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Chapter 6 Saving and Investing.

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Presentation on theme: "Chapter 6 Saving and Investing."— Presentation transcript:

1 Chapter 6 Saving and Investing

2 Why Save? Economy as a whole benefits Businesses expand
Increased income Increased standard of living Security for retirement You earn interest on your savings Many options for where to save Passbook Statement Money market Certificate of Deposit (CD) Be one of these… Not one of these…

3 Investing: Stocks Can be a more RISKY investment!
Stocks (also called securities) are buying up “pieces” of a company’s profits Company obtains funds for use to expand with hope of making larger profits YOU get a “share” or “stock” in those profits (capital gain) OR losses (capital loss) Example: buy at $20, sell at $30, capital gain = $10 Stockholder (person who owns stock) make money by: Dividends (return of interest earned at company discretion) Speculation (sale of stock at time when earnings are at their highest) Can be a more RISKY investment!

4 Investing: Bonds USUALLY a SAFER investment!
A bond is a certificate issued by a company or government in exchange for borrowed money Does NOT result in partial “ownership” of the company Broker: the go-between for buyers and sellers Tax-Exempt Bonds Issued by government and interest is not taxed Savings Bonds Safe investment issued by government, you collect face value at end of term T-Bills (3mos-1 yr), T-Notes (2-10 yrs), T-Bonds (10 + yrs) Issued by U.S. Treasury with varying maturation terms Interest exempt from tax USUALLY a SAFER investment!

5 Where do I invest? Stock Exchange Over-the-Counter Markets Bond Market
NYSE (a place) Over-the-Counter Markets NASDAQ (digital) Typically for quantities of shares Bond Market NY Exchange Bond Market (counter or digital) Money Market Fund Investors’ money used to buy short-term debt of companies and banks

6 Where do I invest? Mutual Funds
Investment company “pools” money of many individuals to buy a variety of investments (stocks/bonds) Dow Jones Industrial Index (DJIA) Standard & Poor’s (S&P) Tracks stock prices over long period of time Used by most middle class American’s as choice investment tool

7 Government Regulations
Securities and Exchange Commission (SEC) Securities and Exchange Act of 1934 Purpose: avoid another crash like 10/29/29 Administers regulatory laws Authority over all investment sales Investigates anything that affects value of stocks Requires all info be made available to investors (prospectus)

8 How do I plan? How big should your nest egg be?
PATH #1 Pension Plans 401k (for-profit) 403b (non-profit) Money is invested from each paycheck into selected investment options Company matches what you invest PATH #3 Real Estate Buying land or buildings Buy low, wait, sell high Primary home purchase is a typical example PATH #2 Individual Retirement Account IRA Non-work related $2000/yr invested Tax benefit yearly based on HOW MUCH you contribute in a yr. Non-taxed until withdrawn ROTH IRA $2000/yr No yearly tax benefit for investment NEVER taxed

9 How MUCH do I save? How much risk? Diversification Values
Years until retirement? Soon = less risk (lower interest return) Later = more risk (higher interest return) Diversification Spread out investments over several types Lessons risk Greater overall gains Values Where do you want/not want to put your money? Help community? Avoid morally questionable investments? Foreign vs. Domestic


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