Chapter 6
Saving and Investing
Section 6-1: Why Save?
 Deciding to save
 People save for purchases that require more funds
than available, for emergencies, and for retirement.
 Economies benefit from individuals who save
because people have more money to invest or
spend, leading to expanding business.
 When choosing a place to save, think about tradeoffs.
 Savings Accounts
 Passbook, regular, or statement savings
accounts accrue a low interest but allow
immediate access to funds.
 Money market accounts accrue high interest
with immediate access through checks, but
have a high minimum balance requirement.
 Time Deposits
 Time deposits refer to a wide range of savings plans
or certificates of deposit (CDs) with a high interest
rate that increases over time, but a person cannot
remove funds before a certain time period or
maturity without paying a penalty.
 Before the 1930s, people could lose all the money
in their accounts if the bank failed.
 Now the federal government insures bank accounts
(in FDIC member banks) up to $100,000, giving
people security when making deposits.
Section 6-2: Investing:
Taking Risks with your
Savings
 Stocks and Bonds
 Stocks entitle the buyer to future profits and assets
of the corporation.
 Stockholders make money through dividends, return
on bought stock, or by speculating- buying stock
hoping it will increase in price so they can sell it at
profit.
 A capital gain is money earned by selling stock for
more than you paid for it.
 A capital loss is money lost by selling stock for less
than you paid for it.
 Stocks and Bonds cont…
 A bond is a certificate promising to repay a loan at a
stated interest rate.
 A bondholder is NOT part-owner of the organization.
 Tax-Exempt bonds earn tax-free interest.
 With savings bonds you pay half of the bond’s face
value and the interest increases yearly until the face
value is reached.
 T-Bills, T-Notes, and T-Bonds are government
bonds exempt from state and local tax and mainly
for larger investments.
 Stock and Bond Markets
 Stocks are bought/sold through brokers.
 Stocks are traded at stock exchanges.
 Stocks that are not traded in specific place are
called over-the-counter stocks.
 Bonds are sold on exchanges and over-the-counter
markets.
 Mutual funds are investment companies that
combine many investors’ funds to buy a large
variety and quantity of stocks.
 Stock and Bond Markets cont…
 Some mutual funds mirror index funds.
 Managed mutual funds have managers who
adjust and mix the stocks bought, attempting
to generate the highest yields.
 Money market mutual funds allow inventors
to write checks against the money in the
fund.
 Government Regulations
 The Securities and Exchange Commission
regulates brokerage firms, stock exchanges,
and most businesses that issue stock.
 Congress passed the Securities Act to avoid
another stock market crash.
 The Act requires a prospectus to be given to
each potential buyer of stocks or bonds.
Section 6-3: Special
Savings Plans and Goals
 Investing for Retirement
 Most companies have pension plans, such
as 401k, that provide retirement income.
 Some people will combine a retirement plan
with their Social Security checks because
Social Security alone is not enough.
 Personal or private pension plans have the
benefit of tax savings.
 Investing for Retirement cont…
 The Keogh plan is an individual retirement plan for
self-employed people where they can save up to
15% of income.
 Traditional IRAs allow you to contribute up to $5000
per year, which is not taxed when put in, and any
earnings and interest are not taxed until money is
withdrawn.
 Roth IRAs allow you to save up to $5000 per year,
which is taxed when put in, interest and earnings
are never taxed, and money is not taxed when
withdrawn.
 Investing for Retirement cont…
 Real estate is a popular form of investing for
the future.
 Housing generally increases in value over
time.
 Buying undeveloped land is a more risky
investment.
 It is hard to turn real estate into cash on
short notice.
 How much to save and invest?
 There are many factors involved in deciding how
much to save versus how much to invest
 Invest in several different types of accounts to lower
your overall risk (diversify)
 If you cannot afford any losses, use banks or
savings bonds.
 Your values may affect your investment choices.