Chapter 6Chapter 6

Saving and InvestingSaving and Investing

Section 6-1: Why Save?Section 6-1: Why Save?

Deciding to saveDeciding to save People save for purchases that require more funds People save for purchases that require more funds

than available, for emergencies, and for retirement.than available, for emergencies, and for retirement. Economies benefit from individuals who save Economies benefit from individuals who save

because people have more money to invest or because people have more money to invest or spend, leading to expanding business.spend, leading to expanding business.

When choosing a place to save, think about trade-When choosing a place to save, think about trade-offs.offs.

Savings AccountsSavings Accounts Passbook, regular, or statement savings Passbook, regular, or statement savings

accounts accrue a low interest but allow accounts accrue a low interest but allow immediate access to funds.immediate access to funds.

Money market accounts accrue high interest Money market accounts accrue high interest with immediate access through checks, but with immediate access through checks, but have a high minimum balance requirement.have a high minimum balance requirement.

Time DepositsTime Deposits Time deposits refer to a wide range of savings plans Time deposits refer to a wide range of savings plans

or certificates of deposit (CDs) with a high interest or certificates of deposit (CDs) with a high interest rate that increases over time, but a person cannot rate that increases over time, but a person cannot remove funds before a certain time period or remove funds before a certain time period or maturity without paying a penalty.maturity without paying a penalty.

Before the 1930s, people could lose all the money in Before the 1930s, people could lose all the money in their accounts if the bank failed.their accounts if the bank failed.

Now the federal government insures bank accounts Now the federal government insures bank accounts (in FDIC member banks) up to $100,000, giving (in FDIC member banks) up to $100,000, giving people security when making deposits.people security when making deposits.

Section 6-2: Investing: Section 6-2: Investing: Taking Risks with your Taking Risks with your SavingsSavings

Stocks and BondsStocks and Bonds Stocks entitle the buyer to future profits and assets Stocks entitle the buyer to future profits and assets

of the corporation.of the corporation. Stockholders make money through dividends, return Stockholders make money through dividends, return

on bought stock, or by speculating- buying stock on bought stock, or by speculating- buying stock hoping it will increase in price so they can sell it at hoping it will increase in price so they can sell it at profit.profit.

A capital gain is money earned by selling stock for A capital gain is money earned by selling stock for more than you paid for it.more than you paid for it.

A capital loss is money lost by selling stock for less A capital loss is money lost by selling stock for less than you paid for it.than you paid for it.

Stocks and Bonds cont…Stocks and Bonds cont… A bond is a certificate promising to repay a loan at a A bond is a certificate promising to repay a loan at a

stated interest rate.stated interest rate. A bondholder is NOT part-owner of the organization.A bondholder is NOT part-owner of the organization. Tax-Exempt bonds earn tax-free interest.Tax-Exempt bonds earn tax-free interest. With savings bonds you pay half of the bond’s face With savings bonds you pay half of the bond’s face

value and the interest increases yearly until the face value and the interest increases yearly until the face value is reached.value is reached.

T-Bills, T-Notes, and T-Bonds are government T-Bills, T-Notes, and T-Bonds are government bonds exempt from state and local tax and mainly bonds exempt from state and local tax and mainly for larger investments.for larger investments.

Stock and Bond MarketsStock and Bond Markets Stocks are bought/sold through brokers.Stocks are bought/sold through brokers. Stocks are traded at stock exchanges.Stocks are traded at stock exchanges. Stocks that are not traded in specific place are Stocks that are not traded in specific place are

called over-the-counter stocks.called over-the-counter stocks. Bonds are sold on exchanges and over-the-counter Bonds are sold on exchanges and over-the-counter

markets.markets. Mutual funds are investment companies that Mutual funds are investment companies that

combine many investors’ funds to buy a large combine many investors’ funds to buy a large variety and quantity of stocks.variety and quantity of stocks.

Stock and Bond Markets cont…Stock and Bond Markets cont… Some mutual funds mirror index funds.Some mutual funds mirror index funds. Managed mutual funds have managers who Managed mutual funds have managers who

adjust and mix the stocks bought, attempting adjust and mix the stocks bought, attempting to generate the highest yields.to generate the highest yields.

Money market mutual funds allow inventors Money market mutual funds allow inventors to write checks against the money in the to write checks against the money in the fund.fund.

Government RegulationsGovernment Regulations The Securities and Exchange Commission The Securities and Exchange Commission

regulates brokerage firms, stock exchanges, regulates brokerage firms, stock exchanges, and most businesses that issue stock.and most businesses that issue stock.

Congress passed the Securities Act to avoid Congress passed the Securities Act to avoid another stock market crash.another stock market crash.

The Act requires a prospectus to be given to The Act requires a prospectus to be given to each potential buyer of stocks or bonds.each potential buyer of stocks or bonds.

Section 6-3: Special Section 6-3: Special Savings Plans and GoalsSavings Plans and Goals

Investing for RetirementInvesting for Retirement Most companies have pension plans, such Most companies have pension plans, such

as 401k, that provide retirement income.as 401k, that provide retirement income. Some people will combine a retirement plan Some people will combine a retirement plan

with their Social Security checks because with their Social Security checks because Social Security alone is not enough.Social Security alone is not enough.

Personal or private pension plans have the Personal or private pension plans have the benefit of tax savings.benefit of tax savings.

Investing for Retirement cont…Investing for Retirement cont… The Keogh plan is an individual retirement plan for The Keogh plan is an individual retirement plan for

self-employed people where they can save up to self-employed people where they can save up to 15% of income.15% of income.

Traditional IRAs allow you to contribute up to $5000 Traditional IRAs allow you to contribute up to $5000 per year, which is not taxed when put in, and any per year, which is not taxed when put in, and any earnings and interest are not taxed until money is earnings and interest are not taxed until money is withdrawn.withdrawn.

Roth IRAs allow you to save up to $5000 per year, Roth IRAs allow you to save up to $5000 per year, which is taxed when put in, interest and earnings which is taxed when put in, interest and earnings are never taxed, and money is not taxed when are never taxed, and money is not taxed when withdrawn.withdrawn.

Investing for Retirement cont…Investing for Retirement cont… Real estate is a popular form of investing for Real estate is a popular form of investing for

the future.the future. Housing generally increases in value over Housing generally increases in value over

time.time. Buying undeveloped land is a more risky Buying undeveloped land is a more risky

investment.investment. It is hard to turn real estate into cash on It is hard to turn real estate into cash on

short notice.short notice.

How much to save and invest?How much to save and invest? There are many factors involved in deciding how There are many factors involved in deciding how

much to save versus how much to investmuch to save versus how much to invest Invest in several different types of accounts to lower Invest in several different types of accounts to lower

your overall risk (diversify)your overall risk (diversify) If you cannot afford any losses, use banks or If you cannot afford any losses, use banks or

savings bonds.savings bonds. Your values may affect your investment choices.Your values may affect your investment choices.