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1
InvestingInvestingMaking money with money
Investing = Saving
It involves risk—you can lose your $$
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Remember our 3 tools to Remember our 3 tools to save?save?
Savings Account
Money Market Account
Certificate of Deposit (CD)
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What are some ways to What are some ways to invest?invest?
Stocks
Bonds
Mutual Funds
Currency
Real Estate
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Unique Investments…Unique Investments…
Collectables
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Rule of 72’sRule of 72’s
The time or the interest rate you need to double your money
72/t=int
72/int=t
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Simple Interest Simple Interest Vs. Vs.
Compound InterestCompound InterestSimple – Interest paid only on
principle amount
Compound- Interest paid on principle and also on previously earned interest
*See Interest Worksheet
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Retirement Plans Retirement Plans Pension Plans
A retirement plan set up by your employer
IRA’sMust wait until 59 ½ to access money
Special tax benefits
Used if employer does not offer a pension plan
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Retirement Plans Retirement Plans
401K
403B
SEP PlansPlan if you worked for a small business
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Mutual FundsMutual Funds
A collection of investments
Diversification
Minimize risk
Professional manager
Many investors
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LiquidityLiquidity$Ability to convert your
assets to cash quickly
Cash
Stocks
Houses/Cars/Jewelry
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Dollar Cost Averaging
Letting your money work for you over time
Diversification
Spreading your money out over different investments
Ie: stocks, bonds, mutual funds, etc.
Investing Choices
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Now What?Now What?
How does diversification help limit risk?
How does age and financial situation affect how you make investment decisions?
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The Stock MarketThe Stock Market
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StockStock
Represents ownership in a
corporation
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Market ValueMarket Value
$The amount of money you can sell your investment at in the market place.
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Stock Stock ExchangesExchanges IndexesIndexesNYSE
AMEX
Nasdaq
London, Japan, etc
S&P 500
Dow
Nasdaq Composite
NIKKEI in Japan
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Dow JonesDow Jones
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DividendsDividends
$Share of the profits from a corporation
$Receive dividends for each share
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How are earnings made on How are earnings made on stocks?stocks?
$Dividends.
$Dividend are usually paid quarterly
$Buy Low & Sell High
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Advantages of Stock Advantages of Stock InvestmentsInvestments
$If the market value goes up, the gain can be considerable
$Liquid
$Money is easily accessible
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DisadvantagesDisadvantages
$If the market value goes down, the loss can be considerable
$Time
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StocksStocks
$A block of stock is one hundred (100) shares.
$Preferred
$Common
$Blue Chip
$Growth
Stock LineStock Line
Yahoo Finance - Apple Inc.
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Who protects the interest Who protects the interest of investors by regulating of investors by regulating companies that sell stock?companies that sell stock?
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BondsBondsCarry less risk than a stock
is an IOU, certifying that you loaned money to a
government or corporation and outlining the terms of
repayment
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How Bonds WorkHow Bonds WorkBuyer purchases bond
Fixed interest rate
Fixed period of time
When matured it is redeemed for full face value
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Bond TypesBond Types
Federal GovernmentMunicipalCorporate
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Federal BondsFederal Bonds
The federal government issues bonds to pay for services; military, roads, infrastructure.
Virtually NO RISK!!
Savings bonds, Series EE & HH
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Municipal BondsMunicipal Bonds
State or local governments issue bonds for the construction of buildings, roads, schools, etc.
Moderate, if any, risk
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Corporate BondsCorporate Bonds
Issued by a Business to raise money for a capital venture.
Higher risk
Better rates of interest
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Risk?Risk?
US savings bond least risk
Corporate bond
Preferred stock
Common stock most risk