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Investment Options

Investment Options. Strategies of Investing Mr. Yates. Categories. Now that you know why you're investing and how to get started, it's time to dig deeper and pick some investments.

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Investment Options

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  1. Investment Options Strategies of Investing Mr. Yates

  2. Categories • Now that you know why you're investing and how to get started, it's time to dig deeper and pick some investments. • As you may have noticed, there are several categories of investments, and many of those categories have thousands of choices within them. • So finding the right ones for you isn't a trivial matter.

  3. For how long? • The single greatest factor, by far, in growing your long-term wealth is the rate of return you get on your investment. • There are times, though, when you may need to park your money someplace for a short time, even though you won't get very good returns. This is called the “Short Term” • Long Term are things like Stocks, Bonds, and Mutual funds

  4. Short Term Options • Savings account: Often the first banking product people use, savings accounts earn a small amount in interest, so they're a little better than that dusty piggy bank on the dresser. • Money market funds: These are a specialized type of mutual fund that invest in extremely short-term bonds. • Unlike most mutual funds, shares in a money market fund are designed to be worth $1 at all times. • Money market funds usually pay better interest rates than a conventional savings account does, but you'll earn less than what you could get in certificates of deposit.

  5. Short Term - Certificates of Deposit • Certificate of deposit (CD): This is a specialized deposit you make at a bank or other financial institution. • The interest rate on CDs is usually about the same as that of short- or intermediate-term bonds, depending on the duration of the CD. • Interest is paid at regular intervals until the CD matures, at which point you get the money you originally deposited plus the accumulated interest. • CDs through banks are usually insured up to $100,000.

  6. Long Term Options • Bonds: Bonds come in various forms. They're known as "fixed-income" securities because the amount of income the bond generates each year is "fixed," or set, when the bond is sold. • From an investor's point of view, bonds are similar to CDs, except that the government or corporations issue them, instead of banks.

  7. Long Term - Stocks • Stocks: Stocks are a way for individuals to own parts of businesses. • A share of stock represents a proportional share of ownership in a company. • As the value of the company changes, the value of the share in that company rises and falls.

  8. Long Term - Mutual Funds • Mutual funds: Mutual funds are a way for investors to pool their money to buy stocks, bonds, or anything else the fund manager decides is worthwhile. • Instead of managing your money yourself, you turn over the responsibility of managing that money to a professional. • Unfortunately, the vast majority of such "professionals" tend to underperform the market indexes.

  9. Last Category – Retirement Plans • A number of special plans are designed to create retirement savings, and many of these plans allow you to deposit money directly from your paycheck before taxes are taken out. • Employers occasionally will match the amount (or a percentage of that amount) you have withheld from your paycheck up to a certain percentage of your salary. (Pssssst … that's what we affectionately call "free money.")

  10. Retirement Plans • Some of these plans let you withdraw money early without a penalty if you want to buy a home or pay for education. • If early withdrawals are not permitted, you may be able to borrow money from the account, or take out low-interest secured loans with your retirement savings as collateral. • Rates of return vary on these plans, depending on what you invest in, since you can invest in stocks, bonds, mutual funds, CDs, or any combination.

  11. IRA • Individual retirement account (IRA): This is one of a group of plans that allow you to put some of your income into a tax-deferred retirement fund -- you won't pay taxes until you withdraw your funds. • Withdrawals are taxed at regular income-tax rates, not at the lower capital-gains rates. • All IRAs are specialized accounts (not investments) that allow the account holder to invest the money however he or she likes. • If you qualify, some or all of your IRA contribution may be tax-deductible.

  12. Roth IRA • Roth IRA: This retirement account differs from the conventional IRA in that it provides no tax deduction up front on contributions. • Instead, it offers total exemption from federal taxes when you cash out to pay for retirement or a first home. • A Roth can also be used for certain other expenses, such as education or unreimbursed medical expenses, without incurring a penalty -- although any earnings that are withdrawn are subject to income taxes unless you are more than 59 ½ years old. • Not all taxpayers are eligible to contribute to a Roth IRA. - You may be able to qualify if you participate in corporate retirement plans and don't qualify for deductible contributions to the conventional IRA.

  13. 400 +1, +k • 401(k): A retirement savings vehicle that employers offer. • It's named for the section of the Internal Revenue Code where it's covered. • Given the tax advantages and the possibility of corporate matching -- those cases when your employer matches part of your contribution -- the 401(k) is well worth considering.

  14. 4,0,what? A who-eee? • 403(b): The nonprofit version of a 401(k) plan. • Local and state governments offer a 457 plan. • Keogh: A special type of IRA that doubles as a pension plan for a self-employed person, who can put aside significantly more than the contributions allowed for an IRA.

  15. SEP Plans • Simplified Employee Pension (SEP) plan: A special kind of Keogh-individual retirement account. • SEPs were created so that small businesses could set up retirement plans that were a little easier to administer than normal pension plans are. • Both employees and the employer can contribute to a SEP.

  16. Stocks • It's worth taking a closer look at stocks, because historically, they've had much better returns than bonds and other investments. • Essentially, stock lets you own a part of a business. • In return for ponying up the dough to finance the company, the investor becomes a part-owner of the company. • That ownership is represented by stock -- specialized financial "securities," or financial instruments -- that are "secured" by a claim on the assets and profits of a company.

  17. Common Stock • Common stock is aptly named -- it's the most common form of stock an investor will encounter. • Common stock is more than just a piece of paper; it represents a share of ownership in a company -- a stake in a real, living, breathing business. • By owning stock -- the most amazing wealth-creation vehicle ever conceived (except for inheriting money from a relative you've never heard of) -- you are a part-owner of a business.

  18. About those stocks • As with most things in life, the potential reward from owning stock in a growing business has some possible pitfalls. • Shareholders also get a full share of the risk inherent in operating the business. • If things go bad, their shares of stock may decrease in value. • They could even end up being worthless if the company goes bankrupt.

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