Savings and Investment Strategies

Intro to Business, 7eIntro to Business, 7e

© 2009 South-Western, Cengage Learning SLIDE

Chapter 19

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CHAPTER 19

19-119-1 Saving and investment planning

19-219-2 Stock investments

19-319-3 Bonds and mutual funds

19-419-4 Real estate investments

19-519-5 Other investments

Savings and Investment Strategies



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Saving and Saving and Investment PlanningInvestment Planning

GoalsExplain the basics of saving and investing. Identify types of savings and investments.Discuss factors to consider when evaluating

savings and investment alternatives.

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Key TermsKey Terms

savinginvestingyieldliquidity



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SAVING AND SAVING AND INVESTMENT BASICSINVESTMENT BASICS

Savings and investment activitiesDetermine investment goalsThe growth of savings

InterestCompound interest



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Quarterly Compound InterestQuarterly Compound Interest



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How does saving influence economic activity?

Answer Saving benefits the economy by making more

money available for borrowing by individuals, businesses, and governments.

When this money is spent, demand for goods and services increases, resulting in more jobs and more spending by workers.

Checkpoint >>Checkpoint >>



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SAVING AND SAVING AND INVESTMENT CHOICESINVESTMENT CHOICES

Savings plans Savings account Certificate of deposit Money market account

Securities Stock investments Bond investments Mutual funds



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SAVING AND SAVING AND INVESTMENT CHOICESINVESTMENT CHOICES

Alternative investmentsReal estateCommoditiesCollectibles

(continued)



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What are the nine main categories of saving and investment alternatives?

AnswerSavings accountsCertificates of depositMoney market accountsStock investmentsBond investments

Mutual fundsReal estateCommoditiesCollectibles




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EVALUATING SAVINGS EVALUATING SAVINGS AND INVESTMENTSAND INVESTMENTS

Safety and riskPotential returnLiquidityTaxes



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$100 Invested for 20 Years$100 Invested for 20 Yearsat Different Yields with Annual Compoundingat Different Yields with Annual Compounding



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InvestmentInvestmentPyramidPyramid



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What are four factors to consider when selecting an investment?

AnswerSafetyReturnLiquidityTaxes




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Stock InvestmentsStock Investments

GoalsCompare the two major types of stock.Describe the activities involved with buying or

selling stock. Identify factors that affect the value of a stock.

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Key TermsKey Terms

preferred stockcommon stockstockbrokerstock exchangemarket value



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TYPES OF STOCKTYPES OF STOCK

Preferred stockCommon stock



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How does preferred stock differ from common stock?

Answer Preferred stock has priority over common stock in the

payment of dividends. Investing in preferred stock is less risky than common

stock, but preferred stockholders generally have no voting rights within the corporation.

Common stock represents general ownership in a corporation and a right to share in its profits.

Common stockholders are entitled to one vote per share. Although preferred stockholders are paid first, their

dividends usually are limited to a set rate.




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STOCK TRANSACTIONSSTOCK TRANSACTIONS

Using a stockbrokerOnline investingStock exchangesChanging stock values



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Example of Stock Market QuotationsExample of Stock Market Quotations



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What is the purpose of a stock exchange?

AnswerThe purpose of a stock exchange is to

accommodate the buying and selling of securities.




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STOCK SELECTIONSTOCK SELECTION

Stock information sourcesEconomic factors

Inflation Interest ratesConsumer spendingEmployment

Company factors



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PROCESS FOR DECIDING PROCESS FOR DECIDING STOCK PURCHASESSTOCK PURCHASES

1. Observe and analyze economic and social trends.

2. Determine industries that will be affected.

3. Identify companies in those industries.

4. Decide whether to buy, sell, or hold the stock of those companies.



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How do various economic factors affect stock prices?

Answer Inflation affects stock prices by causing lower spending by

consumers, reducing company profits out of which dividends are paid.

Falling or rising interest rates can also increase or decrease company profits as the cost of money changes.

The employment rate also affects stock prices; when more people are employed, they spend more money on a company’s products and stock prices rise.




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Bonds and Bonds and Mutual FundsMutual Funds

GoalsList types of government bonds.Describe features of corporate bonds.Describe various types of mutual funds.

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Key TermsKey Terms

municipal bondcorporate bondmutual fund



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GOVERNMENT BONDSGOVERNMENT BONDS

Municipal bondsU.S. savings bondsOther federal securities

Federal notes (T-notes)Treasury bills (T-bills)Treasury bonds (T-bonds)



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List the types of bonds issued by the federal government of the United States.

AnswerThe types of U.S. savings bonds issued by

the federal government are Series EE bonds, Series HH bonds, and I bonds.

The federal government also issues Treasury bills and Treasury notes.




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CORPORATE BONDSCORPORATE BONDS

Bond componentsBond values



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What affects the value of a bond?

AnswerThe value of a bond is affected by changing

interest rates. If the bond’s stated rate is lower than interest

rates on similar bonds, investors will want to buy the bond for less than its face value.

If the bond’s stated interest rate is higher than interest rates on similar bonds, the seller of the bond will want to receive more than its face value.




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MUTUAL FUNDSMUTUAL FUNDS

A mutual fund is an investment fund set up and managed by companies that receive money from many investors.



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TYPES OF TYPES OF MUTUAL FUNDSMUTUAL FUNDS

Aggressive-growth stock fundsIncome fundsInternational fundsSector fundsBond fundsBalanced funds



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MUTUAL FUND VALUESMUTUAL FUND VALUES

Shares of the mutual fundValue of each shareNet asset value (NAV)Operating expensesEarnings



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What are the main types of mutual funds?

AnswerThe main types of mutual funds are aggressive-

growth stock funds, income funds, international funds, sector funds, bond funds, and balanced funds.




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Real Estate Real Estate InvestmentsInvestments

GoalsDescribe home buying activities.Explain the benefits of home ownership.Discuss the costs of home ownership.

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Key TermsKey Terms

real estatemortgageequityassessed value



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SELECTING HOUSINGSELECTING HOUSING

Renting your residenceOwning a mobile homeBuying a homeServices of real estate agentsOther real estate professionalsBuying a condominium



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What are four available housing alternatives?

AnswerRentingOwning a mobile

homeBuying a traditional

homeBuying a condominium




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BENEFITS OF BENEFITS OF HOME OWNERSHIPHOME OWNERSHIP

Tax benefitsIncreased equityPride of ownership



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What are the main benefits of home ownership?

AnswerTax benefits Increased

equityPride of

ownership




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COSTS OF COSTS OF HOME OWNERSHIPHOME OWNERSHIP

Property taxesInterest paymentsProperty insuranceMaintenance



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What are common costs of home ownership?

AnswerCommon costs of home ownership are property

taxes, interest payments, property insurance, and maintenance.




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Other InvestmentsOther Investments

GoalsDiscuss types of commodity investments.Explain the use of collectibles as an

investment.

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Key TermsKey Terms

commoditiesfutures contractcollectibles



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COMMODITIES AND COMMODITIES AND FUTURESFUTURES

Commodity exchangesAgricultural commoditiesGold, silver, and precious metalsCurrency and financial instruments



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What types of commodities are commonly used with futures contracts?

AnswerTypes of commodities commonly used with

futures contracts are agricultural commodities, such as grain and livestock, and precious metals.




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COLLECTIBLESCOLLECTIBLES

Types of collectiblesCollectible values



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What are common types of collectibles?

AnswerCommon types of collectibles are stamps, coins,

sport trading cards, and antiques, as well as unusual items purchased as investments.


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Savings and Investment Strategies