Home » Students & Parents » Real Money 101 » Financial Investments

Financial Investments

Investing means putting your money where you think it will earn a profit.  However, before you begin investing, you should have a sound budget and savings plan.  We suggest that you consult several resources before investing, such as financial magazines and newspapers, television and radio shows on money management, and investing.  Talk to others who have made similar investments.  Obtain information from state and regulatory agencies, stockbrokers, insurance agents, and financial planners.

 

 

 

 

Types Of Savings Accounts
 

Regular Savings Accounts
(Deposit Accounts)

CDs
(Certificates of Deposit)

Money Market Accounts
Description
  • Money can be deposited
    at anytime.
  • You deposit $500 or more.
  • You deposit a large amount to
    open the account.
 
  • Deposits can be made at a bank
    branch, or at a MAC machine.
  • You agree to leave the money
    for a certain period (from a
    month to 5 years).
  • The bank pays you interest
    based on the money market.
 
  • You may have a passbook or
    register online to check your
    balance.

 
  • You can write a few checks
    each month.
 
  • You will get a monthly
    statement from the bank
    indicating transactions.
   
Pros
  • Either none, or low minimum
    balance requirement.
  • You get higher interest than
    with regular savings.
  • You get higher interest than
    with regular savings.
 
  • Your money earns interest.
  • Your interest rate stays the
    same, even if rates go down.
  • Your interest rate can only go up.
 
  • You can withdraw your money
    at any time.
  • You can use CDs to plan for
    future money needs.
 
 
  • The bank may raise your
    interest if rates go up.
   
 
  • The bank may give you free
    checking if you have a savings
    account.
   
Cons
  • CDs and Money Market 
    accounts pay more interest.
  • Your money is tied up for a
    specific period.
  • You have to keep a large
    minimum balance.  If you don't
    the bank charges high fees.
 
  • You may need to keep a
    minimum balance.
  • You pay large penalties if you
    withdraw it early.
  • Your interest rate can go down.
 
  • The bank can lower your
    interest if rates go down.
  • Your interest rate stays the
    same, even if rates go up.
  • These accounts are usually not
    insured. 
 

Financial Investments
Savings Bonds
  • Issued by U.S. government.
  • Sold at most banks or electronically at www.savingsbonds.gov.
  • Don’t require a lot of money.
  • No risk.
  • Can be purchased directly from electronic payroll.
Annuities
  • Tax Deferred Annuity, is a contract between you and an insurance company for a guaranteed interest bearing policy with guarantor income options.
  • Annuity pays you regularly in the future.
  • Most often pays off during retirement.
  • Often nontaxable until payments begin.
  • Low risk, generally high fees associated with these adjustments.  
Mutual Funds
  • Fund is group of stocks, bonds, and other investments managed by investment experts.
  • Each investor buys shares in the fund.
  • Fund regularly pays profits to investors.
  • Investors can sell shares to make to make a profit, but may lose money if value has decreased.
    Levels of risk and return vary.  
Bonds
  • Investor loans money to government or corporation that issues the bond.
  • Bonds take 5 to 20 years to mature.
  • Low to moderate risk.
Stocks
  • Investor buys shares, from a broker or from an electronic broker, of ownership in corporation.
  • Stocks rise in value when corporation does well.  Stocks may decrease in value.
  • Success requires knowledge of the stock market
  • Risk varies.
Real Estate
  • Investor may make money by buying property and renting it out.
  • Investor may make money by buying property and selling it for a profit.
  • Moderate to high risk.

 

Mutual Fund Focus

 

Investment Company Institute

 Here's what mutual fund investing can mean to you.  Today, more than 50% of all U.S. households invest in mutual funds.*

When you join them, you enjoy all these advantages:

  • Diversification** that can help reduce your risk.  Mutual funds are a great way to avoid "putting all your eggs in one basket."  As a mutual fund investor, you own shares in a portfolio made up of as many as several hundred different securities - far more than you could ever hope to invest in as an individual.
  • Professionals who manage your dollars.  When you invest in a mutual fund, you're actually hiring full-time investment professionals.  On your behalf, these professionals pursue the best possible performance for a mutual fund - devoting their careers to buying and selling securities for fund investors like you.
  • Easy access to your money.  On any business day, you can redeem your shares for cash, which may be more or less than the original price you paid per share.
  • More ways to adapt to your changing needs.  You can easily exchange shares of one fund for shares of another, to adapt to changes in your personal financial goals or market conditions.***
  • You can reinvest your earnings automatically.  You can reinvest your earnings automatically, which is an easy way to build the number of your shares. You can receive your earnings by check each month or quarter.  

