Personal Finance Saving & Investing

CDs, Money Market Accounts, Regular Savings Accounts

FDIC insured saving and investing tools

Pay Yourself First

Setting aside money for savings and investing each pay period or month before any other spending.

Savings

Setting aside money for emergencies or short term goals such as a vacation.

Compound interest

Interest earned is added to the principal so it earns interest also.

3-6 months of living expenses

The standard used to determine how much should be held in an emergency fund.

10%

The minimum amount of income that should be saved based on the advice of experts.

Stock

Investment that represents ownership in a corporation. Pays dividends (Income) and increases in market value (Capital Gains) to benefit the investor.

Bonds

An IOU issued by federal, state and local government, and corporations when they need to borrow large amounts of money. Federal, Corporate and Municipal bonds are available.

MutualFund

The investments of many investors are pooled in a fund that is diversified by its nature, professionally managed, and does not take a large investment to start and can be added to monthly.

401K

Employer sponsored retirement plan that deducts contributions from the employee's pay before taxes are calculated, and may include at least a partial match of contributions by the employer.

Risk/Return relationship

As we move up the investment pyramid, the potential return on an investment increases, and so does the risk of the investment losing value.

Liquidity

How easily an investment can be turned into cash without losing value.

Portfolio

An individual's collection of investments.

Diversification

Reducing exposure to investment risk by spreading your money over several different investment with varying degree of risk and potential growth.

$250,000

Amount of deposits covered by FDIC or NCUA depositor insurance.

Capital Gains

The profit received from selling a stock or other financial asset for higher than the purchase price. You will be taxed on this

Dividends

Profits from a stock or mutual fund that is paid to shareholders. Use as income or reinvest into the stock.

Tax deferred

Earnings and principal of an investment are not taxed until they are withdrawn.

Tax exempt

Earnings from an investment are not taxed. Roth IRA earnings, and interest on a municipal bonds are 2 examples of tax exempt investment income.

Traditional IRA

Tax deductible contributions and tax deferred earnings that can be withdrawn when the investor reaches age 59 1/2.

Risk

The possibility that an investment may lose value in the market.

Compounding & Time

Two factors that help investors grow wealth over a lifetime of saving and investing.

Rule of 72

Mathematical function that tells an investor how long it will take them to double their money, how often an investment will double between when investing starts and when it stops, and the interest rate needed to reach a goal. 72 divided by rate of return.

Interest

Income earned by savings accounts and bonds.

Principal

The amount of money an investor puts into an investment or savings account to earn income or make capital gains.

Investing

Setting aside money to make more money, build wealth and reach long term financial goals.