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Saving and Investing

Saving and Investing. Chapter 11. Saving- the setting aside of income for a period of time so that it can be used later. Options for savings accounts. A savings account pays interest, has no maturity date, and allows funds to be withdrawn at any time without penalty.

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Saving and Investing

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  1. Saving and Investing Chapter 11

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

  3. Options for savings accounts • A savings account pays interest, has no maturity date, and allows funds to be withdrawn at any time without penalty.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.

  4. FDIC • 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.

  5. Stocks: • 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: • Dividends • Selling it Capital Gain- Profit from stock- Sell it for more than you paid Capital Loss- sells stock at lower price then he bought it for.

  6. Bull Market- Market is upBear Market- Market is down

  7. Bonds: • 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.

  8. Saving for Retirement: Types of retirement savings plans: • Apension planis a company supported plan like a 401(k) that is not taxed until used. • AKeogh planis a retirement plan for self-employed individuals. • Anindividual retirement account (IRA) is a private retirement plan for individuals. • Contributions are deductible from taxable income. • Taxed when taken out.

  9. Retirement continued. . . . . • A Roth IRAis 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.

  10. How much to save and invest? • 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 diversificationto lower your overall risk. • Your values may also determine where you invest your savings.

  11. Page 294 Reading a stock table

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