1. Savings and Investment Options Stocks, Bonds, Mutual Funds, etc.

2. Risk v. Return GENERALLY SPEAKING –Higher risk investments  Higher POTENTIAL returns (and greater potential losses) –In economics, EVERY investment has risks –Ex. FDIC insured savings account Risk of inflation Risk of missed potential returns

3. Low Risk, Low Return Savings deposit accounts (.10%-1.15%) You put money here when you plan to use it soon Certificate of Deposits (.5 %-2.4%) Money Market Accounts (1%) Advantages? –Security/Safety –Liquidity Your Portfolio 6-12 months of expenses should be held in these for emergencies

4. Higher Risk, Higher Return Bonds –Loans to government or businesses –Fixed period of time –Fixed interest rate (5% historical average return) –CAN LOSE VALUE Interest rates rise and you decide to sell your bond Company or government defaults Your portfolio A percentage of your assets should be invested in bonds (depending on age and risk tolerance)

5. EVEN HIGHER RISK, EVEN HIGER RETURN Stocks (SHAREHOLDER) –Ownership (equity) in a corporation –You profit on stocks when: The company pays you dividends from profits You sell your stock for a higher price than you paid (average historical return 11%) capital gains CAN LOSE VALUE –Company’s profits drop –Company goes bankrupt –Stock market drops in value for other reasons YOUR PORTFOLIO A percentage of your assets should be invested in stocks depending on age and risk tolerance

6. Moderate Risk, Moderate Return Mutual Funds (and ETF’s) –Portfolio of many stocks and/or bonds –Net Asset Value- cost for one “share” of fund –You pool your money with other investors –Index funds vs. Actively managed funds –Diversification!!!! The main way to manage risk YOUR PORTFOLIO The average investor can maximize returns while minimizing risk by investing in mutual funds that contain stocks and bonds

7. Other Investment Choices Gold (speculative) Commodities (oil, wheat, copper, etc.) Currencies (“Forex”) These tend to be more volatile (risky) than other investment choices

8. IRAs: Individual Retirement Accounts: $5,000 per year Conventional IRA You invest money and save on taxes now “Tax deferred” You don’t pay taxes till you withdraw after retirement Roth IRA “Tax free” You invest money now after paying taxes on it You pay no taxes on the money when you withdraw after retirement