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INVESTMENT 101 STOCKS, BONDS, & OTHER FINANCIAL ASSETS
LOOKING AHEAD • Unit 4 Test Average = 75%
• TEST CORRECTIONS DUE TUESDAY 4/17
• Unit 5 – Last Unit!
• A mash-up of all the singleton topics we need to cover
• Financial Economics
• Extending the AD-AS Model (long-run examination)
• International Trade
• AP Macro Test: May 16, 11:30 AM
• If you take the AP test, you are exempt from the final
LOOKING AHEAD
WHAT TO DO WITH YOUR MONEY?
• In economics, there are essentially two options
for what to do with income:
• Spend or Save
• If we save, what are our options? How do we
make the most of our money?
• Enter: Investment
• Investment decisions are based on risk v. reward
VARIOUS TYPES OF INVESTMENT
• Savings Accounts
• Bonds
• Certificates of Deposit (CD’s)
• Retirement Accounts
• Stocks
•Mutual Funds
SAVINGS ACCOUNTS
• A deposit account held at a bank
• Pros: easily accessible, highly liquid,
no fees, no limits on transactions,
no minimum balance, little to no risk –
insured/backed by FDIC
• Cons: very little interest is earned (fraction of a percent)
BONDS
• A loan, earning interest, in which you are the lender
and the govt or a corporation is the borrower
• Given for a pre-determined period of time
• At the end of that time (maturity date) lender
cashes in the bond to receive money back plus interest earned
• Pros: long-term investment, very little risk, especially government bonds which are
backed by US Treasury
• Cons: low interest rates, penalties for cashing in early, must wait until maturity date to
receive money (often 10+ years), usually fixed interest rates
CERTIFICATE OF DEPOSIT (CD)
• A savings certificate issued to you by the bank in exchange for money
•Given for a pre-determined period of time
• Pros: varied maturity terms – from 3 months to 7 years,
low risk since its backed by the bank, slightly higher interest rates than
bonds, slightly more flexible/varied interest rates
• Cons: still relatively low interest, penalties for cashing in early, no access
to money in the meantime
RETIREMENT ACCOUNTS
• 401K = an employer-established retirement plan,
where you contribute part of your salary to an
interest-earning account, often tax-free
• Individual Retirement Account (IRA) = a private
retirement account, earning interest
• Pros: slightly higher interest rates, often tax-free, contribution amounts are mostly
self-determined and can be changed
• Cons: slightly higher risk since only backed by private businesses, some 401Ks are
not portable, penalties for cashing in early, no access to money in the meantime,
often contribution minimums and maximums
STOCKS
• A very small slice, or share, of ownership in
a company
• Your share earns you a small part of the
earnings of that company
• Usually stocks change owners – constantly bought & sold on stock market
• Pros: offer highest possible return on investment, there is essentially no limit to the
profit, can be easily traded, bought or cashed in at any time, easy to monitor progress
• Cons: most risky type of investment because there is no ‘backing’ – if the company
loses money, you lose money and there’s no refunds.
MUTUAL FUNDS
• A company that sells a bundle of investments, like stocks and bonds, owned by a
group of investors rather than just one person
• Operated by one money manager, who invests money for the group, based on their
agreed upon parameters
• Pros: managed by a professional, allow for diverse types of investment, losses
divided equally amongst the group, varied types of mutual funds exist based on your
preferences/demands
• Cons: high risk, must pay fees to the
company/money manager, gains are divided equally
amongst the group
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