Saving and InvestingChapter 11

Saving- the setting aside of income for a period of time so that it can be used later

– A savings account pays interest, has no maturity date, and allows funds to be withdrawn at any time without penalty.

– Money market deposit account (MMDA) pays relatively high rates of interest, requires a minimum balance of $1,000 to $2,500, and allows immediate access to funds.

Time deposits require savers to leave their funds on deposit for certain periods of time, or maturity.

Time deposits are often called certificates of deposit (CDs), or savings certificates.

Options for savings accounts

After the stock market crash of 1929, the Federal Deposit Insurance Corporation (FDIC) was created to protect peoples’ funds.

Each person’s funds in a particular savings institution are insured up to $250,000.

FDIC

Corporations are formed by selling shares of stock. Stockholders are people who have invested in a

corporation and own some of its shares of stock. (They own part of the company)

You benefit from a stock in 2 ways:1. Dividends2. Selling itCapital Gain- Profit from stock- Sell it for more than

you paidCapital Loss- sells stock at lower price then he

bought it for.

Stocks:

Bull Market- Market is upBear Market- Market is down

The government or a company borrowing money from you.

It promises to pay you a stated rate of interest for a specific period of time.

Savings Bond- range from $50 to $10,000.

It is very safe and not taxed until cashed in.

It is purchased at half the face value and increases every 6 months until maturity.

Bonds:

Types of retirement savings plans:

– A pension plan is a company supported plan like a 401(k) that is not taxed until used.

– A Keogh plan is a retirement plan for self-employed individuals.

An individual retirement account (IRA) is a private retirement plan for individuals. • Contributions are deductible from taxable

income.

• Taxed when taken out.

Saving for Retirement:

– A Roth IRA is a private plan for individuals.

• Taxes income before it is saved.

• Does not tax interest on that income when funds are used upon retirement.

– Buying real estate, such as land and buildings, is another form of long term investing.

Retirement continued. . . . .

How much to save and invest is determined by each individual’s income, risk tolerance, and values.

The higher the promised return on an investment, the greater the risk.

When you have very little income, you should probably put your savings lower risk accounts.

It is important to practice diversification to lower your overall risk.

Your values may also determine where you invest your savings.

How much to save and invest?

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