Saving and investing options
4.03B
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Essential Question

What factors should be considered
in evaluating saving and investing
options?
Saving Options
Savings Plans

Savings account
Usually allows low or zero balance, deposit or
withdrawals anytime and interest to be earned. Usually
withdrawals are allowed without penalties.
 Wachovia Rates and Fees
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https://www.wachovia.com/savings/premiumsavings.html?intcid=PF_BNK_SAV_FP1_R_DPS_PSA_20667_46
5x000_01T#panel3
Bank of America Rates and Fees

http://www.bankofamerica.com/deposits/checksave/index.cfm
?template=save_regular
Saving Options
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Savings Accounts
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Certificates of deposit (CDs)


Requires a minimum deposit, money to remain deposited for
a period of time without penalties. Penalties may be assessed
if money is withdrawn before specified time.
Wachovia Rates and Fees


https://www.wachovia.com/savings/featured-cd.html
Bank of America Rates and Fees

http://www.bankofamerica.com/deposits/checksave/index.cfm?
template=save_overview
Saving Options
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Savings Accounts
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Money market account
Requires a minimum deposit and interest is earned
based on government and corporate securities.
Usually withdrawals are allowed without penalties.
 Wachovia Rates and Fees



https://www.wachovia.com/savings/money-market.html
Bank of America Rates and Fees

http://www.bankofamerica.com/deposits/checksave/inde
x.cfm?template=save_overview
Main Categories of Investing
Options
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Stocks
Bonds
Mutual Funds and Exchange-traded Funds
Real Estate
Commodities
Collectibles
Stock Investments

Two main categories of stock:

Preferred


Pays dividends at a set rate.
Common

Represents general ownership in company and
sharing of profits.
Stock Investments cont.

What are the major similarities and differences
between preferred and common stocks?

Major similarities between preferred and common stock
are:

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Both have investment risks and pay dividends
Major differences between preferred and common stock
are:
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Preferred stock pays dividends before common stock is paid.
Preferred stockholders do not have voting powers; but common
stockholders are invited to annual corporate meetings and
permitted to one vote per share of stock owned.
Preferred stock is less risky than common stock.
Stock Investments cont.
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What are stockbrokers?


How do stockbrokers get paid?


Stockbrokers buy and sell stock and bonds at a
set price for a commission for stockholders.
Commission and fees from the buying and
selling of stocks and bonds.
Stock exchange

The stock exchange is where the trading of
securities take place.
NYSE: New York Stock Exchange www.nyse.com
 NASQAQ:National Association of Securities Dealers
Automated Quotation System www.nasdaq.com

Stock Investments cont.
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What is market value of stock?

The market value of stock is the price for
which a share of stock can be purchased.
What effects the market value of stock?
 What might make the price of a stock increase?
 What might make the price of a stock decrease?
 At what market value do you want to purchase
stock?

Stock Table
A
B
52 Week
Sales
High
Low
C
D
E
F
G
H
I
Vol
100s
High
Low
Last
Chg
6 1/2
-1/8
Stock
Div
Yld
PE
12 1/8
8
AAR
.44
6.2
15
6
6 3/4
6 5/8
49 1/2
31 1/4
ACF
1.76
7.4
7
477
36 1/4
37 5/8
AMF
1.36
6.7
7
133
17 1/2
17 1/2
8
10
33 7/8
33 7/8
26 1/2
6 1/8
16
3 1/8
ARA
2
7
37
17 1/2
33
+3/4
-3/8
-1
Stock Table Key
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A-Highest and lowest price of stock during the past
52 weeks
B-Symbol used to represent the company and
current dividend as dollars per share of stock
C-Dividend yield based on current selling price
D-Price-earning ratio
E-Number of shares exchanged on trading day. The
amount is listed in 100’s.
F-Highest price of a share on trading day
G-Lowest price of a share on trading day
Selecting Stock
Factors that could influence investors in
selecting stock:
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Economic
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Inflation

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Interest rates

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The higher the rate the more an investor can make.
Consumer spending

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The interest rate of the investment must be higher than
the inflation rate to make money.
If consumer’s are spending money the market value of
the stock will rise.
Employment

Lower unemployment rates mean the economy is better
and more people may invest.
Types of Markets
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Bull Market

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A bull market is associated with increasing
investor confidence, and increased investing
in anticipation of future price increases.
It is a transition from fear and pessimism to
investor optimism.
Bear market


( Positive )
( Negative )
A bear market is a general decline in the stock
market over a period of time.
It is a transition from high investor optimism
to widespread investor fear and pessimism.
Investing Ratios
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Current Yield Ratio
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Earnings Per Share Ratio
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The Current Yield is calculated by dividing the amount an
investment makes a year, in interest or dividends, by the
market price.
Earnings per share, (EPS), is calculated by dividing a
company's earnings, net income, by the number of
outstanding shares.
Price-Earnings Ratio

