As we begin to think about creating money for our long-term goals, there are many savings and investment options available.  There are two types of savings and investments – temporary and permanent.

With temporary savings and investments, we place our money so we can easily get to the money to pay for seasonal expenses, emergences, and major purchases.  These accounts pay lower returns.  With permanent savings, we leave the money in the accounts to grow over time to help pay for future needs.  These accounts can yield higher returns.

 

Savings for seasonal expenses, emergencies, major purchases

• Savings accounts or share accounts (on-line banks pay more; some do not require a                                 minimum amount) – .35 to .50%
• Holiday club accounts (some local banks or credit unions)
• Interest checking accounts (may require balance to open; may require balance to avoid fees) – Pay    from .01 to .35%
• Money market deposit account (FDIC insured; may require balance to open, may require balance to avoid fees) –  Pay up to .50%
• Money market mutual fund – .01%
• Life insurance cash value – rate set by company – 4.00%

 

Financial Securities include a broad range of investment opportunities

            Stocks – provides about an 8 to 10% annual return each year

                        Domestic, International

                        Large, medium small

                        Growth, income, or income and growth

            Bonds – provides about a 5% annual return each year

                        U.S. Government

                        Corporate

                        Municipal

            Mutual funds

            Exchange Traded Funds (ETFs)

Real estate

 

Definitions – Below are some definitions for some types of financial securities.

Stocks – A stock is an equity security.  When you buy stock, you become an owner of a part of a company’s assets.  You buy in units called shares.  The value of the shares your own prosper or decline as the company prospers or declines.  If a company is successful, the price the investors are willing to pay for its stock will often go up.  Shareholders who bought stock at a lower price stand to make a profit.  On the other hand, if a company does not do well, the value of the stock will decrease in value and shareholders can lose money.  Share values reflect gains and losses in value.  Once you sell, the value of the stock   at the time of the sale determines the value for tax purposes.  Some stocks pay dividends which produce income for the shareholder.

Bonds  –  A bond represents a loan from the investor to a company or government entity.  It is a certificate which is evidence of a debt.  The issuer promises to repay a specific amount of money to the bondholder, plus a certain amount of interest, within a fixed period of time.  There are U.S. government bonds, corporate bonds (companies), municipal bonds (local governments). 

Government bonds

• Treasury Bills – up to 52 week maturities.  Minimum purchase of $100.                               
• Treasury Notes – Issued with maturities of 1 to 10 years.  Minimum purchase of $100.           
• Treasury Bonds – Mature in more than 10 years.  Minimum purchase $100             

Total Return Bond Fund — invests in different types of bonds from multiples of fixed income sectors; seeks to maximize total return

Treasury Inflation Protected – are U.S. government bonds that provide                                                       protection against inflation.

Aggregate Bond Index – a benchmark index used to measure relative                                                          performance of the bond market.  It includes government                                                                       securities, mortgage-backed securities, and corporate securities.

Domestic or International  

• Domestic – U.S. Based
• International – Entities outside United States; may be in a country or in a region

Size – Small, mid, large cap

•  Small – a company with a market value of $300 million to $2 billion.  They may                                        outperform large cap but they are more volatile and risky.
•  Mid – a company with a market value between $2 and $10 billion
• Large – a company with a market above $10 billion or more

Growth/Capital Appreciation – the stock of a company whose earnings are increasing at a faster rate than the increase in the general level of business activity

Income – the stock of a well-established company that is relatively mature.  The company pays out a part of its earnings as dividends, rather than reinvesting all of growth as earnings.

Growth and income – an investment strategy that invests in both growth and income stocks.

Stable value – an investment strategy that invests in investments that provide steady income with relatively little risk as your principal is guaranteed.  They invest primarily in government and corporate bonds.

Mutual Fund – A mutual fund is money that is pooled from contributions by many people to invest toward a common investment goal.  Each share represents a proportionate interest in many individual securities.  There are many mutual fund objectives.  Objectives might be growth, income or growth and income.  Mutual funds trade one time a day at the end of the day when the market closes.

Exchange-Traded Fund  – An exchange traded fund tracks and seeks to replicate the performance of an index.  They are traded throughout the day.

Asset Allocation Target Fund – a mix of stocks and bonds that balances risk and reward for a specified time horizon such as retirement in the Year 2060.  

Contrafund – a mutual fund that invests in securities that are under-performing or depressed at that point in time.

Institutional index fund – tracks the performance of a benchmark fund; tracks the components of financial market such as the Standard and Poor’s Mid Cap 400 or 500 Index; or Russell 2000 Small Cap Index.

Real Estate – is property.  The property consists of land and the buildings on it.  It also includes natural resources such as crops, minerals or water that may be on the property.