19.1 Saving and Investment Planning Flashcards
- people buy stocks and bonds managed by an investment company
- money from many investors are used to invest in a variety of securities
- allow investors spread out their risk among many investments
mutual funds
What are the safest investments?
investments made with the federal government
this type of investment invests in businesses/entrepreneurs to receive a portion of the profits
- bonds
- venture capitalist
- commodities
- collectibles
venture capitalist
a good savings plan or investment should ____ a reasonable return
a good savings plan or investment should earn a reasonable return (person should make money from it)
interest that is computed on the amount saved plus the interest previously earned
compound interest
if a stock increases in value and is then sold for more than its original cost
capital gain
goal for those who desire financial security in the future
long term growth
earnings from most savings and investments are ____
taxed
- allows you to earn a higher interest rate than regular savings account
- usually requires a minimum deposit of $100 to $1000 or more
- must leave money on deposit for a certain time period
- penalties charged if money is withdrawn early
certificate of deposit / CD
- grain, livestock, precious metals, currency, financial instruments
- investors purchase these in hopes of higher market prices in the future
- very risky
commodities
people who want income for current living expenses
current income
assurance that the money you have invested will be returned to you
safety
A person who desires high income from an investment would be most concerned with:
- safety
- return
- liquidity
- risk
return
_____ interest is when your account earns interest on top of interest
- variable
- simple
- compound
- none of these
compound
Which of the following is investing for current income?
- retired person who needs to pay for living expenses
- business manager planning for retirement
- student putting away money for college
- family that wants to buy a vacation home
retired person who needs to pay for living expenses
money you receive for letting others use your money
interest
savings accounts at most financial institutions are insured up to $250,000 by the _____
federal government
______ interest is when the rate changes
variable interest is when the rate changes
On which type of interest would you earn more?
simple interest or compound interest
compound interest
- old coins, works of art, antique furniture, other rare items
- bought with the hopes that their value will increase
collectibles
The most liquid investment listed here is:
- rare coins
- real estate
- a savings account
- a house
savings account
which investment is considered low risk (more than one)
- certificate of deposit
- stock
- commodities
- money market account
- mutual fund
- savings account
- venture capitalism
- certificate of deposit (CD)
- money market account
- savings account
this type of investment deals with grain, livestock and precious metals
- stocks
- collectibles
- commodities
- corporate bonds
commodities
Why do people invest in real estate?
- people purchase their own home for the sense of security and stability (they pay the mortgage every month and when they sell it can make all that money back - hopefully)
- people purchase property for rental income
- some buy vacant property in hopes that its value will increase
- examples - housing, farmland, apartment buildings and shopping malls
When you invest money with individuals or businesses, it usually earns _____ interest than that paid by the government because there is ____ safety.
when you invest money with individuals or businesses, it usually earns higher interest than that paid by the government because there is less safety (there is a chance you won’t get money back)
the percentage of money earned on your savings or investment over a year
yield
aka - rate of return & annual yield
a _____ is made up of a group of stocks
- bond fund
- securities fund
- commodity
- mutual fund
mutual fund
What are the 2 major financial goals of every saver and investor?
income or growth
What are some choices for your saving and investing dollars?
- savings plans: savings account, certificate of deposit, money market account
- securities: stock investments, bond investments, mutual funds
- alternative investments: real estate, commodities, collectibles
What are two reasons people save?
- some save for years for a down payment to buy a home
- some save for emergencies
______ is using your savings to earn even more money
investing is using your savings to earn even more money
true or false
investments such as commodities, bonds and stocks are FDIC insured
false
only savings plans (savings acct, CD’s, money market account) are insured
- pays a variable interest rate based on government and corporate securities
- do not require long term deposits
- have a large minimum balance requirement
- earn higher interest than regular savings account but less than CD’s
money market account
A ____ company is a larger company that owns a smaller company
a parent company is a larger company that owns a smaller company
means you don’t have to pay taxes on that income
tax exempt investments
using your savings to earn more money
investing
Higher yields = ____ risk of loss
higher yields equal greater risk of loss
- a savings plan with a low balance
- can deposit and withdraw money as needed
- pay interest
savings account
- lending money for use by businesses and governments
- common investment
- company or government uses money invested for their business activities
bond investments
when an investment is sold for less than its original cost
capital loss
What are 4 factors to consider when selecting an investment?
- safety & risk - how likely are you to get your money back?
- potential return - how much money are you going to earn?
- liquidity - how quickly can it be changed to cash?
- taxes - do you have to pay taxes on money earned?
How does the economy benefit when savings are invested and used?
- People borrow to pay for homes, cars, college - when this money is spent the demand for goods and services increases so more jobs are created and more people have money to spend
- Businesses borrow to operate or expand their business - this creates jobs and expands economic activity so more people have money to spend
- Governments borrow for highways, schools and other public services - creates more jobs
When you buy a ___ of ____ , you become part owner of a company
when you buy a share of stock, you become part owner of a company
investments that can be turned into money quickly are called ____
liquid
the percentage rateequal to the total amount of interest that a $100 deposit would earn based on a 365 day period
annual percentage yield (APY)
requires that financial institutions give consumers information to compare savings accounts
The Truth in Savings Act (TISA)
____ represents debt
bonds
What helps eliminate confusion caused by different interest calculation methods?
annual percentage yield (APY)
_____ is done after building up some savings
investing is done after building up some savings
What are stock investments?
- when you buy a share of stock
- stock purchase made directly or indirectly through mutual funds
- very common way of investing
- results in capital gain or capital loss
the ease with which an investment can be changed into cash without losing its value
liquidity
the storage of money for future use
saving
Which is more liquid?
$5000 on deposit in bank or owning a piece of land that you bought for $5000
- the money in the bank
- if you need that money right away you just go to bank and withdraw it
- even though the land is a safe investment it might be difficult to sell the land right away and get the cash needed
