Savings and Investing Test

3 Habits of a Saver/Investor

1. Set Financial Goals 2. Pay yourself first (15%) 3. Avoid debt

4 Differences of Savings/Investing

Degree of Risk, Reward→rate and stability of return, Availability of funds for use, Amount of protection against inflation

What THREE things can the creation of wealth provide for?

1. Provide financial security 2. Provide a safety net for unexpected emergencies 3. Allow you to retire on your terms when and where you choose

Investing

property or possessions with the goal of future financial return of benefit, makes money grow faster

Rule of 120

Investing formula to manage risk

Rule of 72

Allows you to calculate how long it will take you to double your $$

Dollar Cost Average (DCA)

Method of investing where money is invested on a regular basis, (month to month), Good for long-term investing, Avoids trying to time the market

Savings Account

a bank account that earns interest,

Savings Account; Advantages & Disadvantages

Advantages: earns interest, insured up to $250,000. Disadvantages: low interest (low reward)

Money-Market Accounts

accounts that offer higher interest rates than standard bank rates but with greater restrictions

Money-Market Accounts; Advantages & Disadvantages

Advantages: Easy access, historically higher interest rate. Disadvantages: minimum balance required ($1000-2500), limited # of checks can be written each month

Time Deposits (certificates of deposit)

Banks pay a fixed amount of interest for a fixed amount of money during a fixed amount of times

Time Deposits (certificates of deposit); Advantages &

Disadvantages

Bonds

an IOU, Loaned money to a government/corporation & outlined the term of repayment, Fixed or variable interest rate for fixed period of time

Federal Government Bonds

safest investment you can make. Government is obligated to repay bonds

Treasury Bills

1, 3, 6, 12 months

Treasury notes

2-10 years

Treasury Bonds

10-30 years

EE & I Savings Bonds

Variable & fixed interest rate, Earns interest for 20-30 years, All done online today

Municipal Bonds

Issued (Sold) by any non-federal government, Interest paid comes from taxes or revenues from projects

Corporate Bonds

Sold by private companies to raise money

Mutual Funds

portfolios made up of stocks, bonds, and other investments, Profits returned to shareholders- dividends. Re-invested!

Mutual Funds; Advantages & Disadvantages

Advantages: Good for small investor, Professionally managed, Diversification. Disadvantages: Fees

Index Fund

Similar to mutual funds, High minimum investment to begin (>$2000), Little or no fees

ETF's; Exchange-Traded Funds

Tracks a stock index, a commodity, or bonds, Bought and sold just like stocks. Prices change daily, Must pay commissions & brokerage account

Real Estate

property consisting of land or buildings, buying to make a profit

Real Estate; Advantages & Disadvantages

Advantages: appreciates in value. Inflation protection.

Disadvantages: difficult to convert into cash. Requires study and knowledge of business

Emergency Fund

amount of money you can obtain quickly in case of immediate need

What is an Employer-Sponsored Retirement Account?

retirement plan your employer provides for you, sign up for it because each payday and automatically deposited in a savings or investment account.

What is a company match?

Money your employer contributes to your retirement account, usually based on your own contributions and capped at a certain percentage of your income.

Asset Allocation

Process of spreading your assets among several different types of investments to lessen risk