19-1 Saving and Investment Planning 19-2 Stock Investments 19-3 Bonds and Mutual Funds

1. 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 SAVINGSAND 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 OFDIFFERENT YIELDS $100 Invested for 20 Years at Different Yields with Annual Compounding

10. INVESTMENT PYRAMID

11. KEY TERMS • Preferredstock – has priority over common stock in the payment of dividends • Commonstock – 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 • Stockexchange – a business organization that accommodates the buying and selling of securities • Marketvalue – the price at which a share of stock can be bought and sold in the stock market

12. STOCK SELECTION • Stockinformationsources • Economicfactors • Inflation – higher prices can result in lower spending by consumers, reducing company profits • Interestrates – as the cost of money changes, company profits can increase or decline • Consumerspending – 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

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