Saving & Investing Chapter 8
Establishing your financial goals To gather funds, you need to plan carefully – and have self-discipline along the way Emergency fund- savings account that you can access quickly to pay for unexpected expenses or emergencies
Making investment decisions Safety & risk Speculative investment- high-risk investment that might earn a large profit in a short time. Possibility that at any time you could lose most or all of the money you invest
5 Components of Risk 1. Inflation 2. Interest rate 3. Business failure Dividends – distributions of money, stock, or other property that a corporation pays to stockholders 4. Financial market 5. Global investment
Retained earnings Profits that a company reinvests, usually for expansion or to conduct research & development Investment liquidity- ability to buy or sell an investment quickly without substantially reducing its value
Savings & investment options Equity capital- money that a business gets from its owners in order to operate Common stock- a unit of ownership of a company & its entitles the stockholder to voting privileges Preferred stock- type of stock that gives the owner the advantage of receiving cash dividends before common stockholders do.
Corporate & government bonds Corporate bond- corporation’s written pledge to repay a specific amount of money, along with interest Government bond- written pledge of a government to repay a specific sum of money with interest Mutual fund- investment in which investors pool their money to buy stocks, bonds, & other securities.
Diversification Process of spreading your assets among several different types of investments to reduce risk Reducing Financial risk planner- specialist who is trained to offer specific financial help & advice
Tax considerations Tax-exempt income- income that is not taxed (ex. Interest you receive from government bonds) Tax-deferred income- income that is taxed at a later date (ex. Pensions) Capital gain- profit from the sale of assets (stocks, bonds, or real estate) Capital loss- sale of an investment for less than its purchase price
Corporate reports Prospectus – document that discloses information about a company’s earnings, assets, & liabilities, its products or services, & qualifications of its management
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