Saving & Investing Chapter 8

Establishing your financial goals  To gather funds, you need to plan carefully – and have self-discipline along the way  Emergency fund- savings account that you can access quickly to pay for unexpected expenses or emergencies

Making investment decisions  Safety & risk  Speculative investment- high-risk investment that might earn a large profit in a short time.  Possibility that at any time you could lose most or all of the money you invest

5 Components of Risk 1. Inflation 2. Interest rate 3. Business failure  Dividends – distributions of money, stock, or other property that a corporation pays to stockholders 4. Financial market 5. Global investment

Retained earnings  Profits that a company reinvests, usually for expansion or to conduct research & development  Investment liquidity- ability to buy or sell an investment quickly without substantially reducing its value

Savings & investment options  Equity capital- money that a business gets from its owners in order to operate  Common stock- a unit of ownership of a company & its entitles the stockholder to voting privileges  Preferred stock- type of stock that gives the owner the advantage of receiving cash dividends before common stockholders do.

Corporate & government bonds  Corporate bond- corporation’s written pledge to repay a specific amount of money, along with interest  Government bond- written pledge of a government to repay a specific sum of money with interest  Mutual fund- investment in which investors pool their money to buy stocks, bonds, & other securities.

Diversification  Process of spreading your assets among several different types of investments to reduce risk  Reducing risk  Financial planner- specialist who is trained to offer specific financial help & advice

Tax considerations  Tax-exempt income- income that is not taxed (ex. Interest you receive from government bonds)  Tax-deferred income- income that is taxed at a later date (ex. Pensions)  Capital gain- profit from the sale of assets (stocks, bonds, or real estate)  Capital loss- sale of an investment for less than its purchase price

Corporate reports  Prospectus – document that discloses information about a company’s earnings, assets, & liabilities, its products or services, & qualifications of its management