Ch. 19-1

1. Ch. 19-1 Saving and Investment Planning

2. Saving- Storage of money for future use. • Financial experts recommend that people save 10-15% of their income. • Investing- Using your savings in order to earn more money. • The number 1 rule in investing is DIVERSIFICATION! Diversification spreads around the risk.

3. Liquidity- availability • The more liquid, the less return. • The less liquid, the greater return • The higher the risk, the greater the possible return should be • The lower the risk, the lower the possible return should be

4. Different types of investing:

5. Different types of investing: • Savings account • Money Market account • CD • Stock • Bond • Mutual Fund • Collectibles • Real Estate

6. Savings account- Pay VERY little interest, but is an extremely safe and liquid investment. • A savings account today will yield between .5% and 1.5%

7. Money Market Account- Pays a variable interest rate based on various government and corporate securities. • Usually requires a higher deposit than a CD • pays a little less interest, but is more liquid.

8. Certificate of Deposit (CD)- Allows you to earn more than in a savings account. • Usually requires a minimum deposit and must be invested for a certain period of time (penalized if taken out early). • Very safe, not as liquid investment.

9. Stock investments- Becoming part owner of a company. • Purchasing single stocks is extremely risky • can potentially yield a very high return.

10. Bond investments- Lending money to a company or the government. • Like a CD, there is a minimum amount required and it must be invested for a certain period of time.

11. Mutual Fund- Money is pooled together from multiple investors and is invested among many different companies.

12. Mutual funds are the best long-term investment. • The stock market has averaged a 12% return since its inception. • A mutual fund spreads around the risk of your investment. • There are many different types of mutual funds: • Large, medium, small cap, • domestic, international

13. Large Cap- Large companies (less risk, less potential return) • Medium Cap- Medium sized companies (more risk, more potential return) • Small Cap- Small companies (Most risk, most potential return) • Domestic- American • International- Non-American

14. Investing for the Future

15. College saving • Save in an Education Savings Account (ESA) • You can save $2,000 (after tax) per year, per child. • Start when the child is born • 18 years later, invest $36,000 • At a 12% growth, that amounts to $126,000 Tax free

16. College Savings • Do NOT save for college using savings bonds. • This will earn 5-6% • Do NOT save for college using pre-paid college tuition. • This will earn 7% (inflation)

17. Investing for the future • IRA/Roth IRA- Accounts that are designed for saving for retirement. • Roth IRA vs. IRA- Both are basically the same thing, however, an IRA is pre-taxed money and a Roth IRA is after-taxmoney. • Each individual can invest $5,000 in an IRA annually. If you invest in a Roth IRA, you take the money out tax free upon retirement.

18. Traditional IRA • Tax deductible contributions (depending on income level) • Withdraws begin at age 59 1/2 and are mandatory by 70 1/2. • Taxes are paid on earnings when withdrawn from the IRA • Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.) • Available to everyone; no income restrictions • All funds withdrawn (including principal contributions) before 59 1/2 • Early withdrawals are subject to a 10% penalty (subject to exception).

19. Roth IRA • Contributions are not tax deductible • No Mandatory Distribution Age • All earnings and principal are 100% tax free if rules and regulations are followed • Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.) • Available only to single-filers making up to $95,000 or married couples making a combined maximum of $150,000 annually. • Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions).

20. 6 Things that Hinder Retirement: • Keeping up with the Joneses • LIVE WITHIN YOUR MEANS • Bad Habits • Cigarettes are around $5.00 per pack. • 1 pack a day=$1,800 per year=$91,000 in your working lifetime. • Alcohol costs around $4.00/beer • 2 beers/day-$2,920/year=$146,000 in your working lifetime

21. 6 Things that Hinder Retirement: • Under-funding your retirement • 10-15% of your income should go towards retirement. • $5,000 per person per year into a Roth IRA • Too much debt • Debt can KILL your retirement. Live within your means. Don’t borrow money for stuff.

22. 6 Things that Hinder Retirement: • Spending too much on entertainment • Entertainment is often sporadic and not planned. Spending too much money eating out, going to concerts, going to sporting events, etc. can REALLY add up fast. • Have an entertainment budget, and STICK TO IT! • Purchasing depreciating items • Cars, boats, computers, etc. all LOSE value as time goes on. • DON’T buy new if you can avoid it. • Buying a new car/boat is the WORST thing that you can do with your money!

23. Car payment vs. investing • A new car is the absolute WORST thing that you can spend your money on! • Once a car leaves the car lot, it loses 20% of its value. • 95% of self-made millionaires do NOT buy new cars. It is the worst investment that you can make. • The average car payment among Americans is $464

24. If you took that $464 and invested it every month instead of making a car payment, how much money would you have in 40 years (Age 25-65)?

25. If you took that $464 and invested it every month instead of making a car payment, how much money would you have in 40 years (Age 25-65)? • $5,458,854.45