Savings & Investment Vehicles Mike Meade

Saving vs. Investing Saving o Putting money away for safe-keeping o Emergency funds o Zero risk Investing o Growing money to reach future financial goals o Long-term process o Higher risk o Higher return

Savings Money should be in accounts that are safe o FDIC Insured Certificates of Deposit o More growth o Funds are less available Government Savings Bonds o EE Series bonds Face value + interest for the life of the bond o I Series Bonds Face value + fixed interest rate adjusted for inflation o No redemption penalty after 5 years

Money Market Mutual Funds Managed by investment companies Sold by banks and investment companies Yields are higher than short-term interest rates Usually require a higher minimum balance Not FDIC insured but heavily regulated Invested in high quality short-term investments Many have check writing privileges

Investment Vehicles Individual Securities Pooled Investment Products Real Estate Taxable or Tax-deferred Accounts Non-traditional Investments

Individual Securities Stocks o Get and E-trade account and go for it o See a broker o See an investment advisor Bonds o Treasury bills and bonds o Corporate bonds o Junk bonds Higher risk and time involved in picking securities

Pooled Investment Products Pension Funds o Employees pool their money together to be invested as one portfolio o Usually managed by some sort of financial intermediary company o Employers usually match your investment to a certain percentage Mutual Funds o Ownership is based on shares that equate to original dollar value invested o 3 ways to earn a return Dividends or interest Profits on sale of securities in the portfolio Increased value of mutual fund shares (which can be sold back)

Pooled Investment Products Exchange Traded Funds o Traded on the open market similarly to an index fund o Their prices change based on supply and demand o Typically cheaper than mutual funds o Can offer more diversification Authorized Participants o Large institutional organization that helps create the ETF by buying the basket of assets for the ETF. o Help maintain the supply and demand of the ETF

Real Estate o Rental Income o Gains on sale Real Estate Investment Trust (REIT) o Companies that pay no federal income tax as long as: Pay at least 90% of income as dividends Invest at least 75% of total assets in real estate And more… o Great for diversification, dividends, liquidity, and consistent performance

Tax-deferred Accounts IRA o Pre-tax cash inflows are only taxed when money is pulled out of the acct. o Dividend income and capital gains are not taxed while in the IRA Roth IRA o After-tax cash inflows with tax free outflows o Take the tax now or later? 401k o Qualified plans offer tax-deductible contributions for employers 529 o Investment in education, tax free as long as the money is spent on education

Questions?