SI3

1. Investment
Type
What and
How It Works
Benefits/
Advantages
Trade-Offs/
Disadvantages
Special
Features/Types
Money
Market
Accounts
It is an account
at the bank that
you open and is
very similar to a
regular savings
account, except
you get a better
interest rate in
exchange for a
couple
restrictions.
- Higher rate of
return
- Can access
money whenever
you need it
(liquid)
- May be
restrictions like
minimum balance
or max
withdrawals per
year
- Low interest
rates
- Rates of about 4%
- Good for a short-
term place to put
your money that you
need to be able to
withdrawal at any
time
Certificates
of Deposit
It is an account
at a bank that
gets you a better
interest rate in
exchange for
your agreeing to
keep your
money at the
bank for a
certain amount
of time.
- Higher rate of
return
- Secure and
FDIC insured (if
the bank is FDIC
insured)
- Impossible to
lose your money
- You are
penalized for
early withdrawal,
so you can’t
access your
money whenever
you need it.
- The money
doesn’t really
grow because
inflation and taxes
take away the
interest rate that
you would be
earning.
- There are CDs for
all different lengths
of time, for example,
six months, one
year, five years, etc.
Usually, you get
paid a higher
interest rate for the
longer you agree to
keep your money at
the bank.
- Rates of about 5%
for a one-year CD
Bonds A bond is where
you lend money
to a company,
city, or the
government, and
they promise to
pay you back by
a certain date
(maturity date),
along with
interest
payments along
the way (usually
paid semi-
annually).
- A US savings bond (series EE bond) usually earns 4.5%
interest, but you must keep your money in the bond for at least
five years in order to earn that rate. You don’t pay state
income taxes on this kind of bond, and if you have college
tuition, you might not have to pay federal taxes either.
Savings bonds are secure, but they have penalties for early
withdrawal and a low rate of return.
- A corporate or municipal bond is like a loan to some
corporation or municipality to help them raise money for
something. Riskier corporations offer higher interest rates in
order to get people to buy their bonds. Usually, municipal
bonds have a tax advantage, so they usually have a little bit
lower rates. These types of bonds are safe as long as the
corporation/municipality doesn’t have financial problems
(which can happen). You also cannot access your money
whenever you need it.
- Finally, there are bond mutual funds. This means that a
collection of bonds (usually all of a certain type) is owned by a

2. group of people. The idea is that this lowers the risk of losing
your money, like not putting all of your eggs in one basket.
Usually, you will get monthly interest every month for bond
funds. You can get your money at any time you need it by
selling your shares, but the price of your shares constantly
goes up and down, so this may not be the perfect solution.
Mutual
Funds
It is a pool of
stocks that are
owned by a
group of people
(this caused for
lower risk
because you are
not putting all
your eggs in one
basket).
- If you leave your
money alone for
five or ten years,
you may get a
10% return rate.
- If the stock
market is rising,
then you can sell
your stocks at any
time and make
money, however
this is not the
case if the stock
market is not
rising. So, stocks
are somewhat
liquid.
-Stocks and mutual funds are a great
place to put retirement money, but a bad
place to put money short term, since you
won’t know what the stock market will be
like after such a short time
- There are “load” stocks and “no load”
stocks. “Load” stocks charge a fee when
you first purchase it, while “no loads” do
not. “No loads” are best for beginning
investors.
- There are lots of different types of stock
mutual funds, depending on the kinds of
stocks they invest in, including income
funds (larger, safer companies), growth
funds (companies that are expected to
grow), aggressive growth funds (smaller
companies, bigger growth but bigger
risk), index funds (stocks of a particular
index), and foreign funds (foreign stock
markets).
Stocks A stock is a
representation of
ownership of a
company.
-If the stock
market/company
does well, you
have the chance
to make a lot of
money.
- You only pay
taxes on stocks
when you buy or
sell them.
-If the stock
market/company
does poorly, you
could lose money.
-You might have
to pay a
commission to
buy and sell on
the stock
exchange.
-There are lots of
different types of
stocks, classified by
how risky the stock
is. These include
growth stocks,
income stocks,
value stocks,
countercyclical
stocks, cyclical
stocks, and
speculative stocks.
- It is a good idea to
buy stock in lots of
different companies
so that if one fails,
you won’t lose
everything.
Real Estate Investing in real
estate means
-You have control
over how much
-Real estate is
subject to a lot of
-You want to be very
cautious when

3. that you could
either buy
property and
rent it, buy stock
in real estate
companies, or
buy shares in
companies that
invest in real
estate.
you are making
(how much you
charge, how you
advertise, etc.),
it’s like running
your own
business: it can
take a lot of effort,
but you might
enjoy it
ups and downs
-Being a landlord
can be very hard
-Risk is only low if
you stay in real
estate for a long
time
investing in real
estate and the more
experience you
have, the better
Retirement
Plans
A plan designed
to create
retirement
savings. You
may be able to
deposit money
directly from
your paycheck
before taxes are
taken out.
Sometimes,
employers
match the
amount of
money that you
take out of your
paycheck to put
into your
retirement plan.
Types:
-Individual Retirement Accounts (IRAs): a group of plans that
allow you to put some of your income into a retirement fund
that you don’t have to pay taxes (at regular income tax rates)
on until you withdraw your money. These accounts allow the
holder to invest money however they like. Some (or all) IRA
contributions may also be tax deductible.
-Roth IRA: offers total exemption from federal taxes when you
withdraw to pay for retirement or a first home (there is no tax
deduction up front on contributions). It can be used for certain
expenses like education or medical expenses without having a
penalty, although all earnings that are withdrawn must have
income taxes paid on them unless you are 59 and a half or
older. Not all taxpayers can have a Roth IRA.
-401 K: offered by employers, has tax advantages and
corporate matching (when your employer contributes the
same amount you do).
-403B: nonprofit version of 401K
-Keogh: a special kind of IRA that also works as a pension
plan for a self-employed who can put aside a lot more than
what the IRA requires you to contribute
-Simplified Employee Pension (SEP) Plan: a special kind of
Keogh-individual retirement account. These kinds of account
were made so that small businesses could set up retirement
plans that were easier to manage than normal pension plans
are. Both the employee and employer can contribute to these
kinds of plans