Economics and Personal Finance/Retirement and Stock Market
Retirement Plan[edit | edit source]
Social Security[edit | edit source]
Some retirements may come from the government (social security):
- Designed as a safety net to provide income for older people when they can no longer work
- It's automatically deducted from your paycheck
- Determined by the amount you've contributed and your age when claiming benefits
- Include disability and survivor benefits
- Payments are likely to be less than what your income was, so you must supplement through savings, investments and continued employment.
- Retirement age is 67. You may start collecting benefits if you retire early at 62, but your checks will be smaller.
You contribute 6.2% of your income with your employer matching that contribution to 12.4% total. If you're self-employed, you contribute all of that 12.4%.
Retirement Options provided by you/you're employer[edit | edit source]
- IRA (Individual Retirement Account): Contributions are tax-deferred (meaning you don't pay taxes until you withdraw).
- TSA (Tax-Sheltered Annuity): For employees of public schools and non-profits (ex. 403b).
- Keoh Plan: For self-employed small business owners.
- Employee retirement plan: Contributions deducted from your paycheck (ex. 401K).
- Pension: Paid for entirely by the employer.
Considerations for choosing investment options[edit | edit source]
- Consider the RISK (investment risk, inflation risk, industry risk, political risk)
- Consider REWARD (benefit/return gained)
- Consider CONVENIENCE (sense of relative ease and accessibility)
- Consider LIQUIDITY (how quickly a financial instrument can be converted to cash)
- Savings Account
- HIGH liquidity
- LOW risk
- LOW return
- HIGH liquidity
- HIGH risk
- HIGH return
- Real Estate
- LOW liquidity
- HIGH risk
- HIGH return
|Govt. assistance||SS no longer a guarantee|
|Pension from employer||Fewer companies are offering pensions|
Stock Market[edit | edit source]
When you buy a stock, you buy partial ownership in a corporation. If a company is expected to do well, demand for its shares rises and prices rise. If a company's future looks bad, demand decreases and prices fall. Licensed to buy/sell stocks, brokers provide investment advice and they collect a commission on each purchase/sale. Profiting from stocks go two ways:
- Dividends: Payments made by corporations to stockholders.
- Capital Gains: Selling a stock for more than its original purchase price.
[SELLING PRICE - PURCHASE PRICE = CAPITAL GAIN/LOSS]
You can determine whether the stock market is performing or not based on a few tools: DOW (Dow Jones Industrial Average) lists the 30 leading industrial stocks, S and P 500 (Standard and Poor's 500 composite indexes) covers market activity for 500 companies and is more accurate than DOW because it evaluates a greater variety of stock and NASDAQ (National Association of Security Dealers Automated Quotations) monitors fast-moving tech companies; speculative stocks, show dramatic ups and downs.
- "Ups and Downs" of a stock market
- Bull Market - The market is doing well and investors are optimistic and people are purchasing stocks.
- Bear Market - The market is doing poorly and people aren't purchasing stocks.
Stock Exchanges[edit | edit source]
- New York Stock Exchange
The NYSE is the oldest and nationally-recognized "blue chip" of companies (began in 1792). The average stock price is $23. Although the benefits, the NYSE has strict requirements.
The NASDAQ mostly never handle tech stocks; trades occur electronically; more volatile because companies are young and new; stock price: $1.
Stock Market Risks[edit | edit source]
- Interest rate risk: If interest rates rise, stock raise will fall.
- Inflation risk: Inflation = stock value will fall.
- Business risk: Problems with the business (scandal, poor management, etc.) = stock value will fall.
- Liquidity risk: You're unable to find a buyer when you're ready to sell.
- Supply and demand risk: If fewer people demand the product = stock market will fall.