1. Chapter 11 Saving and Investing Options

2. Slide 2 What Are Low-Risk Savings Options? 11-1 Low-Risk Choices Liquid savings include cash or investments that can be changed into cash quickly. Savings and checking accounts are liquid. Illiquid investments cannot be converted to cash quickly or without a penalty.

3. Slide 3 What Are Low-Risk Savings Options? 11-1 Low-Risk Choices Savings accounts Money market accounts o Two types: deposit account or fund Certificates of deposit o Money set aside for specific length of time at a fixed interest rate Life insurance savings plans o Borrow against the policy’s cash value Brokerage accounts o An account at an investment company

4. Slide 4 What Are Low-Risk Investing Options? 11-1 Low-Risk Choices Bonds A bond is a loan that a buyer makes to a bond issuer. Government and corporations issue bonds. The face value is the amount the bondholder will be repaid on the maturity date. The maturity date is the date the borrowed money must be repaid. Bonds can be purchased at a discount or premium.

5. Slide 5 11-1 Low-Risk Choices Return on a Corporate Bond Corporate Bond Face value: $5,000 Discount rate: 4% Coupon rate: 4% yearly (paid semiannually) Term: 2 years Purchase price: $5,000 × 0.04 = $200 discount amount $5,000  $200 = $4,800 discounted purchase price Semiannual interest: $5,000 × 0.04 = $200 interest per year ($100 semiannual payment) $200 × 2 years = $400 total interest received Return on investment: At the end of the second year, the bond is redeemed for $5,000 (face value). $ 5,400 total amount received ($5,000 face value + $400 interest)  4,800 amount invested $ 600 total profit in dollars $600 ÷ $4,800 = 0.125 = 12.5% total return on investment

6. Slide 6 Building Communications Skills Bad News Messages Use an indirect approach. In the first paragraph, refer to the issue and give facts or logical reasoning. In the second paragraph, state the denial or other bad news. In the third paragraph, state the action you want the reader to take. Close on a positive note. 11-1 Low-Risk Choices

7. Slide 7 What Are Good Financial Market Investments? A mutual fund is a professionally managed group of investments. It is bought using a pool of money from many investors. 11-2 Medium-Risk Choices A personal residence (home) is typically a safe investment and good tax shelter.

8. Slide 8 Asset Allocation in a Mutual Fund 11-2 Medium-Risk Choices ASSET ALLOCATION Percent of HoldingsType of FundReason for Choice 20%Bond fundFor stability and to offset risk of other funds 20%Growth fundTo invest in high-risk choices that could grow greatly over time 20%Global fundTo benefit from world economic growth 20%Money market fund To provide liquidity and short-term gains 15%Income fundTo receive income in the form of dividends 5%New venture fundTo invest in emerging, young businesses that could become highly profitable and provide a high return

9. Slide 9 What Are Individual Retirement Account Options? 11-2 Medium-Risk Choices An IRA allows you to deposit money into an account during your working years and withdraw it upon retirement. SEP accounts are tax- deferred retirement plans for small businesses. Keogh accounts are tax-deferred retirement plans for self-employed professionals, such as doctors and lawyers.

10. Slide 10 What Retirement Plans Are Available through Employers? 11-2 Medium-Risk Choices Defined-contribution plans o 401(k) plans: tax-deferred plans for profit-seeking businesses o 403 (b) plans: tax-deferred plans for government and nonprofit organizations Defined-benefit plans o Pension plan Retirement accounts may be portable, meaning you can take the account with you when you leave a job.

11. Slide 11 Success Skills 11-2 Medium-Risk Choices Set up a spreadsheet to show purchase price and change in value of investments. Track investments over time. Use it to compare investments. Use it to help decide when to change your investment strategy. Use Excel ® to get updated stock quotes. Tracking Investments Using a Spreadsheet

12. Slide 12 How Can You Invest Directly in Financial Markets? Direct investing is buying stocks and other investments directly from companies and holding them. If you buy the stock of only one company, the risk is high because your money is invested in only one place. 11-3 High-Risk Choices

13. Slide 13 How Can You Invest Directly in Financial Markets? 11-3 High-Risk Choices Buying stocks o You become a stockholder and own shares in a company. Futures contracts and commodities o You agree to buy or sell a commodity at a set price and date in the future. Investment clubs o You pool your money with other people and invest together.

14. Slide 14 How Do You Invest in Business Ownership? 11-3 High-Risk Choices A proprietorship is owned by one person. A partnership is formed by two or more persons. A franchise is a contract that gives you the right to sell a company’s products and services. A business venture is a business that is backed by investors.

15. Slide 15 What Are Other High-Risk Investment Choices? 11-3 High-Risk Choices Real estate o Land or vacant lots o Real estate investment trusts (REIT) o Rental property Collectibles Precious metals and gems

16. Slide 16 Focus On... Day Traders Attempt to make money by buying and selling stocks and bonds over short periods of time Sell stock when prices rise for a quick profit Must be aware of general market conditions Must be familiar with companies, products, and industries Can make high profits over time 11-3 High-Risk Choices