When deciding where to invest your money, there are three factors you should always consider…
Banks = safe. Under the mattress = not safe Stock Market = less safe
Stocks, for example, have market risk associated with them. The value of stock can rise and fall dramatically, especially in the short term.
Interest is your reward for giving up money and allowing a financial institution to use it. Compound interest —computed on the sum of savings you deposit (principal) plus the accumulated interest measured at regular intervals.
A measurement of how quickly you can convert your savings to cash. Some investments are more liquid than others.
Very safe investments with low rates of return. Checking Accounts—Low interest and high liquidity Certificates of Deposit (CD’s)— Higher interest, less liquid
Insured deposits that allow you to write a limited amount of checks. Offer much liquidity, but lower interest rates than a CD.
Funds that are invested in stocks, mutual funds, etc. Examples: IRA, 401(k), 403(b), Employee Stock Ownership Plans (ESOP). Usually tax deferred — meaning you don’t pay taxes on the interest you earn.
One share of stock=one part ownership in a company. Profits are sometimes given to the shareholder in the form of a dividend. As company’s grow, the value of stocks also grow.
IOU’s issued by a company to a bondholder. Bonds can rise or fall depending on the success of a company.
Special investment companies where people pool their money to make a variety of investments. A mutual fund company may own stock in over 300 firms.
When the US treasury borrows money from you. Sold at a discount (usually half the face value) and then can be redeemed when they mature.
People pay a monthly premium to ensure their family is cared for in the event of an emergency.
Appreciable Assets—Buying something that you think will be worth more in the future. Foreign exchange—Other country’s currency. Commodities—Precious metals and gems
Allows you to enjoy goods and services before you pay for them fully. When you borrow money, you must pay the principal plus interest.
Principal—The amount that is borrowed. Interest—The cost of borrowing money, usually defined by APR (Annual Percentage Rate)
Home Mortgages Auto and Consumer Loans Store Charge Accounts Credit Cards
Credit worthiness is judged by the following characteristics: ◦ Character (record of repayment) ◦ Capacity to repay debts ◦ Capital—what you own
Must prove that you can handle financial obligations.
Open and be responsible with a checking and savings account. School Loans. Open a charge account/credit card and pay the entire balance off every month!
Ways to use life insurance policies: ◦ Create an estate ◦ Create a college fund ◦ Fund a business transfer ◦ Pay off a home mortgage ◦ Guarantee loans
Auto Homeowners Liability Health Disability