Invest

Investing Tools

Menu

Invest for Your Future

Once you have a good savings foundation, you may want to diversify your assets among different types of investments.

Invest

Investing Tools

Menu

In this section, you'll learn about:

  • Stocks, bonds and mutual funds.
  • Investing for retirement.
  • Other investments.

Invest

Investing Tools

Menu

Betty knows by investing some of her money, she can put it to work for her.

Invest

Investing Tools

Menu

Betty knows by investing some of her money, she can put it to work for her.

Invest

Investing Tools

Menu

Betty knows by investing some of her money, she can put it to work for her.

Invest

Investing Tools

Menu

Betty knows by investing some of her money, she can put it to work for her.

Invest

Investing Tools

Menu

Betty needs to diversify her investments to minimize risk.

Invest

Investing Tools

Menu

Betty needs to diversify her investments to minimize risk.

Invest

Investing Tools

Menu

Betty spreads her assets among different types of investments to increase her diversification.

To make smart investment decisions, you too need to know about:

  • Bonds — You lend your money and get paid back with interest.
  • Stocks — You own part of a company and earn based on how it performs.
  • Mutual funds — You own shares of a fund that invests in many companies.
Invest

Investing Tools

Menu

There are different types of bonds:

  • Bonds (general).
  • Savings bonds.
  • Treasury bonds, bills and notes.

Invest

Investing Tools

Menu

Bonds

When you buy bonds, you are lending money to a federal or state agency, municipality or other issuer, such as a corporation.

The issuer of the bond promises to pay a stated rate of interest during the life of the bond and repay the entire face value when the bond comes due or reaches maturity.

The interest a bond pays is primarily based on the credit quality of the issuer and current interest rates.

Invest

Investing Tools

Menu

Savings Bonds

U.S. savings bonds are government issued and government backed. Savings bonds are a low-risk way to save and invest. Unlike other investments, you can't get back less than you put in.

Series I Bonds are indexed for inflation. The earnings rate on this type of bond combines a fixed rate of return with the annualized rate of inflation.

Invest

Investing Tools

Menu

Treasury Bonds, Bills and Notes

These U.S. securities are sold to pay for an array of government activities and are backed by the full faith and credit of the federal government.

Bonds, bills and notes can be purchased directly from the U.S. Treasury at www.treasurydirect.gov.

Invest

Investing Tools

Menu

Stocks — Owning Part of a Company

When you buy stock, you become a part owner of the company and are known as a stockholder or shareholder.

Stockholders can make money in two ways:

Invest

Investing Tools

Menu

There is no guarantee you will make money as a stockholder.

In purchasing shares of stock, you take a risk on the company making a profit and paying a dividend or seeing the value of its stock go up.

Before investing in a company, learn about its past financial performance, management, products and how the stock has been valued in the past.

Successful investors are well informed.

Invest

Investing Tools

Menu

Mutual Funds — Investing in Many Companies

Mutual funds are established to invest many people's money in many firms.

By diversifying, a mutual fund spreads risk across numerous companies rather than relying on just one. Mutual funds have varying degrees of risk.

They also have costs associated with owning them, such as management fees that vary depending on the type of investment the fund makes.

Invest

Investing Tools

Menu

Stocks, bonds and mutual funds can be purchased through a full-service broker, if you need investment advice, or from a discount broker.

When investing:

  • Do your research and make informed decisions.
  • Know the costs to buy, sell and manage your investments.
  • Beware of investments that seem too good to be true; they probably are.
Invest

Investing Tools

Menu

The Rule of 72

The rule of 72 is a simple calculation to help you see how your investment can grow over time. Simply dividing the number 72 by your expected rate of return will show you about how many years it will take for your investment to double in value.

Invest

Investing Tools

Menu

The rule of 72 also works in reverse. To see the rate of return you'll need to earn to double your money, divide 72 by the number of years you will invest to show the rate your investment will need to earn over those years.

Invest

Investing Tools

Menu

Invest for Retirement

Next, it's important to plan for your retirement.

Have you ever thought about how much money you will need when you retire? You are never too young to get started.

