chapter 17 Invest for the Future 17 1

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chapter 17 Invest for the Future 17 -1 Invest in Stocks 17 -2 Invest

chapter 17 Invest for the Future 17 -1 Invest in Stocks 17 -2 Invest in Bonds 17 -3 Other Investing Options 17 -4 Retirement Planning and Philanthropy © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1

chapter 17 17 -1 Invest in Stocks Learning Objectives LO 1 -1 Explain the

chapter 17 17 -1 Invest in Stocks Learning Objectives LO 1 -1 Explain the concept of direct investing in stocks, including examples of how to reduce risk. LO 1 -2 Describe the concept of indirect investing and the risks, rewards, and economic impact of investing. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2

chapter 17 17 -1 Invest in Stocks Vocabulary Direct Investing equity financing portfolio diversification

chapter 17 17 -1 Invest in Stocks Vocabulary Direct Investing equity financing portfolio diversification Indirect Investing mutual funds asset allocation © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3

chapter 17 Direct Investing Equity financing is the sale of corporate stock to generate

chapter 17 Direct Investing Equity financing is the sale of corporate stock to generate cash. ü The stockholders have shares of stock, and are owners of the corporation. ü The corporation receives funds when the stock is first sold. ü When you buy stock from a current owner the corporation does not receive more funds. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -1 Invest in Stocks 4

chapter 17 Direct Investing A portfolio is a group of different stocks in several

chapter 17 Direct Investing A portfolio is a group of different stocks in several different industries. ü Stocks are an important part of a typical portfolio because they provide the potential for long-term growth, even though prices may vary in the short term. Diversification is the process of selecting different types of investments with different risk levels. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -1 Invest in Stocks 5

chapter 17 Indirect Investing A mutual fund is a professionally managed group of investments.

chapter 17 Indirect Investing A mutual fund is a professionally managed group of investments. ü The fund holds a portfolio that may consist of stocks, bonds, or other investments from gold to commodities, based on a stated set of objectives. Asset allocation is the process of choosing a combination of funds that can be found in different mutual funds. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -1 Invest in Stocks 6

chapter 17 17 -2 Invest in Bonds Learning Objectives LO 2 -1 Describe types

chapter 17 17 -2 Invest in Bonds Learning Objectives LO 2 -1 Describe types of corporate bond investments, including risks, rewards, and economic impact. LO 2 -2 Describe types of government and tax-free bonds, including risks, rewards, and economic impact. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7

chapter 17 17 -2 Invest in Bonds Vocabulary Investing in Corporate Bonds debt financing

chapter 17 17 -2 Invest in Bonds Vocabulary Investing in Corporate Bonds debt financing corporate bonds Investing in Government Bonds municipal bond savings bond agency bond risk-free investment © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8

chapter 17 Investing in Corporate Bonds Debt financing is borrowing by a corporation. ü

chapter 17 Investing in Corporate Bonds Debt financing is borrowing by a corporation. ü It includes short-term debt, such as notes payable, as well as long-term debt, such as bonds and mortgages. ü For many large corporations, bonds are a major way to raise large sums of cash to pay for expansion, new technology, innovation, and long-term growth and survival. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -2 Invest in Bonds 9

chapter 17 Investing in Corporate Bonds Corporate bonds are long-term debt obligations of publicly-held

chapter 17 Investing in Corporate Bonds Corporate bonds are long-term debt obligations of publicly-held corporations. ü These bonds are generally issued in multiples of $1, 000 and pay a fixed interest rate each year. ü They also repay the face value (principal) or amount that is borrowed at maturity. ü Maturity is a point in the future when the full amount of the principal and interest must be repaid. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -2 Invest in Bonds 10

chapter 17 Investing in Government Bonds A municipal bond is a bond issued by

chapter 17 Investing in Government Bonds A municipal bond is a bond issued by state and local governments. ü The minimum investment is usually $5, 000, although brokers often ask more than this amount as an initial investment. ü Often called “munis, ” municipal bonds can be backed by specific projects of by the general taxing ability of a governmental unit. ü Municipal bonds generally pay a lower interest rate than corporate bonds. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -2 Invest in Bonds 11

chapter 17 Investing in Government Bonds A savings bond is a long-term loan to

chapter 17 Investing in Government Bonds A savings bond is a long-term loan to the U. S. government. ü You can buy up to $5, 000 work of savings bonds a year. An agency bond is a loan of money to a government agency. ü Government agencies use the money to provide lowcost financing to certain groups of people, such as firsttime home buyers or students attending college. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -2 Invest in Bonds 12

chapter 17 Investing in Government Bonds A risk-free investment is one without the inherent

chapter 17 Investing in Government Bonds A risk-free investment is one without the inherent risk of default. ü For purposes of risk management, this is the safest form of investing possible. ü Many individuals as well as investment groups, retirement funds, and other large investors keep a certain level of risk-free investment choices in their portfolios. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -2 Invest in Bonds 13

chapter 17 17 -3 Other Investing Options Learning Objectives LO 3 -1 Describe real