The Price Earnings Ratio is calculated by dividing the
market price of a stock by the Earnings Per Share (EPS)
Investing Ratios
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Current Yield Ratio
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A stock earned $25 last year and has a market
value of $100
 25/100 = .25 or 25%
A stock earned $35 last year and had a market
value of $100
 35/100 = .35 or 35%
A stock earned $45 last year and had a market
value of $100
 45/100 = .45 or 45%
Investing Ratios
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Earnings Per Share
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Company 1 had a net profit of $10,000 and 1,000
shares of stock outstanding.
 10,000/1,000 = 10
Company 2 had a net profit of $20,000 and 1,000
shares of stock outstanding.
 20,000/1,000 = 20
Company 3 had a net profit of $30,000 and 1,000
shares of stock outstanding.
 30,000/1000 = 30
Investing Ratios

Price Earnings Ratio
Company 1 had a market value of $50.00 per
share and Earnings Per Share of 10.
 50/10 = 5
 Company 2 had a market value of $50.00 per
share and Earnings Per Share of 20.
 50/20 = 2.5
 Company 3 had a market value of $50.00 per
share and Earnings Per Share of 30.
 50/30 = 2.5
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Investing Ratios
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Lets look at some companies on the NYSE and
check their financial information.
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Walmart
Target
McDonalds
Wendy’s
Coca Cola
Pepsi
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www.google.com/finance
Bond Investments
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What is a bond?
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A promissory note to pay back a specified
amount of money at a stated rate on a
specific date.
Are issued to lend funds to the organization
selling the bond.
Main Categories of Bonds
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Government bonds
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Municipal bonds
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Issued by local and state governments for public service
projects.
Bond Investments cont.
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Main Categories of Bonds
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Government bonds
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U.S. savings bonds
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The federal government issues Series EE bonds, HH bonds,
and I bonds. Also the federal government issues Treasury
bills and notes.
The EE bond interest is paid once the bond is cashed. The
HH bond interest is paid twice a year, which may be
considered income.
Treasury bills and notes

The treasury bills and notes differ by their maturity time
frame. Treasury bills may reach maturity between 91 days to
a year; where as treasury notes take one to ten years.
Bond Investments cont.
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Main Categories of Bonds
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Corporate bonds

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Purchasing corporate bonds is a means of loaning
money to a company.
Lenders versus owners as it relates to
investing in a company’s stocks and bonds
Bond Investments cont.
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How does stated interest rate impact the
value of a bond?


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The stated interest rate usually determines the
price investors want to pay for a bond.
If a bond’s stated interest rate is lower than
similar ones, investors will most likely want to
pay less for the bond.
If the stated interest rate is higher than similar
ones, the seller will most likely want to be paid
more than its face value.
Mutual Funds
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Definition

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A collection of stocks and/or bonds that
brings together a group of people and invests
their money in stocks, bonds, and other
securities.
Each investor owns shares, which represent a
portion of the holdings of the fund.
Companies’ major tasks in assisting
investors of mutual funds

Assist investors of mutual funds by studying
companies stocks and bonds, and then
buying a variety of stocks and bonds to sell.
Mutual Funds
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Why invest in mutual funds?
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They are diverse, made up of different
investments, and can help the investor during
poor financial times by spreading out the risk
If the stock market drops the bonds and other
types of investments will protect the fund.
If the bond market drops the stocks and other
investments will protect the fund.
Mutual Funds
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Some examples of mutual fund categories
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Aggressive-growth stock funds
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Look for quick growth, but also have an higher
risk than other stock.
Income funds

Concentrate on stocks that pay regular
dividends.
Mutual Funds cont.
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Some examples of mutual fund categories
cont.
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International funds
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Sector funds
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Purchase stocks of companies in the same industry.
Bond funds
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Invest in a variety of company stock around the
world.
Concentrate in corporate bonds.
Balanced funds
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Invest in both stocks and bonds.
Other Investments
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Real Estate
Includes land and anything attached to it.
 House, condominium, mobile home park, etc.
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Advantages
tax benefits
 increased equity
 pride of ownership
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Disadvantages
property taxes
 interest payments
 property insurance
 maintenance
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Other Investments cont.
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Commodities and futures
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Grain, livestock, and precious metals
Commodity investors usually agree to buy and
sell for an amount at a specified price in the
future and these are known as futures
Examples may include rice, cattle, and gold
http://money.cnn.com/data/commodities/
Other Investments cont.
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Collectibles

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Collectibles are items collected over time that
may increase in value
Examples may include art work, antique
furniture, and autographed items
Evaluation factors for savings
and investing options
Evaluation Factors

Safety and risk

What’s the current and potential future cost?

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Guarantee of money invested to be returned
Can the potential risk be afforded?
Low tolerance risk
 High tolerance risk
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Diversity of investment options
Potential yield
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How much is the investment going to make?
Acceptable yield
 High yield
 Low yield
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Evaluation Factors cont.
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Liquidity

How quickly can the investment be turned
into cash without losing any value.
High liquidity
 Low liquidity
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Taxes

How much is Uncle Sam going to take?
Taxed earnings
 Tax-exempt earnings
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