Invest

Investing Tools

Menu

Individual Retirement Accounts

An IRA is a retirement plan offered by banks, brokerage firms, mutual funds, and insurance companies. Individuals can contribute each year on a tax deferred basis.

With a traditional IRA, you don't pay taxes on the money until it is withdrawn. A Roth IRA is funded by after-tax earnings; you do not deduct the money you pay in from your current income.

For current IRA contribution limits, go to www.irs.gov.

Invest

Investing Tools

Menu

Invest

Investing Tools

Menu

401(k) Plans

Another option offered by some companies is a 401(k) plan. This is a tax-deferred investment and savings plan that serves as a personal retirement fund for employees.

By putting a percentage of your salary into a 401(k) account, you reduce the amount of pay subject to federal and state income tax.

Often, 401(k) funds are professionally managed and employees have a choice of investments that vary in risk.

Invest

Investing Tools

Menu

Other Investments

Remember Bob from Chapter 1? Bob reduced his debt, increased his savings and is now ready to buy a house.

Invest

Investing Tools

Menu

He has a sizable down payment saved, so right from the beginning he will have equity in his home.

What is equity? In this case, equity is the difference between the market value of the house and the balance on Bob's mortgage.

Invest

Investing Tools

Menu

As Bob pays his mortgage, he increases his equity. Plus, over time, his house may rise in value — giving him more money if he chooses to sell.

Invest

Investing Tools

Menu

Bob takes a 15-year mortgage rather than the more traditional 30-year mortgage so he will own his house in 15 years.

He will make higher monthly payments on his mortgage but will build equity quicker and pay less interest.

Over the life of the loan, Bob will save $106,119 in interest payments.

Invest

Investing Tools

Menu

This is a comparison of 15-year and 30-year mortgages for Bob's new home:

  • 30-Year Mortgage
  • Loan amount $118,000
  • Interest rate 7.5%
  • Monthly payment $825
  • Interest paid over time $179,030
  • 15-Year Mortgage
  • Loan amount $118,000
  • Interest rate 7.0%
  • Monthly payment $1,061
  • Interest paid over time $72,911
  • Interest Savings
  • Interest on 30-year mortgage $179,030
  • Interest on 15-year mortgage $72,911
Invest

Investing Tools

Menu

Now try it for yourself using different mortgage amounts and interest rates:

  • Mortgage Term Comparison
  • $  
  •   %
  •   %
Invest

Investing Tools

Menu

For a 0 mortgage:

  • 30-Year Mortgage
  • Interest rate 0
  • Monthly payment 0
  • Interest paid over time 0
  • 15-Year Mortgage
  • Interest rate 0
  • Monthly payment 0
  • Interest paid over time 0
  • Interest Savings
  • Interest on 30-year mortgage 0
  • Interest on 15-year mortgage 0
Invest

Investing Tools

Menu

Start Your Own Business

You can also start and invest in your own business as part of a wealth-creation plan. This requires planning, know-how, savings and an entrepreneurial spirit.

Starting a small business can be risky, but it is one of the most significant ways individuals have to create personal wealth.

Invest

Investing Tools

Menu

Duncan had a dream of owning his own business.

Invest

Investing Tools

Menu

Duncan had a dream of owning his own business.

Invest

Investing Tools

Menu

Duncan had a dream of owning his own business.

Invest

Investing Tools

Menu

Duncan had a dream of owning his own business.

Invest

Investing Tools

Menu

Owning a business wasn't easy for Duncan and his wife.

Invest

Investing Tools

Menu

Owning a business wasn't easy for Duncan and his wife.

Invest

Investing Tools

Menu

Owning a business wasn't easy for Duncan and his wife.

Invest

Investing Tools

Menu

By the 6th year, the business was profitable.

Invest

Investing Tools

Menu

By the 6th year, the business was profitable.

Invest

Investing Tools

Menu

Lessons Learned

Now you're armed with the information to create your investment plans. You now know:

  • Your options for investing in stocks and bonds.
  • Steps to save and invest for retirement.
  • About other investment options, such as buying a house or starting a business.

But what if debt limits your ability to save and invest? The next chapter discusses controlling debt and building credit.