Final answer:
Deposits in bank accounts, bonds, stocks, money market mutual funds, stock and bond mutual funds, and housing or tangible assets like gold can be used to store funds. Factors to consider when identifying appropriate savings vehicles include expected rate of return, risk, and liquidity.
Step-by-step explanation:
When storing your funds, there are several types of savings vehicles that can be used:
- Deposits in bank accounts: Bank accounts, such as savings accounts or checking accounts, offer convenience and easy access to your money. They typically provide low risk and some interest.
- Bonds: Bonds are fixed-income investments where you lend money to an issuer (such as a government or corporation) in exchange for regular interest payments and the return of the principal amount.
- Stocks: Stocks represent ownership in a company and offer potential for capital appreciation and dividend income. However, they also carry higher risk.
- Money market mutual funds: These funds invest in short-term debt securities and provide higher returns than traditional bank accounts.
- Stock and bond mutual funds: These funds pool investors' money to invest in diversified portfolios of stocks and/or bonds.
- Housing and other tangible assets: Investing in real estate or owning physical assets like gold can provide a store of value.
When identifying appropriate savings vehicles, three factors should be considered:
- Expected rate of return: This refers to the amount of return or interest you can expect to earn on your investment.
- Risk: Risk measures the potential for loss or volatility in your investment. Different vehicles carry different levels of risk.
- Liquidity: Liquidity refers to how easily you can convert your investment into cash. Some investments may have restrictions on withdrawal or may take time to sell.
By considering these factors, you can make informed decisions about which savings vehicles suit your financial goals and risk tolerance.