Chapter 10. Savings & Investments Why Save and Invest?. ............................................................................................................. 10–1 Investment Prerequisites......................................................................................................... 10–2 Risk and Return........................................................................................................................ 10–3 Types of Investments............................................................................................................... 10–4 Short-Term Investments ......................................................................................................... 10–5 Common Stock. ....................................................................................................................... 10–6 Fixed Income Securities........................................................................................................... 10–7 Mutual Funds........................................................................................................................... 10–8 Derivatives............................................................................................................................... 10–9 Real Estate............................................................................................................................. 10–10 Other Tangibles...................................................................................................................... 10–11 Retirement Accounts. ............................................................................................................ 10–12 Education Savings.................................................................................................................. 10–13 Investment Goals and Strategies............................................................................................ 10–14 Time Value of Money. ............................................................................................................ 10–15 Savings & Investment Terminology........................................................................................ 10–16 Investment Worksheet. .......................................................................................................... 10–17
d. Financial Security. The income you make from working, called earned income, may not be a “sure thing.” Consequently, investment money may serve as an alternative or supplemental source of funds for current and future personal spending requirements. 10–2. INVESTMENT PREREQUISITES. Before beginning an investment program you must make certain that your current income provides for both the basic necessities of life and protection from catastrophic loss. Your current living requirements for housing, food, and clothes, coupled with health, life and property insurance are among the basic prerequisites that must be satisfied prior to the start of an investment program. The personal budget process discussed in Chapter 8 is the place to start. A budget is your plan — your agreement with yourself to spend a certain amount of money on specific items. Once you have a workable plan you can begin the investment process.
10–1. WHY SAVE AND INVEST? Generally, people save and invest for one or more of the following reasons: a. Retirement. The primary reason for investing is to accumulate funds for retirement. People realize that it is a mistake to rely only on social security and possible employer pension funds for their income needs when they are no longer working. b. Emergency Reserve. People often invest to have funds available for unforeseen events such as a medical emergency, automobile repair, or a family crisis that may require immediate access to substantial funds. c. Major Expenditures. People frequently invest to accumulate funds for significant expenditures including education, home improvement, or vacation travel.
CHAPTER 10: SAVINGS & INVESTMENTS
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