An Introduction to An Introduction to Investing Your MoneyInvesting Your Money

Source: CTAinvest.org

What does this mean?What does this mean?

"How many millionaires do you "How many millionaires do you know who have become wealthy know who have become wealthy

by investing in savings by investing in savings accounts? I rest my case."accounts? I rest my case."

–Robert G. Allen

Terms to KnowTerms to Know• ContributionsContributions – the amount of money you put into investments • PortfolioPortfolio – a collection of your investments• InvestingInvesting – putting money into stocks, bonds, mutual funds, etc. to make money• StocksStocks – shares in the ownership of companies• BondsBonds – loans to a companies that earn you interest after a fixed amount of time• Treasury Bills Treasury Bills – Buy a bill for $9,800 and 13 weeks later it is worth $10,000

Terms to Know (Continued) Terms to Know (Continued) • Mutual Funds Mutual Funds – a collection of stocks, bonds, and cash equivalents• Cash equivalents Cash equivalents – CDs, Treasury bonds, etc. that can easily be converted to cash • AssetsAssets – what your investments are worth • DiversificationDiversification – investing in a variety of financial products (stocks, bonds, etc.)• 401k401k – Retirement account where taxes are paid when you withdraw the money

Terms to Know (Continued)Terms to Know (Continued)

• Roth IRA Roth IRA - Retirement account where taxes are paid when put the money into your account• Certificates of Deposit Certificates of Deposit (CDs) – A short term loan to a bank that earns you money in interest. • Money Market Account Money Market Account – like a large savings account with higher interest • FuturesFutures – The purchase of assets at a future date and price (very risky)

Time is Your FriendTime is Your Friend

There’s a huge advantage to investing early. Let’s say you start investing $2,000 every year when you’re 18. You put it into an account that grows by 7% each year, and continue to invest the same amount for 10 years. Then you stop and just let that money sit for the next 38 years, where it continues to grow at 7% a year, until you’re 65 years old.

Now say your sister decides not to invest until she turns 31. Then she puts $2,000 a year into an account that also earns 7% a year—and does it for the next 35 years, until she turns 65.

Who will have more money? YOU will. You You will have $84,944 more than your sister and will have $84,944 more than your sister and you will have invested $50,000 less than you will have invested $50,000 less than your sister!your sister!

A 401k Can Save You On A 401k Can Save You On Taxes Now!Taxes Now!

Three Types of Assets Three Types of Assets

• Cash Equivalents • Bonds• Stocks

Cash EquivalentsCash Equivalents

BondsBonds

StocksStocks

Performance of Stocks, Performance of Stocks, Bonds, and Cash Equivalents Bonds, and Cash Equivalents

Stocks generally earn more over time than bonds and cash equivalents.

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Stock Market Indexes Stock Market Indexes

Asset Allocation Asset Allocation

Diversification Diversification

Portfolio Models Portfolio Models

Many Baskets of EggsMany Baskets of Eggs

Did your parents ever tell you not to put all your eggs in one basket? If so, they were actually trying to tell you to diversify your options. Diversification is reducing investment risk by Diversification is reducing investment risk by putting money in several different types of investmentsputting money in several different types of investments. By spreading your money around, you’re reducing the impact that a drop in any one investment’s value can have on your overall investment portfolio. A mutual fund is an example of an investment that uses diversification.

For instance, say you get $100 and decide to put $50 into both a money market account and a stock. Five years later, the stock company has collapsed from a scandal, and the stock you invested in is worthless. Yes, you’ve now lost $50. But you would have lost the entire $100 if you hadn’t split your investment between the money market account and the stock.

Pyramid of Investment RiskPyramid of Investment Risk

Futures

StocksBonds

Mutual FundsReal Estate

Treasury Bills & BondsGovernment Savings Bonds

Savings AccountsMoney Market Accounts

Certificate of Deposit (CDs)Cash

On Your OwnOn Your Own