1. 19 Savings and Investment Strategies
C H A P T E R 19
Savings and Investment Strategies
19-1 Saving and Investment Planning
19-2 Stock Investments
19-3 Bonds and Mutual Funds
19-4 Real Estate Investments
19-5 Other Investments

2. KEY TERMS Saving – the storage of money for future use
Investing – using your savings to earn more money

3. SAVING AND INVESTMENT BASICS
Savings and investment activities
Determine investment goals
The growth of savings
Interest
Compound interest – earning interest on previously earned interested which results in faster growth of savings; computed on the amount saved plus the interest previously earned

4. QUARTERLY COMPOUND INTEREST

5. SAVING AND INVESTMENT CHOICES
Savings plans
Savings account – a savings plan with a low balance where you can deposit and withdraw money as needed
Certificate of deposit (CD) – allows you to earn a higher interest rate than a regular savings account; requires a minimum deposit and must be left on deposit for a specified period of time
Money market account – pays a variable interest rate based on various government and corporate securities; do not require long-term deposits

6. SAVING AND INVESTMENT CHOICES CONTINUED
Securities
Stock investments – when you buy a share of stock becoming part owner of a company; purchase made directly or indirectly through mutual funds (common way of investing)
Bond investments – lending money to a company or government agency to use for their business activities through purchase of a bond
Mutual funds – allow investors to spread out their risk among many investments

7. SAVING AND INVESTMENT CHOICES CONTINUED
Alternative investments
Real estate – purchasing homes or other property for stability or income reasons (Ex. Housing, farmland, apartment buildings, shopping malls)
Commodities – grain, livestock, precious metals, currency, and financial instruments; investing in commodities is considered very risky
Collectibles – old coins, works of art, antique furniture, and other rare items are often bought with the hopes that their value will increase

8. EVALUATING SAVINGS AND INVESTMENTS
Safety and risk
Potential return
Yield – the percentage of money earned on your savings or investment over a year
Liquidity – the ease with which an investment can be changed into cash without losing its value
Taxes

9. EXAMPLES OF DIFFERENT YIELDS
$100 Invested for 20 Years at Different Yields with Annual Compounding

10. INVESTMENT PYRAMID

11. KEY TERMS
Preferred stock – has priority over common stock in the payment of dividends
Common stock – represents general ownership in a corporation and a right to share in its profits
Stockbroker – a licensed specialist in the buying and selling of stocks and bonds
Stock exchange – a business organization that accommodates the buying and selling of securities
Market value – the price at which a share of stock can be bought and sold in the stock market

12. STOCK SELECTION
Consumer spending – profits of companies that sell products and services to households are directly affected by buying habits
Employment – as people obtain or lose jobs, the amount of money they have for spending will affect company profits
Company factors
Stock information sources
Economic factors
Inflation – higher prices can result in lower spending by consumers, reducing company profits
Interest rates – as the cost of money changes, company profits can increase or decline

13. KEY TERMS
Municipal bond – bonds issued by local and state governments (also called munis)
Corporate bond – bonds issued by corporations
Mutual fund – an investment fund set up and managed by a company that receives money from many investors

14. GOVERNMENT BONDS Municipal bonds U.S. savings bonds
Other federal securities
Federal notes (T-notes)
Treasury bills (T-bills)
Treasury bonds (T-bonds)

15. MUTUAL FUNDS
A mutual fund is an investment fund set up and managed by companies that receive money from many investors.

16. TYPES OF MUTUAL FUNDS Aggressive-growth stock funds Income funds
International funds
Sector funds
Bond funds
Balanced funds

17. MUTUAL FUND VALUES Shares of the mutual fund Value of each share
Net asset value (NAV)
Operating expenses
Earnings

18. KEY TERMS Real estate – land and anything else that is attached to it
Mortgage – a legal document giving the lender a claim against the property if the principal, interest, or both are not paid as agreed
Equity – the difference between the price at which you could currently sell your house and the amount owed on the mortgage
Assessed value – the amount that your local government determines your property to be worth for tax purposes

19. BENEFITS OF HOME OWNERSHIP
Tax benefits
Increased equity
Pride of ownership

20. COSTS OF HOME OWNERSHIP
Property taxes
Interest payments
Property insurance
Maintenance

21. KEY TERMS
Futures contract – an agreement to buy or sell an amount of a commodity at a specified price in the future