investment Options

Slide 7 Retirement Accounts Individual plans –IRA accounts –SEP accounts –Keogh accounts Employer-sponsored plans –401(k) accounts –403(b) accounts –Pension plans 11-2 Medium-Risk Investment Options

Slide 8 Portability A portable account can be taken with you when you leave a job You must be vested to move the account Rollover is the process of moving an investment balance to another qualified account 11-2 Medium-Risk Investment Options

Slide 9 Investments With Medium Risk Mutual funds –Operated by professional investment firms –A form of indirect investing –Investors can select the asset allocation 11-2 Medium-Risk Investment Options

Slide 10 Sample Asset Allocation 11-2 Medium-Risk Investment Options ASSET ALLOCATION Percent of Holdings Type of FundReason for Choice 25%Bond fundFor stability and to offset risk of other funds 25%Growth fundTo invest in high-risk choices that could grow greatly over time 25%Global fundTo benefit from world economic growth 25%Money market fund To provide liquidity and short- term gains

Slide 11 Investments With Medium Risk Family home –Long-term investment –Not liquid –Fairly safe investment –Typically grows in value faster than inflation 11-2 Medium-Risk Investment Options

Slide 12 Ethics Breaking Commitments Some companies do not fully fund their pension plans Retired workers may not receive the benefits promised The Pension Benefit Guaranty Corporation protects American workers with pension plans The Pension Protection Act of 2006 sets new rules for pension funding 11-2 Medium-Risk Investment Options

Slide 13 Technology Corner Tracking Investments in a Spreadsheet Using a spreadsheet is a good way to track investments Changes can be shown weekly, monthly, or yearly Comparing returns is easy Microsoft Excel® has a feature that allows you to get updated stock quotes in a worksheet 11-2 Medium-Risk Investment Options

Slide 14 Stocks Common stocks Preferred stocks Direct investing 11-3 High-Risk Investment Options When you own stock, you have an ownership interest in a corporation.

Slide 15 Business Ventures Start a small business Invest in a small business Business ventures are high-risk Returns can be high if the business is a success A business plan outlines how a business plans to succeed 11-3 High-Risk Investment Options

Slide 16 Collectibles Collectibles are items bought for their investment value Examples –Art objects –Coins –Decorative plates –Books –Baseball cards 11-3 High-Risk Investment Options

Slide 17 Rental Property Returns come in the form of rent and increased property value –Apartments –Duplexes –Vacation properties 11-3 High-Risk Investment Options Rental property can be a profitable investment.

Slide 18 Futures Contracts and Commodities Futures contract –An agreement to buy or sell a specific commodity or currency –A price is set –A date in the future is set for buying or selling Investing in futures contracts and commodities is very risky 11-3 High-Risk Investment Options

Slide 19 Real Estate Investment Trusts A real estate investment trust (REIT) is a corporation A REIT owns or operates income- producing property Investors can buy shares in a REIT (similar to shares in a mutual fund) 11-3 High-Risk Investment Options

Slide 20 Investment Clubs Groups of people who pool their money and buy and sell investments Direct investing –Individual stocks –Real estate Indirect investing –Mutual funds –REIT shares 11-3 High-Risk Investment Options

Slide 21 Focus on... Day Traders Day traders attempt to make money by buying and selling securities They hold investments just long enough to make a profit They must be very knowledgeable about market conditions and trends 11-3 High-Risk Investment Options

Slide 22 Success Skills Managing Stress Stress is a state of mental or physical tension Stress is a part of everyday life Too much stress can be harmful You can learn techniques to help cope with stress 11-3 High-Risk Investment Options