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I. Types of Investments Buying stock

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Presentation on theme: "I. Types of Investments Buying stock"— Presentation transcript:

1 I. Types of Investments Buying stock
Stock is issued in portions known as shares- portions of the company Corporations sell stock to raise money to start, run, or expand their business Dividends- portion of profits shared with investors (size depends on company profits)

2 Types of corporations and stock
Closely held corporations- stock only offered to a few people (ex: family) Publicly held corporations- many shareholders buy or sell stock on the open market

3 Common stock- voting owners of company, one vote per stock
Preferred stock- nonvoting members but receive dividends first Mutual funds- collection of various stocks, usually less yield but less risk Bonds- gov’t loans, less flexible and less yield but no risk

4 Retirement Accounts 7. Traditional IRA: an investment or savings account in which the money invested isn’t taxed, and profits on investments are also not taxed, but taxes must be paid on funds withdrawn from the account when you retire. Tax deferred. 8. Roth IRA: An investment where there is a tax deduction on contributions. However, you also don’t pay taxes on money (including profits) withdrawn from the account later on. Tax free. For both there is a set amount that is limited on what you can contribute.

5 What is the difference between tax-free and tax-deferred?
Many investors confuse the term "tax-free" with "tax-deferred." There's a huge difference between the two. When you make a tax-free investment, the annual income and any profit you make when you sell will not be taxed -- ever. When you make a tax-deferred investment, you will eventually owe tax on the profit the investment generates. However, these taxes can be put off to some future date. A good example of a tax-free investment is a municipal bond. Interest payments from a muni bond are never subject to federal income taxes (capital gains are taxable), and they're also free from state taxes if you live in the state where the bond was issued. Perhaps the best example of a tax-deferred investment is a Traditional Individual Retirement Account (IRA). The investments you make inside the account generate taxable income, but you wont have to pay the taxes until you start making withdrawals in retirement.

6 Low Risk-Low Interest Investments
8.CD’s: Certificate of Deposit. Short- or medium term, interest- bearing, FDIC-insured debt instrument offered by banks and savings and loans. CDs offer higher rates of return than most comparable investments in exchange for tying up invested money for the duration of the certificate's maturity. Money removed before maturity is subject to a penalty. CDs are low risk, low return investments, and are also known as "time deposits, because the account holder has agreed to keep the money in the account for a specified amount of time, anywhere from three months to six years. Benefits: Low risk. Disadvantages: Low interest, not liquid- you must keep it for the term or pay penalty. Have to have at least $ to invest. 9.Money Market Account: Works like a savings account but earns more interest- has some liquidity. Allows you withdraw only 6 times a year.

7 401k Retirement Accounts A traditional 401(k) allows an employee to save money toward his or her retirement and receive a tax deduction.   The employer sponsoring the plan can offer to match any money the employee puts into his or her account, also receiving a tax deduction.  The money in the 401(k) account, which belongs to the employee, can grow tax- deferred until retirement.  That means you don't have to pay taxes on the dividends, or interest.  After the 401(k) owner reaches the age of 59 1/2, he or she can begin taking regular withdrawals from the account, at which point regular taxes must be paid on the money just as if it had been earned from a paycheck. Benefits: Allows a person to save for retirement to supplement Social Security. You take it out of your paycheck and can up the deductions as you see fit.

8 Questions to answer: Ticket out
Your best friend has inherited $8000 from his/her grandmother who recently passed away. They are looking to go to college next year and have already received the financial aid packet from Lenoir-Rhyne University, so they do not need to spend it on college expenses at the moment What would you advise them to do with the money? Explain why you advise this option?


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