Investing: Taking Risks With Your Savings

1. Investing: Taking Risks With Your Savings Mr. Mizak Economics Fall 2009

2. Stocks and Bonds • As we have learned, saving plans offer a safe rate of interest. • What do people do if they want to make more money? • First, you must be willing to take on more risk • Stocks and bonds offer greater returns but much more risk

3. Stocks • Corporations are formed by selling shares of stock. • By selling stock a company obtains funds for use in expanding business and (hopefully) making a larger profit • Shares entitle the buyer to a certain part of the future profits of the company

4. Stock Returns • On stocks money is made in two ways • 1) Dividends- money given to a stockholder on the amount of money originally invested in the company • 2) Individual sells the stock for more than they paid for it.

5. Bonds • Bond- A certificate issued by a company or the government in exchange for borrowed money. • Bonds pay a stated rate of interest over a stated period of time • Buying bonds does not make a bondholder part owner of the company

6. Savings Bonds • The U.S. government issues savings bonds as one of its ways of borrowing money • Very safe form of investment • Because of this safety, rates are not very high • Not taxed until the bond is turned in for cash

7. T-Bills, T-Notes, and T-Bonds • Treasury Department sells several types of investment. • Treasury Bills- mature in 3 months to a year. • Minimum amount of investment is $1,000 • Treasury Note- 1- 10 years • Treasury Bonds- 10 years or more • Minimum investment $1,000 • All three are exempt from state and local income taxes but not federal income tax

8. Mutual Funds • Mutual Funds- An investment company that pools the money o f many individuals to buy stocks, bonds, or other investments • Pros/Cons • Highly diversified • Losses in one sector will most likely be made up in another • Not likely to turn huge profits