UNIT 10 SAVINGS AND INVESTMENT STRATEGIES See Page 453

CHAPTER 33 STARTING A SAVINGS PROGRAM

WHY HAVE A SAVINGS PLAN SAVINGS PLAN--Putting money aside in a systematic way to help reach a financial goal INVESTING--Using your savings to earn more money See Page 454

HOW DO SAVINGS GROW Simple Interest--Interest computed only on the amount saved Compound Interest--interest that is computed on the amount saved plus the interest previously earned; can be compounded daily, monthly, quarterly, semiannually, or annually $100 x10%=10 110x10%=11 121x10%.=12 132x10%=13 145x...

SELECTING A SAVINGS PLAN SAFETY--assurance that the money you have invested will be returned to you; major concern for those with little money YIELD--rate of return; percentage of interest that will be added to your savings; higher yields and greater risk are tied together LIQUIDITY--the ease with which an investment can be changed into cash without losing any of its value

SAVINGS AND THE ECONOMY Your savings serves a very useful purpose Money borrowed from financial institutions may include your invested savings Creates demand for goods and services Results in more jobs and more spending The effect is expanded economic activity

FYI US consumers save a very low percentage of their incomes 5% interest compounded daily saving just $1 a day will earn over $4,700 in 10 yrs Federal income tax must be paid on interest earned from most accounts Annual Yield=dividend(earned)/cost Inflation will reduce return on savings 6% interest - 5% inflation = infl adj 1%