Chapter 11: Financial Markets
Section 1: Saving and Investing
What are the different forms of investments?
Investing is the act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.
It’s actually pretty simple: investing means putting your money to work for you.
Types of Investments
Grouped under “fixed-income” securities.
When you purchase a bond, you are lending out your money to a company or government.
In return, they agree to give you interest on your money and eventually pay you back the amount you lent out.
The main attraction of bonds is their relative safety. If you are buying bonds from a stable government, your investment is virtually guaranteed.
Because there is little risk, there is little potential return.
When you purchase stocks or equities, you become a part owner of the business.
The profits from the company are referred to as dividends.
Stocks fluctuate in value on a daily basis. There are no guarantees.
Compared to bonds, stocks provide relatively high potential returns.
You must also assume the risk of losing some or all of your investment.
A mutual fund is a collection of stocks and bonds.
The primary advantage of a mutual fund is that you can invest your money without needing the time or the experience in choosing investments. It is usually DIVERSIFIED.
Real Estate is defined as property in buildings and land.
This type of investment is not as volatile as stocks, but can fluctuate 20-30 percent in value within a year.
Three most important factors when investing in real estate are location, location, and location.
You have more leverage with your money – you can’t buy a share of a stock with 20 percent down payment, but you can purchase a house with 20 percent down payment if you have good income and superb credit.
Unfortunately, in most cases; you need a fairly high amount of financial capital to make the initial investment.
The earnings on this type of investment may not be taxed if it is a primary residence that you have lived in for longer than two years.
Certificate of Deposit
A savings certificate entitles the bearer to receive interest. A CD bears a maturity date, a specified interest rate, and can be issued in any denomination. CDs are generally issued by commercial banks.
Virtually no risk, but the returns are extremely low.
A portfolio is a combination of different investment assets mixed and matched for the purpose of achieving an investor’s goal(s). Items that are considered a part of your portfolio can include any real estate, equities, fixed-income instruments, and cash and equivalents.
The asset mix you choose according to your aims and strategy will determine the risk and expected return of your portfolio.
1. Based on the information you have been given, rate the different kinds of investment from the riskiest to the safest. Also rank the liquidity of those investments.
2. Why is investing not the same as gambling?
3. What should your portfolio look like when you are just a few years away from retirement?
4. Calculate the following investment scenario….
If you invested $10,000 on
A. Microsoft stocks, the value of shares has jumped 40% during the last 12 months
B. A 2 bedroom house in Monterey Park worth $450,000, the value has decreased by 30 percent in the last 12 months
C. CDs, the simple interest is 4 percent
How much return (profit/loss) and percentage compared to the initial $10,000 have you made in each scenario?
Chapter 11: Powers of Congress
Section 4: The Implied Powers
Complete the information for the Supreme Court case below…
McCulloch v. Maryland