Saving & Investing Achieving Financial Success

What does it mean? Saving  Putting money aside for future use Investing  Using money so that it earns income

Why should you save or invest? For major purchases  Education, car, home  Avoid finance charges For emergencies  Unable to work  Repair costs  No time to arrange loan For retirement  Meet expenses  Supplement retirement income

Starting Your Savings Program Set a goal Work towards goal Make saving a habit. Decide what to do with savings. Decide how to invest your savings.

Guidelines for Wise Investing Identify available investment options Identify your goals Identify acceptable level of risk for you

Wise Investing – Questions to Ask What is the risk?  The possibility you will lose your investment. What is the rate of return?  the amount of money it earns (yield )  Expressed as %  Fixed-rate (unchanging rate of return)  Variable-rate (rate changes)  Higher rate of return usually means higher risk

Wise Investing – Questions to Ask How available is the money?  Respond to emergencies  Liquidity – how quickly it can be converted to cash  Should keep some money in highly liquid investments How inflation-proof is the investment?  Will earnings keep up with rising costs?  Rate of return > inflation rate?

Wise Investing – Questions to Ask Are there tax advantages?  Interest on some government bonds is not taxable  Mortgage interest/ real estate taxes may be tax deductible  Special retirement plans defer taxes until retirement when income is lower

Wise Investing – Questions to Ask Will you be comfortable with the investment?  Should I take a smaller return for a smaller risk?  Should I take a greater risk for a greater return?  Will I worry about the safety of the investment?  Am I depending on it to fund a future expense?  Can I afford to lose all the money I invest?  Do I know enough to make an informed decision?

Common Investment Choices Certificate of Deposit  Less liquid $ must stay in bank for set time period End date of time period = Maturity Date  Higher rate of interest  Penalty for early withdrawal  Relatively low-risk

Common Investment Choices Securities – investments sold by corporations and governments to finance growth.  Stocks – sold by corporations to finance expansion  Bonds – issued by corporations or government to borrow large amount of $ for a long time

Stocks - sold by corporations to finance expansion Shareholders  Owner of stock  earn $ two ways Dividends returns on each share depends on profit & decisions made by board of directors Sale of stock profit - capital gain loss – capital loss

Stocks - Continued 2 types  Common all corporations must issue holders help select board of directors holders have voice in mergers, acquisitions and takeovers Holders have no say in dividends or company assets.  Preferred stock gives holders certain privileges dividends paid on it first limited voting privileges smaller role in company’s affairs.

Stocks - concluded Stock certificate is proof of ownership Stock broker, pay fee for service Can be risky Mutual funds help limit risk

Bonds Written promises to repay loans  Corporate bonds  Government bonds Municipal bonds (considered safe investments) Treasury bills (T bills) – 3 months to 1 year Treasury notes – 2 to 10 years Treasury Bonds – 10 or more years  No fee to purchase or sell

Real Estate Land and all buildings attached to it Reasons to invest in it vary  Considered safe investment by some  Represents security to some  To make a lot of money  To build up equity (difference between value and amount owed on mortgage)  Tax advantages Types  Home Ownership  Income Property  Undeveloped Property