1. Ch. 19-1 Saving and Investment Planning

2.  Saving- Storage of money for future use.  Financial experts recommend that people save 10-15% of their income.  Investing- Using your savings in order to earn more money.  The number 1 rule in investing is DIVERSIFICATION! Diversification spreads around the risk.

3.  Liquidity- availability  The more liquid, the less return.  The less liquid, the greater return  The higher the risk, the greater the possible return should be  The lower the risk, the lower the possible return should be

4. Different types of investing:

5.  Savings account  Money Market account  CD  Stock  Bond  Mutual Fund  Collectibles  Real Estate

6.  Savings account- Pay VERY little interest, but is an extremely safe and liquid investment.  A savings account today will yield between.5% and 1.5%

7.  Money Market Account- Pays a variable interest rate based on various government and corporate securities.  Usually requires a higher deposit than a CD  pays a little less interest, but is more liquid.

8.  Certificate of Deposit (CD)- Allows you to earn more than in a savings account.  Usually requires a minimum deposit and must be invested for a certain period of time (penalized if taken out early).  Very safe, not as liquid investment.

9.  Stock investments- Becoming part owner of a company.  Purchasing single stocks is extremely risky  can potentially yield a very high return.

10.  Bond investments- Lending money to a company or the government.  Like a CD, there is a minimum amount required and it must be invested for a certain period of time.

11.  Mutual Fund- Money is pooled together from multiple investors and is invested among many different companies.

12.  Mutual funds are the best long-term investment.  The stock market has averaged a 12% return since its inception.  A mutual fund spreads around the risk of your investment.  There are many different types of mutual funds:  Large, medium, small cap,  domestic, international

13.  Large Cap- Large companies (less risk, less potential return)  Medium Cap- Medium sized companies (more risk, more potential return)  Small Cap- Small companies (Most risk, most potential return)  Domestic- American  International- Non-American

14. Investing for the Future

15. College saving  Save in an Education Savings Account (ESA)  You can save $2,000 (after tax) per year, per child.  Start when the child is born  18 years later, invest $36,000  At a 12% growth, that amounts to $126,000 Tax free

16. College Savings  Do NOT save for college using savings bonds.  This will earn 5-6%  Do NOT save for college using pre-paid college tuition.  This will earn 7% (inflation)

17. Investing for the future  IRA/Roth IRA- Accounts that are designed for saving for retirement.  Roth IRA vs. IRA- Both are basically the same thing, however, an IRA is pre-taxed money and a Roth IRA is after-tax money.  Each individual can invest $5,000 in an IRA annually. If you invest in a Roth IRA, you take the money out tax free upon retirement.

18. Traditional IRA  Tax deductible contributions (depending on income level)  Withdraws begin at age 59 1/2 and are mandatory by 70 1/2.  Taxes are paid on earnings when withdrawn from the IRA  Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.)  Available to everyone; no income restrictions  All funds withdrawn (including principal contributions) before 59 1/2  Early withdrawals are subject to a 10% penalty (subject to exception).

19. Roth IRA  Contributions are not tax deductible  No Mandatory Distribution Age  All earnings and principal are 100% tax free if rules and regulations are followed  Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.)  Available only to single-filers making up to $95,000 or married couples making a combined maximum of $150,000 annually.  Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions).

20. 6 Things that Hinder Retirement:  Keeping up with the Joneses  LIVE WITHIN YOUR MEANS  Bad Habits  Cigarettes are around $5.00 per pack.  1 pack a day=$1,800 per year=$91,000 in your working lifetime.  Alcohol costs around $4.00/beer  2 beers/day-$2,920/year=$146,000 in your working lifetime

21.  Under-funding your retirement  10-15% of your income should go towards retirement.  $5,000 per person per year into a Roth IRA  Too much debt  Debt can KILL your retirement. Live within your means. Don’t borrow money for stuff. 6 Things that Hinder Retirement:

22.  Spending too much on entertainment  Entertainment is often sporadic and not planned. Spending too much money eating out, going to concerts, going to sporting events, etc. can REALLY add up fast.  Have an entertainment budget, and STICK TO IT!  Purchasing depreciating items  Cars, boats, computers, etc. all LOSE value as time goes on.  DON’T buy new if you can avoid it.  Buying a new car/boat is the WORST thing that you can do with your money! 6 Things that Hinder Retirement:

23. Car payment vs. investing  A new car is the absolute WORST thing that you can spend your money on!  Once a car leaves the car lot, it loses 20% of its value.  95% of self-made millionaires do NOT buy new cars. It is the worst investment that you can make.  The average car payment among Americans is $464

24.  If you took that $464 and invested it every month instead of making a car payment, how much money would you have in 40 years (Age 25-65)?

25.  $ 5,458,854.45