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Chapter 10 Basics of Saving and Investing

Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

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Page 1: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Chapter 10

Basics of Saving and Investing

Page 2: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 2

How Are Saving and Investing Related?

10-1 Reasons for Saving and Investing

• Savings is money set aside for the future.

• Investing is a strategy to earn more on your money than the rate of inflation.

• Wealth is the accumulation of assets over time.

Page 3: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 3

How Do Saving and Investing Meet Personal Goals?

10-1 Reasons for Saving and Investing

• Short-Term Goalso Contingency planningo Vacation planning

• Medium-Term Goalso Buying a caro Paying for collegeo Planning a wedding

• Long-Term Goalso Providing for a familyo Buying a house

Page 4: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 4

How Does Investing Prepare You for Retirement and Beyond?

10-1 Reasons for Saving and Investing

• Retirement is the period of time when you are not working but are able to meet expenses.

• Sources of income include:oRetirement planso Social securityo Savingso Investments

Page 5: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 5

Investment Growth Over Time

10-1 Reasons for Saving and Investing

Amount Invested

Interest Rate

Investment Term

Maturity Value

$10,000 investment 6% 20 years $32,071

$10,000 investment 6% 30 years $57,435

$1,000 investment 8% 30 years $10,063

$1,000 investment 8% 40 years $21,725

$1,000 per year investment 5% 20 years $33,066

$1,000 per year investment 5% 30 years $66,439

$1,000 per year investment 5% 40 years $120,800

$100 per month investment 7% 25 years $81,007

$100 per month investment 7% 30 years $121,997

$100 per month investment 7% 40 years $262,481

Page 6: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 6

Success Skills

Having a Will and Health Care Directive• A will is a document that passes title of

property after a person dies.o A simple will describes your wishes for

distribution of property.o A trust will leaves your estate in trusts to

benefit your children and other heirs.• A health care directive is also a “living will.”

o It describes your wishes at the end of life.

10-1 Reasons for Saving and Investing

Page 7: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 7

How Is Risk Related to Return?

• The higher the risk, the greater your possible return.

• Risk-free investments are guaranteed by the government—U.S. savings bonds, Treasury bills.

• Return on Investment (ROI) is the amount that savings or investments grow expressed as a percentage.

10-2 Principles of Saving and Investing

Page 8: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 8

Return on Investment

10-2 Principles of Saving and Investing

Example 1: Bought an investment for $500; received dividends of $18 for the year

Return: $18Rate of return: $18 ÷ $500 = 3.6% (annual rate of return)

Example 2: Bought an investment for $500 on March 1; sold it on October 1 for $525.  Return: $25Rate of return: $25 ÷ $500 = 5%Note: The 5% return was received after only 7 months. The annual return would be higher. Calculate the annual ROI as follows:0.05 ÷ 7 months × 12 months = 8.6% (annual rate of return)

Page 9: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 9

What Types of Risk Do Investors Face?

10-2 Principles of Saving and Investing

• Inflation risk

• Industry risk

• Political risk

• Stock risk

Investment risk is the potential for change in the value of an investment.

Page 10: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 10

What Are Tax Advantages of Investing?

10-2 Principles of Saving and Investing

• Tax deferral is a postponement of taxes to be paid. o Taxes on gains are not paid until the

money is withdrawn.

• Tax exemption means savings and investments are not taxed.o Example: Series EE and Series I savings

bonds are tax-free if used for education.

Page 11: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 11

Building Communications Skills

10-2 Principles of Saving and Investing

Good News Messages• Use a direct approach.• Place the answer or main point of the

message early in the message.• Include details in later paragraphs.• Be clear, leaving no doubt about the answer

or point to be shared.• Be complete and concise.

Page 12: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 12

What Are Systematic Saving and Investing Strategies?• Systematic saving involves regularly

setting aside cash to achieve goals.

• Systematic investing is a planned approach to making investments on a regular basis.

• Market timing involves buying and selling stocks based on what the market is expected to do.

10-3 Strategies for Saving and Investing

Page 13: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 13

Stock Trend Line

10-3 Strategies for Saving and Investing

Investment tracking involves making investment choices by following stock prices over time.

Page 14: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 14

How Can You Reduce Investment Risk?

10-3 Strategies for Saving and Investing

Page 15: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 15

How Can You Maximize Investment Return?

10-3 Strategies for Saving and Investing

• A bull market exists when stock prices are steadily increasing.

• A bear market exists when prices are steadily decreasing.

• Economic conditions (growth or decline) can affect investment strategies.

Page 16: Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside

Slide 16

Focus On . . .

Dollar-Cost AveragingThe systematic purchase of an equal dollar amount of the same stock at regular intervals

10-3 Strategies for Saving and Investing