1. The Fundamentals of Investing
Part 2
Personal Finance

2. Saving and Investing
The process of setting aside money and putting it to work by having it earn ______________or dividends or gain __________ in the equities market with the idea of having additional funds to use in the future is described as saving and investing.

3. Treasury Bills (T-Bills)
___________ issued and guaranteed by the Federal Government
Buying a Treasury Bill (T-Bill) is best for investors who are looking for a ________________________ investment. They are considered risk-free since they are backed by the ____________ Government.

4. Real Estate
_______________of residential or commercial property or land
Potential for Returns
_________________ (selling the property for more than what was paid)
____________ (charging others for use of the property)
Real estate can be time consuming but the potential for returns is _____________

5. Real Estate
When renting as an investment, you have the ________ that if your property is not rented, you will lose your ____________.
As the landlord, you are responsible for maintenance of the property. These ________________ can generally be deducted from your taxes.

6. Speculative Investments
____________ risk investments
Have the potential for significant fluctuations in return over a ____________ period of time
Futures
Options
Collectibles
Type of return depends on the investment

7. Futures
A futures contract is a type of derivative instrument, or financial contract, in which two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price. If you buy a futures contract, you are basically agreeing to buy something that a seller has not yet produced for a set price. But participating in the futures market does not necessarily mean that you will be responsible for receiving or delivering large inventories of physical commodities - remember, buyers and sellers in the futures market primarily enter into futures contracts to hedge risk or speculate rather than to exchange physical goods (which is the primary activity of the cash/spot market). That is why futures are used as financial instruments by not only producers and consumers but also speculators. 

8. Futures vs. Options
The primary difference between options and futures is that options give the holder the right to buy or sell the underlying asset at expiration, while the holder of a futures contract is obligated to fulfill the terms of his/her contract.  In real life, the actual delivery rate of the underlying goods specified in futures contracts is very low. This is a result of the fact that the hedging or speculating benefits of the contracts can be had largely without actually holding the contract until expiry and delivering the good(s). For example, if you were long in a futures contract, you could go short in the same type of contract to offset your position. This serves to exit your position, much like selling a stock in the equity markets would close a trade.

9. Mutual Funds
When a company raises money from investors and invests that money in stocks, bonds or other securities. An investment which holds a wide __________ of different investment instruments, providing __________________ (reducing your risk by investing in different types of securities)
What is Included
Bonds
Stocks Real Estate Speculative Investments
Type of Returns
Interest
Dividends
Rents
Capital Gains

10. Mutual Funds http://www.youtube.com/watch?v=-bLeRnOHq-8
Advantage
Disadvantage
Reduces investment risk
Fees may be high
Saves investors time

11. Ariana has $150 to Invest Option 1 - StockB C D E F G
Ariana invests in one company’s stock
Company C has had a bad year and their market price drops significantly.
Ariana may lose her $150 investment

12. Ariana Has $150 to Invest Option 2 – Mutual FundB C D E F G
Market price of companies C and F decreased
Market price increased for all other companies
Ariana has reduced her investment risk and may still earn money

13. Index Fund Index Fund Index Example
Type of mutual fund designed to reduce fees by investing in the stocks and bonds that make up the _______
Index
Group of _____________ stocks and bonds
Example
Standard and Poor’s 500

14. Portfolio Diversification
Portfolio ___________________ – reduces risk by spreading money among a wide array of investments
Goal: create a collection of investments that will provide an acceptable _____________ with an acceptable exposure to ____________
Reduces investment ____________
Investing in a _________ fund is an automatic form of portfolio diversification

15. Tax-Advantaged Investments
Government encourages people to invest in certain types of investments
Savings and investments are a form of __________ income and therefore subject to income tax
Tax-advantaged investments reduce, defer or adjust the current year ________ liability
Most common:
Retirement
Education

16. When are taxes for tax-advantaged investments usually paid?
Money is invested and taxes are __________
Money grows ____________ with help from compounding interest
Money is ________________
Money is _________________
Money grows ___________ with help from compounding interest
Money is withdrawn and taxes are ____________ OR

17. Investing for Retirement
Choose an investment
Usually ___________________________
Contribute money
Typically tax-advantaged
When possible, use an employer-sponsored plan
Employer may __________ funds (up to a certain limit)

18. Retirement Accounts _____________ Sponsored Similar plans 401(k)
403 (b) (tax-exempt organizations)
Personal Retirement
_____________ IRA (taxes when money withdrawn)
____________ IRA (taxes paid when money deposited)
The trade-off to tax advantages is most accounts have __________ if money is withdrawn early
There are many other types of plans available

19. Defined contribution pension plan
A company offers a defined-contribution ____________ plan which means that upon retirement the employee will receive the total amount of money contributed __________ investment earnings.

20. Roth IRA
Under normal circumstances, _______________ from a Roth IRA before retirement age are subject to both _________ and a __________. However, use of funds for education, purchase of a first home and medical emergencies are three situations which permit the holder of the IRA to use savings in the funds _____________ incurring a penalty or paying taxes on the amount withdrawn.