*  Source: Investment Company Institute
**  Diversification does not assure a profit or protect against loss.
***  This ability to exchange may be modified or discontinued at any time.

 

Rule of 72


The "Rule of 72" is a mathematical guide that can help you calculate when money will double at a given interest rate. Its called the "Rule of 72" because at 10%, money will double every 7.2 years.  To use this Rule, simply divide 72 by the interest rate.  It is important to note that this "Rule of 72" is intended as an educational and planning tool and as such should not be construed as investment advice.

Example:

If you want to know how long it will take to double your money, take the number 72 and divide that number by the interest rate you are getting.  So if you deposit $3,000 into an account with a 2% interest rate, 72 ÷ 2 is 36. So in 36 years you will have $6,000.

 
 
Rule of 72
  • Determines how many years it will take to double your money
  • 72 / Interest Rate = years to double investment

Build an Investment Plan

8 Steps to Help You Achieve Success

A well-thought-out financial plan is critical to your financial future.  Taking the time to plan and make decisions now can make all the difference in the years ahead.  And it doesn’t have to be hard. Here are 8 simple steps to help you on your way.

Set Clear Goals

Defining your objective and understanding your own tolerance for risk is your first step.  Think about where you want to be, and work backwards to determine what it will take to get there.  This can help motivate you and keep you focused on your strategy. 

Establish a Strategy

A sound and realistic financial plan is your roadmap to your goals.  Talk through your objective and the time horizon.  Set intermediate markers with your financial adviser to help you monitor your progress.  Review your investments and choose a mutual fund family that can work for you today and adjust to your future needs.

Start Early

Once you have identified your goals and developed a strategy with your financial adviser, it’s best to put your money to work as soon as possible.  Procrastination can be costly. Our Systematic Investment Plan* can help you make timely periodic investments into your selected fund choices.  Smart investing is a matter of commitment and diversification, not timing.   

 

This graph illustrates the potential advantages of investing early.  It assumes an investment return of 8%, and the reinvestment of all dividends.  It is not indicative of the performance of any particular investment or mutual fund.  The value of an actual investment and the rate of returns will vary.*  Systematic investing does not assure a profit or protect against loss in declining markets.

Pay Yourself First

Many investors find it difficult to make a commitment.  One of the easiest and surest ways to get started is to invest a set amount on a regular basis through Funds Systematic Investment Plan.*  Regular investing helps you take advantage of a simple concept called dollar-cost averaging,** in which a set amount invested buys more shares when share prices are low, and fewer shares when prices are high.  As a result, your average cost per share is lower than the average price per share.

*    Systematic investing does not assure a profit or protect against loss in declining markets.
** Because dollar-cost averaging involves continuous investment regardless of fluctuating price levels, investors should consider their financial ability to continue making purchases during periods of low price levels.
 
Help Protect Against Inflation and Taxes

Every successful financial plan includes a strategy to reduce the impact of inflation and taxes.  If your investments earn less after taxes than the rate of inflation, your purchasing power will decrease over time.  History has shown that equity investments are the best hedge against inflation because of their potential for higher returns.  Of course, equity investments are also subject to greater risk than other types of investments.  An IRA is a great way to save on current taxes and to shelter investment growth and income from annual taxation until your money is withdrawn.*** 

Stay Focused

Establish your time horizon for investing and stick to it.  Avoid getting caught up in the day-to-day shifts in market performance and your funds’ share prices.  For longer-term investments, use time as a valuable ally and learn to look past short-term fluctuations. 

Diversify

A mutual fund offers investors the opportunity to pool their money to own shares in a portfolio of dozens, or even hundreds, of securities.  But there’s more to diversification than simply investing in one mutual fund.  The best type of diversification occurs when you spread your investments across a mix of “asset classes,” or financial markets, such as equities, bonds and money market securities.  This strategy, called “asset allocation,” can help you capture the combined performance of several markets—and smooth out downturns in any single one.†

Your financial adviser can assist you in properly diversifying your portfolio and can help explain the broad array of choices.
 
*** Distributions of deductible contributions and earnings form Traditional, SEP, and Simple IRAs are subject to income tax when withdrawn and may be subject to a 10% penalty if the withdrawal is made before the age of 59 1/2.
†   Diversification does not assure a profit or protect against loss.
 
Rely On the Experience of Professionals

In a specialized world, investing can seem complicated, that’s why your Funds, have a dedicated team of professionals working behind the scenes for you.

 
Source:  MTB Funds 

^ Top