E.1.10.



** Formulate a savings or financial investment plan for a future goal (e.g., college or retirement). **
There are a wide variety of savings and investment instruments available to people in the United States that go above and beyond stuffing cash into a mattress. That is the most basic way of saving money—keeping it and not spending it—but there are other ways in which your money can increase (or decrease!) if put into an investment or savings instrument.

Interest is a percentage of a total amount of money, paid on a regular basis (daily, monthly, quarterly, yearly). If you owe money to a bank or corporation on its credit card, then you pay interest on that money—you pay the card company more for the shirt you bought than the amount you were charged for the shirt. On the flip side, if you put your money into a savings instrument, then you receive interest from the bank or corporation that offers that instrument as payment for letting that bank use your money.
 * Interest **

An investment holds the possibility that you will lose money—or gain money—in a risk relationship. A savings account does not hold any risk of losing money. In general, a riskier investment leads to a greater the chance for large gains and large losses. A less-risky investment brings both lower gains and lower losses.
 * "Savings" versus "Investment" **


 * The short answer to the above challenge is this: The best investment and savings plan is one that is diversified over a wide range of high, medium, and low risk investments, with an eye towards the long-term goal. And: always remember that any money put into an //investment// is at risk. **

That said, below is a list of common investment and savings options.

__ Savings instruments __



Savings account at a bank
 * You open an account at a bank which pays you interest on the money you keep there. Usually the interest accrues (is calculated) monthly. The interest on these accounts is usually very low. You have access to this money at all times, but many of these accounts have a required minimum balances (so you might have to leave $1,000 in there, for example).

Certificate of Deposit (CD)
 * You give the bank a minimum amount of money, and the bank puts it aside for a set period of time – usually three, six, or twelve months. You do not have access to the money over that time (but the bank does). In exchange for letting the bank use your money over that set time, you receive interest on it, which you collect at the end of the CD term. The interest for a CD is higher than for a savings account, and gets higher the longer the term of the CD.

__ Investments __ Real estate or land
 * A good long-term investment, people buy land or houses in the hope that they will increase in value. You must pay tax on houses and land, but you can also rent them to others, and use that income to offset taxes. Land or house values can also go down.

Stocks
 * Pieces of companies owned by the public
 * The value of stocks go up and down depending on the economy, the actual financial strength of the company, and people’s perceptions of how strong that company is.

[|Bonds]
 * You are lending the federal government money, and receiving interest from the government on that dollar amount after a set period of time
 * You can buy a bond at a bank
 * U.S. bonds were commonly on offer during World War I and World War II as a way for the government to raise money for the war effort
 * (explanation from www.themint.org) There are two kinds of bonds.
 * “ **EE Bonds.** These are discount bonds. When you buy these bonds, you pay only half their "face value", the value printed on the bond. So, for example, you pay $50 for a $100 bond. Each year that you keep the bond, its value increases as interest adds up. Even after the bond reaches the value printed on it, the bond will continue to earn interest. Bonds earn interest for 30 years from the date they were issued.
 * **“I Bonds.** These bonds are sold at their face value ($50 for a $50 bond). They earn interest and can be cashed in to pay for college. They are tax-free. Interest rises and falls – every six months, interest rates change.”

[|Treasury Bills]
 * In essence, a bond with a very short term life, usually less than one year

// NOTE: // both bonds and T-bills are very very low risk, since the credit rating of the U.S. government is very high/ stable. The chance that you could lose money on this investment is extremely low (which is why the rate of return is relatively low). In other words: the U.S. government will pay you back.

Gold
 * Buying gold when its value is low and selling it when its value is high is a classic investment

Foreign currency
 * Buying other countries’ money with U.S. dollars when the dollar’s value is high and selling it for a profit when the dollar’s value goes down

College savings account/ 529 Plan
 * Government (usually state) run savings plans that have federal tax-free earnings as long as the money goes to pay for college

Individual Retirement Account (IRA)
 * An investment account with a limit to how much can be contributed in one year
 * Contributions are tax-deductible
 * Must leave the money untouched until reaching a certain age, usually 62

Retirement savings account, Roth IRA
 * an IRA with no contribution limits

401K investment accounts
 * A retirement savings plan, usually invested in the stock market, offered by an employer. Often invested in low-risk stocks, these accounts still offer variable returns (earnings/ profits) and can be hit hard by market downturns.
 * Prior to the 1980s, employers more often offered pensions, an internal savings account held by the employer that was not invested in (and so not subject to) the stock market. With the shift away from a manufacturing economy, more companies started to replace pension plans with 401Ks, putting more American workers’ retirement savings plans at risk in a changeable economy. As of 2008, very few professions offer pensions (teaching, the priesthood, and the military being the main exceptions).

[|Mutual funds]
 * A mix of investments (stocks, bonds, real estate, etc.), invested in by a group of people together
 * The variety of investments are diversified, which reduces risk because if one investment goes down in value, the others may stay the same or go up in value
 * A fund manager looks after the investments and makes adjustments as needed
 * A great deal of U.S. retirement savings are now in mutual funds, which is problematic, since these funds are not truly //savings// instruments, since they can incur losses.




 * __ Sources: __**

--My own financial experience and knowledge (Erica Winter)

Web site for kids and adults who want to learn about money and what to do with it. http://www.themint.org/

The Mint on bonds http://www.themint.org/kids/us-bonds.html

The Mint on mutual funds http://www.themint.org/kids/mutual-funds.html

“Investopedia” information on Treasury bills http://www.investopedia.com/terms/t/treasurybill.asp

All images from [|www.classroomclipart.com]