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The Basics of Investing

The Basics of Investing. Ms. Lewis Personal Finance. General Overview. There are no sure things when investing Any investment has a certain degree of risk Most securities are not insured by the federal government. What is investing?.

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The Basics of Investing

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  1. The Basics of Investing Ms. Lewis Personal Finance

  2. General Overview • There are no sure things when investing • Any investment has a certain degree of risk • Most securities are not insured by the federal government

  3. What is investing? • To put money into business, real estate, stocks, bonds, etc. for the purpose of obtaining an income or profit

  4. Vehicles for investment • Mutual funds • Traditional IRAs • Roth IRAs • Savings bonds • Municipal bonds • Stocks • Certificates of deposit

  5. Mutual Fund • An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.

  6. Traditional IRA • Available to everyone: No income restrictions • Can start to withdraw funds from this account at age 55 ½ • Any withdraws before this age and you are subject to a 10% penalty • Funds in a traditional IRA are tax deductible • Ex: If you make $50,000/year and put $2,000 in your IRA, you will only be taxed on $48,000

  7. Roth IRA • Contributions are not tax deductible • Available only to single-filers making $95,000/year or married couple making $150,000/year • Contributions can be withdrawn at any time without incurring a penalty

  8. Savings bond • A bond is a fancy IOU • When the government spends more than it collects in taxes, they sell bonds • Bonds are purchased and mature over time • Savings bonds are considered to be one of the safest investments because they are backed by the federal government

  9. Municipal Bond • Debt obligations issued by states, cities, counties • When purchase a municipal bond, you are lending money to the government, who then promise to pay you back in interest • The money made by municipal bonds are used to build: • Schools • Highways • Hospitals • Sewer systems

  10. Certificate of Deposit (CD) • A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years

  11. When will you get your investment profits? • Some investments pay out earnings on a regular basis (quarterly, monthly, annual) • Others pay at the end of an investment period • Some investments require a period of maturation

  12. What else should you consider when thinking about investing? • Tax ramifications: • Think about investments that offer incentives for saving • Some contributions are tax deductible • Contributions that may not be taxed

  13. Think about diversifying • Diversify your portfolio • Put your money in several investment vehicles • This can protect you from risk • While one investment may be doing poorly, another may make up those losses

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