1. Personal Financial Literacy: Investment Strategies and Tax Implications
Essential Questions: How can individuals save and invest to meet financial goals? What are various investment strategies and tax implications for their potential to build wealth?

2. Stock Market
Buying “stock” means that an individual is now a part owner of a corporation
Ways to earn money in the stock market:
The value of the company increases, therefore the company sends payments to the individual owners (quarterly) = dividends
The value of the company increases, therefore the price/value of stock increases, and the individual sells the stock and makes a profit from the original purchase price = capital gains
Capital gains is taxed as income

3. Stock Market cont’d Much riskier than other investments.
If a company loses value, the individual stock also loses value.
High risk, high reward
Often times, financial experts handle investments for stock holders and predict when values will increase/decrease and when is the best time to buy/sell stock.
Overtime, returns on investments in the stock market typically average between 8 – 12% on the investment.

4. Mutual Funds
A mutual fund is a group of investments into various companies in different fields and it is managed by financial and investment experts.
These funds are seen as safer investments than the stock market because instead of investing in only one company, these investments are spread over numerous businesses in numerous industries.
“Don’t put all your eggs in one basket!” – safer b/c they are more diversified
Investors pay a fee to administrators of the funds in addition to purchase or sale of the funds
Returns on investments are similar to the stock market; 8 – 12%

5. Government Bonds
A promise to pay periodic interest payments and to repay the face value of the bond on the maturity date
Purchased from the Treasury Department to help fund federal budget shortfalls, regulate the money supply, and help to regulate monetary policy
Example: If someone purchases a bond for $1,000 at 2.75% interest, they will earn $27.50 per year for 30 years. Once the bond has matured in 30 years, they will have been paid $825 plus the original purchase price of $1,000.

6. Government Bonds Cont’d
There are different types of government bonds. There are Savings Bonds, Treasury Notes, and Treasury Bonds. Some bonds are short term, others are long term, lasting anywhere up to 30 years.
Government Bonds are considered the safest type of investment, by far, because they are backed by the federal government.
Some states and local governments offer tax exemptions on the interest earned on the bonds.
The interest earned on government bonds would be counted as income for your federal taxes

7. Retirement Accounts
There are a variety of accounts individuals can invest in that help secure their financial future after retirement.
401K – A portion of each paycheck is taken and put into an investment account (Mutual Fund)
Money cannot be withdrawn from the account until the individual reaches a certain age without penalty. The money put into these accounts is not taxed until it is withdrawn during retirement.
Many times jobs will match your donations to your 401K up to a certain percent of your income.
403B –These accounts are only offered to specific types of jobs (schools and churches, for example).

8. Retirement Accounts
An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.
Traditional IRA - You make contributions with money you may be able to deduct on your tax return, and any earnings can potentially grow tax-deferred until you withdraw them in retirement. Many retirees also find themselves in a lower tax bracket than they were in pre-retirement, so the tax-deferral means the money may be taxed at a lower rate.
Roth IRA - You make contributions with money you’ve already paid taxes on (after- tax), and your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met.

9. Charitable Giving
Many people who are financially able to, chose to give donations to various charities.
The government has set up special tax classifications for many of these groups so that if someone donates to your organization, they can “write it off” on their taxes, meaning their taxable income is lower and they pay fewer taxes.
In fact, the wealthier you are, the higher incentive you have to give. The wealthiest individuals get more credit for their donations than individuals in lower tax brackets, thus incentivizing the wealthiest members of society to give at a higher rate.
This encourages citizens to support charities they see value in and relieves the social burden on government programs.
All donations to charitable groups must be documented through donation receipts in order for you to claim them at tax time.