Unit 3: Investing

Savings accounts

An account that you have at a financial institution that helps you accumulate and save money and earn a small amount of interest at the same time; very low risk. (Unit 3 & 5)

Mutual Funds

An investment security that is actually a diversified portfolio of equities, bonds, or other securities. Investors purchase shares and can sell them at any time. (Unit 3)

Stocks

An investment that makes the investor a part owner of a company. (Unit 3)

The difference between saving and investing

1. Saving is usually done when people want to meet short-term goals. There is low risk, and you can ensure that your $ will be safe in a savings account. 2. Investing means you're setting $ aside for longer-term goals. No guarantee that the $ invested will grow. Higher risk.

Rule of 72

A mathematical method that can be used to show how long it will take to double your money in an investment simply by dividing 72 by the rate of interest. (Unit 3) Method one: 72 ÷ % interest = # of years Method two: 72 ÷ # of years = % interest

U.S. Savings Bonds

Can buy this type of income investment from almost any financial institution or directly from the government. There are two main types: Series EE and Series I. With this income investment, there is no liquidity (pg. 35)

Different types of investment

Commodities, Penny stocks, collectibles, speculative stocks/bonds/mutual funds, etc. (Refer to Fig. 3-2 on pg 33)

Compounding interest

Earning interest on interest. (Unit 3)

Real Estate

Investors buy property, such as land or buildings, hoping to generate profit. Considered less liquid than stocks because it's more complicated to sell. (pg. 37)

Collectibles

Items that are relatively rare in number. Examples include paintings, sculptures, etc. People buy these types of income investments in hope that its value will increase over time. Because there is such a small market for this type of investment, investors view them as VERY high risk. (pg. 37)

Saving

Money that is set aside to be used for a future purpose. (Unit 3)

Investing

Putting money to use in a venture that offers the possibility of growing in value as interest, income, or increased value. (Unit 3)

Time value of money

This refers to the relationship among time, money, and rate of interest.

Money Market Mutual Funds (MMMF)

Similar to MMDAs. Often offered by mutual fund companies and brokerages. This type of income investment is designed to be a stable way to save your $ and earn potential income. They are not insured by the U.S. federal government because it is a mutual fund (pg. 36)

Earned Interest

The payment you receive for allowing a financial institution or corporation to use your money. (Unit 3)

Money Market Deposit Accounts (MMDA)

This is very similar to checking accounts - put money in; write $ on it. There is a higher interest rate than a checking account; very limited to the number of checks you can write on this account due to the fact that you are earning interest - fairly liquid - not much risk (pg. 35)

Corporate and Government Bonds

This type of income investment typically pays the highest interest rates. They are more involatile than government bonds. There is also a possibility that corporate bonds could go bankrupt. (pg. 36)

Certificates of deposit (CD)

When buying this from a financial institution, you are essentially loaning money for a set period of time and getting interest in return. The longer the term, the higher the rate of interest paid. It is very similar to a US savings Bond. However in this case, you would be giving a loan to a bank. (pg. 35)

Growth Investments

With this type of investment there is higher risk and less liquid. However, it is not government insured and it is more volatile. There is also a potential for loss, but there is a possibility for quick $$. Examples: 1. Stocks 2. Real Estate 3. Collectibles 4. Mutual Funds

Income Investments

With this type of investment there is lower risk and more liquid. Some of these investments are government insured. They are less volatile and there is interest. With lower risk, it will take longer to make money. It's more steady, however, and less high maintenance. It is easier to increase your initial investment Examples: 1. Savings Account 2. US Savings Bond 3. Certificate of Deposit (CD) 4. Money Market Deposit Account (MMDA) 5. Money Market Mutual Funds (MMMF) 6. Corporate and Government Bonds