Managing savings and investments includes:

• finding money to save,
• opening accounts,
• contributing to them,
• withdrawing from them, and
• maintaining them so we have enough money to live comfortably during our lifetime.

Consciously managing our savings and investments allows us to sustain our desired standard of living throughout our lifetime.  When choosing where to place our money, there are some criteria to consider when making our selections.

Risk:  How much risk am I willing to take – substantial, moderate, small, or barest minimum?

I grow my money in a way that matches my personal risk tolerance level with appropriate savings and investment services and products to get an acceptable rate of return.  To assess your risk tolerance level, you can go to this website and take this risk tolerance quiz:

http://pfp.missouri.edu/research_IRTA.html

 Safety of principal means the principal dollars you invest will remain intact.  If you place $1,000 in a certificate of deposit (CD), you will get your $1,000 plus earnings when you withdraw your money.  If you place $10,000 in a growth mutual fund that invests in stocks and the market is down when you withdraw your money, you may get less than the amount you put in.

 Liquidity is the ease with which your investment can be converted to cash without loss.  You can get to your cash quickly if you need it for an emergency.  If money is in a savings account, you could withdraw from it at an ATM when you need it.  If your money is invested with an investment broker, you will have to wait for the investment to be converted to cash and sent to you.  The investment may have increased or decreased in value.

 Marketability is the degree to which there is an active market to trade your investment.   Savings accounts don’t have a market but they are very liquid.  Stocks and bonds are traded on exchanges.  Real estate is bought and sold by individuals or brokers.

 Return on money can be from current income, growth of the dollars you invested, or a combination of income and growth.

• Current income may be from interest, dividends, or rent. Savings accounts, CDs, government, corporate or municipal bonds and fixed income annuities provide current income.
• Capital growth allows the value of the dollars you invest to grow over time. The dollars you invest may grow or decrease.  The value of what you receive in return will depend on the dollar value of the asset on the day of the sale.  If the value of the investment has grown in value since you placed money in the account, your money will grow.  If the investment is less than the amount of money you placed in the account you will receive less than you invested.
• Income and growth. You may earn a combination of income and growth from some investments.  Owning a rental property can yield growth in equity and can generate rental income.  Some stocks yield capital gains as well as pay a dividend.

Cost of investing 

Your return from your investment can be reduced by various charges associated with purchasing, maintaining, redeeming, or selling investments.

Before buying, determine:

• Are there sales charges, commissions, service charges, or annual management fees? Is there an initial fee, exit fee, or annual charges?
• How long do you have to keep the money in the account?
• Is there a fee or penalty for taking some or all of the money out (minimum balance penalties, withdrawal penalties, or tax penalties)?

Size of investment unit

The amount of money you have to invest at any one time will determine the investment options available to you.  Investments may have minimum or maximum amounts.  CD’s usually have minimums.  Individual Retirement Accounts (IRAs) generally have maximums.  How often will you make contributions?

Tax consequences

There can be tax consequences when going into investments, while your money is in the investment, and when the money comes out.

• Going in: Am I investing with before or after tax dollars?
• While in/ Coming Out
  • Am I taxed on earnings while my money is in the investment? The        ordinaryincome tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, 37%.
  • Tax-deferred income means I do not pay the tax until later.
  • Tax-exempt income means I will not have to pay taxes.
  • Capital gains – If you sell an investment for more than you paid for it, you may owe capital gains.
    • Short-term – Gains are taxed at ordinary income tax rates
    • Long-term – The capital gains rates are 0%, 15% or 20% for most assets held more than a year.