chapter 17 17 -3 Other Investing Options Learning Objectives LO 3 -1 Describe real estate investment choices, including their unique features and requirements. LO 3 -2 Evaluate other investing options you might consider. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14

chapter 17 17 -3 Other Investing Options Vocabulary Investing in Real Estate illiquid investment

chapter 17 17 -3 Other Investing Options Vocabulary Investing in Real Estate illiquid investment rental property Other Investments precious metals collectibles futures option © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15

chapter 17 Investing in Real Estate An illiquid investment is an investment that can

chapter 17 Investing in Real Estate An illiquid investment is an investment that can be difficult to sell in the short run. Rental property may be a single-family house, a duplex, triplex, apartment building, or condominium – anything where you collect rent and allow another person to occupy your property. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -3 Other Investing Options 16

chapter 17 Other Investments Precious metals are tangible metals that have known values around

chapter 17 Other Investments Precious metals are tangible metals that have known values around the world. Collectibles are collections of value or rare items, such as antiques, art, baseball cards, stamps, and comic books. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -3 Other Investing Options 17

chapter 17 Other Investments Futures are contracts to buy and sell commodities or stocks

chapter 17 Other Investments Futures are contracts to buy and sell commodities or stocks for a specified price on a specified date in the future. ü Commodities include farm products, such as wheat, corn, or cattle. They also include metals such as gold or silver. Crude oil is also a commodity. An option is the right (but not the obligation) to buy or sell a commodity or stock for a specified price within a specified period of time. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -3 Other Investing Options 18

chapter 17 17 -4 Retirement Planning and Philanthropy Learning Objectives LO 4 -1 Explain

chapter 17 17 -4 Retirement Planning and Philanthropy Learning Objectives LO 4 -1 Explain the concept of setting aside money in individual and employer-provided retirement accounts. LO 4 -2 Evaluate the provisions needed for retirement, estate planning, and philanthropy. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19

chapter 17 17 -4 Retirement Planning and Philanthropy Vocabulary Retirement Plans traditional IRA Roth

chapter 17 17 -4 Retirement Planning and Philanthropy Vocabulary Retirement Plans traditional IRA Roth IRA SEP IRA 401(k) plan 403(b) plan Retirement and Estate Planning estate health care directive philanthropy © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20

chapter 17 Retirement Plans A traditional IRA is an individual retirement account that allows

chapter 17 Retirement Plans A traditional IRA is an individual retirement account that allows individuals to contribute pre-tax income to an account that grows tax-deferred. A Roth IRA is an individual retirement account for which contributions are taxed but earnings are never taxed. A SEP IRA is a tax-deferred retirement plan for small business owners and their employees. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -4 Retirement Planning and Philanthropy 21

chapter 17 Retirement Plans A 401(k) plan is a tax-deferred retirement plan funded by

chapter 17 Retirement Plans A 401(k) plan is a tax-deferred retirement plan funded by employees of profit-seeking businesses. ü Employees set aside pre-tax dollars through payroll deduction. Employer contributions are optional. ü Employees can choose investments (asset allocation) based on their willingness to take risks. ü These accounts and their earnings are not taxed until the money is withdrawn. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -4 Retirement Planning and Philanthropy 22

chapter 17 Retirement Plans A 403(b) plan is a tax-deferred retirement plan funded by

chapter 17 Retirement Plans A 403(b) plan is a tax-deferred retirement plan funded by employees of government and nonprofit organizations. ü Teachers, school staff, nurses, doctors, and ministers are examples of people who qualify for a 403(b) plan. ü Money is set aside through pre-taxed payroll deductions. ü These amounts are sometimes paid by employers, employees, or shared by both. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -4 Retirement Planning and Philanthropy 23

chapter 17 Retirement and Estate Planning An estate is all that a person owns

chapter 17 Retirement and Estate Planning An estate is all that a person owns (assets) less debt owed, at the time of that person’s death. ü Assets may include bank accounts, investments, property, and other items of value. ü Money that is not used for living expenses, travel, and leisure activities add to the value of your estate. ü Life insurance proceeds are also part of your estate unless a specific beneficiary is named. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -4 Retirement Planning and Philanthropy 24

chapter 17 Retirement and Estate Planning A health care directive is an important document

chapter 17 Retirement and Estate Planning A health care directive is an important document that describes your wishes at the end of life. ü This serves to protect your interests. ü It is also called a “living will. ” ü It specifies the type of effort you want taken in the event you would not recover from an injury or illness. You designate a person to act as your representative. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -4 Retirement Planning and Philanthropy 25

chapter 17 Retirement and Estate Planning Philanthropy is a form of charitable giving that

chapter 17 Retirement and Estate Planning Philanthropy is a form of charitable giving that supports some type of societal purpose over an extended period of time. ü Philanthropists want to leave the world a better place than they found it. ü Often they want to give back from the wealth they have gained. Some people give time; others give money. ü The cost is tax-deductible when gifts are given to 501(c)3 nonprofit organizations. © 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 -4 Retirement Planning and Philanthropy 26