1. Investments Who wants to be a millionaire?

2. What kind of an investor are you?  Rate all investment options according to three characteristics:  Safety - Relative risk of losing money  Rate of return - percentage earned on your investment  Liquidity - ability to turn asset into cash  Rate all investment options according to three characteristics:  Safety - Relative risk of losing money  Rate of return - percentage earned on your investment  Liquidity - ability to turn asset into cash

3. Savings Options  Passbook or Statement Savings Account  Regular savings account at a bank or credit union  Money is easily accessible.  Guaranteed up to $100K by the Federal Government  Trade - off is that interest rates earned is low (1 to 1 1/2%)  Money Market Deposit Account  Savings account that pays a higher interest rate, gives limited access to money in the form of checks, but requires the saver to maintain a minimum balance.  Also protected up to $100K  Certificates of Deposit  Time deposits - seven days to eight years or more.  Severe penalties for early withdrawal.  Also protected up to $100K  Passbook or Statement Savings Account  Regular savings account at a bank or credit union  Money is easily accessible.  Guaranteed up to $100K by the Federal Government  Trade - off is that interest rates earned is low (1 to 1 1/2%)  Money Market Deposit Account  Savings account that pays a higher interest rate, gives limited access to money in the form of checks, but requires the saver to maintain a minimum balance.  Also protected up to $100K  Certificates of Deposit  Time deposits - seven days to eight years or more.  Severe penalties for early withdrawal.  Also protected up to $100K

4. Government Securities  Savings Bonds are issued by the Federal Government as a way of borrowing money.  Purchased at 1/2 of face value.  Earns a fixed rate of interest until mature.  Attractive to those with limited amounts of money to invest.  Also, earnings are tax exempt until the savings bond is redeemed.  Treasury Bills  Certificates issued by the U.S. Treasury in exchange for a minimum amount of $1,000 (in $1,000 increments) and maturing in 3 months to a year.  Treasury Notes  Same as T-Bills except they take 1 - 10 years to mature.  Treasury Bonds  Same, but with a mturity date of 10 years or more.  Other Government Securities  Tax-Exempt bonds, State Bonds, Local Bonds  Savings Bonds are issued by the Federal Government as a way of borrowing money.  Purchased at 1/2 of face value.  Earns a fixed rate of interest until mature.  Attractive to those with limited amounts of money to invest.  Also, earnings are tax exempt until the savings bond is redeemed.  Treasury Bills  Certificates issued by the U.S. Treasury in exchange for a minimum amount of $1,000 (in $1,000 increments) and maturing in 3 months to a year.  Treasury Notes  Same as T-Bills except they take 1 - 10 years to mature.  Treasury Bonds  Same, but with a mturity date of 10 years or more.  Other Government Securities  Tax-Exempt bonds, State Bonds, Local Bonds

5. Corporate Stocks v. Corporate Bonds  All corporations issue stock.  Stock represents ownership.  Do not have a fixed dividend rate (except preferred stocks).  Dividends are paid only if the corporation makes a profit, and only then at the discretion of the board of directors.  Do not have a maturity date. Shareholders are not repaid by the corp.  Stockholders have a voice in the company by electing the board of directors (except preferred stockholders).  Shareholders have a claim against the property and income of a company, but only after claims of creditors have been met.  All corporations issue stock.  Stock represents ownership.  Do not have a fixed dividend rate (except preferred stocks).  Dividends are paid only if the corporation makes a profit, and only then at the discretion of the board of directors.  Do not have a maturity date. Shareholders are not repaid by the corp.  Stockholders have a voice in the company by electing the board of directors (except preferred stockholders).  Shareholders have a claim against the property and income of a company, but only after claims of creditors have been met.  Corporations are not required to issue bonds.  Bonds represent debt.  Bonds pay a fixed rate of interest.  Interest on bonds must always be paid, whether or not the corporation earns a profit.  Bonds have a maturity date. The bondholder is repaid the value of the bond.  Bondholders have not voice or control in how the company is run.  Bondholders have a claim against the property and income of a corp. that must be met before the claims of any stockholders (including preferred stock).  Corporations are not required to issue bonds.  Bonds represent debt.  Bonds pay a fixed rate of interest.  Interest on bonds must always be paid, whether or not the corporation earns a profit.  Bonds have a maturity date. The bondholder is repaid the value of the bond.  Bondholders have not voice or control in how the company is run.  Bondholders have a claim against the property and income of a corp. that must be met before the claims of any stockholders (including preferred stock).

6. Mutual Funds  Pools the money of many individuals to buy stocks, bonds, or other investments.  Advantages  Professional investment manager.  Diversifies investments resulting in lower risk.  Disadvantages  Management fees.  Less control of how your money is invested.  Diversification may yield lower returns than buying individual stocks, stocks, bonds, etc.  Pools the money of many individuals to buy stocks, bonds, or other investments.  Advantages  Professional investment manager.  Diversifies investments resulting in lower risk.  Disadvantages  Management fees.  Less control of how your money is invested.  Diversification may yield lower returns than buying individual stocks, stocks, bonds, etc.

7. Mutual Funds, Cont’d  Indexed Stock Market Mutual Funds  Can minimize management fees by buying into a stock market mutual fund pegged to a stock market index.  The mutual Fund mirrors a fixed list / index of stocks such as the Standard and Poors 500.  No need for a manager as changes to the fund occur automatically as the index changes.  Lower management fees.  You earn “market” returns.  Bond Market Mutual Funds  Money Market Funds  Mutual fund that uses investors’ money to make short-term loans to businesses and banks  Can write checks, but only above a minimum amount such as $500.  Not insured like Money Market deposit accounts.  Indexed Stock Market Mutual Funds  Can minimize management fees by buying into a stock market mutual fund pegged to a stock market index.  The mutual Fund mirrors a fixed list / index of stocks such as the Standard and Poors 500.  No need for a manager as changes to the fund occur automatically as the index changes.  Lower management fees.  You earn “market” returns.  Bond Market Mutual Funds  Money Market Funds  Mutual fund that uses investors’ money to make short-term loans to businesses and banks  Can write checks, but only above a minimum amount such as $500.  Not insured like Money Market deposit accounts.

8. Other Investments  Individual Pension Plans  Individual Retirement Account (IRA)  Private retirement plan allows you to save up to $3,000, deduct that amount from taxable income, and not pay taxes on interest earned until withdrawn after 59 1/2.  Roth IRA - Do not deduct contributions from taxes, but interest earned is tax free.  Commodities - Gold, Oil, Pork Bellies, Cocoa, Etc.  Real Estate, Coins, Art, Antiques, Beannie Babies, anything that you believe will grow in value over time.  Individual Pension Plans  Individual Retirement Account (IRA)  Private retirement plan allows you to save up to $3,000, deduct that amount from taxable income, and not pay taxes on interest earned until withdrawn after 59 1/2.  Roth IRA - Do not deduct contributions from taxes, but interest earned is tax free.  Commodities - Gold, Oil, Pork Bellies, Cocoa, Etc.  Real Estate, Coins, Art, Antiques, Beannie Babies, anything that you believe will grow in value over time.