Saving vs Investing
Credit union
A non profit financial institution owned by its members
Stock
A share of ownership in a company
B: US Government Bonds (Series EE)
Bonus: No state taxes on interest earned
US Government Bonds (Series EE)
Buy a $100 bond (Face Value) for $50 and in 20 years you get $100 at maturity.
Asset allocation- how
Diversify
In: money market
Earns higher interest
In: savings
Earns modest interest
Blue Chip Stocks
Established companies with good reputations. Usually pay dividends and are considered less risky Ex: Wal-Mart, Coca-Cola, Procter and Gamble
In: certificate of deposit
Highest interest (longer time means longer interest)
Asset allocation- why
Highest return and least risk
Asset allocation
How and where you choose to invest your money
L: certificate of deposit
Least liquid
L: Savings, Money Market
Less liquid than checking (allowed 6 withdrawals each month)
L: Checking
Little or no interest
Asset allocation- goal
Maximize earnings, limit risk, and protect against inflation
B: Municipal Bonds (from a CITY)
No federal state or local taxes on interest earned
Shareholder
Owner of the stock
Proxy
Ownership has its perks--You get a vote--most shareholders vote on company business online or through the mail
Real Estate
Ownership of residential or commercial property or land. Investors earn capital gains when selling properties for more than the purchase price. Investors can also earn rental income. Can be time consuming but the potential for returns is high
Market price
Price of one share
Savings tools
Secure, liquid accounts offered by banks and credit unions
Dividends
Share of profits distributed in cash to shareholders (not all stocks pay these)
Capital loss
Stockholder will lose money
Money market
Strict savings account, required high minimum balances
Growth Stocks
The market predicts these businesses will grow. May not pay dividends while growing. Much riskier, attracts investors looking for capital gains Ex: Google
Capital gain
Unearned income from sale of asset above purchase price
Checking account
Used for everyday spending
Corporate bonds
Used to continue business investment - taxable
Municipal Bonds (from a CITY)
Used to pay for schools, roads and public services
Savings account
Used to save money
Certificate of deposit
Very strict savings account, high initial deposit required
Mutual Fund
When a company combines the funds of many different investors and then invests that money in a diversified portfolio of stocks and bonds
bond
form of lending to a company or government. Company or government pays interest up until the maturity date. Has little investment risk and a fixed interest rate
maturity date
specified time in the future when the principal amount of the bond is repaid to the investor
inflation
the general rise in prices that would have a negative impact on money saved, making money saved today not worth as much in the future
Rate of return
total return on investment expressed as a percentage of the amount of money saved. Must be higher than inflation
