Saving and Investing Tools

Saving and Investing Tools
Carl Johnson
Financial Literacy
Jenks High School
Terms to Know
Certificate of Deposit
• Corporate Bonds
• Money Market Mutual Funds
• Mutual Fund
• Rate of Return
• Risk
• Savings Account
• Savings Bonds
• Stocks
Savings Strategies
Your goals will determine the choices that you will want
to make when planning your savings and investments
Savings is generally used to meet short and medium
term goals of seven years or less, while investing is
generally used to meet long term goals
are several options to consider when planning your
savings strategy: savings accounts, certificates of deposit
(CD’s), government savings bonds, money market mutual
funds and checking accounts
Savings Strategies
Savings Accounts
• Interest bearing accounts at banks and
credit unions
• Usually have low interest rates, are
used to deposit small amounts of money
and meet short term goals
• Great way to establish an emergency
• Make sure bank has FDIC
protection/credit union has NCUA
Savings Strategies
Certificate of Deposit
• Also called CD’s
• Offered by most banks and credit unions
• Covered by federal insurance
• When purchased, you have to wait a certain
amount of time until CD matures to get your
• Ranges in time from 30 days to many years,
depending upon what CD you use
• The longer the term of the CD, the higher the
rate of interest
• Less liquid as a savings account, but usually
have a higher interest rate than a savings
Savings Strategies
Government Savings Bonds
• Backed by the U.S. government, so there is
little or no risk
• Default risk is the potential that the bond
issuer will not pay the interest or return your
money when it matures
•Many are designed to be held for a minimum
number of years before you can cash them in to
get your money and interest
• Have a higher rate of return due to the length
of maturity, but also are low risk which reduces
potential earnings
Savings Strategies
Money Market Mutual Funds
• Designed to provide higher rates of return than
savings accounts because money is actually
invested in very short term investments with
low risk
• Available at banks and credit unions, but may
be also offered by other financial service
The ones offered by banks and credit unions are covered
by federal insurance, while those offered by other financial
service providers are not
To cover the additional risk, those tend to pay higher interest rates
Savings Strategies
Checking Accounts
• Basic purpose is not saving money, but to
provide a convenient way to handle personal
and business transactions
• Many checking accounts earn a very small
percentage of interest
Investing Strategies
When you invest, you are really hoping for
a higher rate of return than when you save
• Investment options tend to have higher
rates of risk than savings options, but also
tend to have higher rates of return
• As in any investment, there is no guarantee
to making money
• Most adults tend to focus their investments
on retirement benefits
It is never too early to consider your strategy for long
term goals
Investing Strategies
Mutual Funds
• Provides an opportunity for investors to pool
money together to buy shares of a fund that
invests in many different products (stocks,
bonds and securities)
• Is a great way for people with limited money
and knowledge about investing to get started
• Mutual funds accounts have a professional
money manager who monitors the account
closely to make sure that it is earning the
maximum amount possible
Investing Strategies
Mutual Funds
• Various economic factors may cause the rate of
return to fluctuate, even lose money
• Because it is a long term investment, you
generally have an opportunity to recover from
any loss
• Most financial experts recommend mutual
funds because the potential gains are greater
than the losses
Investing Strategies
• Buying stocks allow to own part of a company
• Don’t just buy stocks in one company, you can
diversify your portfolio by buying stocks in more
than one company
Experts recommend owing at least ten different stocks in
different industries
Buying and selling stocks can be exciting and
profitable, but it is more risky and expensive
than owning a mutual fund
Investing Strategies
Corporate Bonds
• When you buy a corporate bond, you are
making a loan to the company
• You allow them to use your money, and they
pay you interest
• The interest that you receive is the value of
your investment
• Buying into bond mutual funds is an
alternative for investors because it spreads
your risk
• It is a lower risk option with lower returns
than stocks
Rates of Returns
Risk levels are different for various
savings and investment options
• The rate of return is the amount of
money that you can earn when saving
and investing
• The higher the average return, the more
risk you are taking as an investor
• Average returns do not guarantee what
you will earn, they will only show what
has happened in the past with that type
of investment
Average Rates of Return
Since 1926
Asset Class
Rate of Return
Common Stocks
10% - 13%
Stocks of Smaller Companies
14% - 16%
Long Term Corporate Bonds
6.5% - 8%
Long Tern Government Bonds
5% - 7.5%
Short Term U.S. Treasury Bills
3.5% - 5%