Finance Finance Mrs. AMrs. A

Finance Finance Mrs. AMrs. A

Chapter 17.1

Preparing for an Investment Plan

Savings???

Investing???

What’s the difference between What’s the difference between Saving and Investing?Saving and Investing?

Financial Check-Up To start an Investment Plan

1.1. Balance your budgetBalance your budget Spend less money than you make

Stay out of debt

Limit your credit card use

STAY ON THE POSITIVE NOT THE NEGATIVE!

2. Insurance to cover financial losses Car accident Medical emergency Theft

3. Have an emergency fund3. Have an emergency fund (liquidity) Disabled, laid off Save enough to cover living expenses Three to nine months

Financial Check Up

4.4. Have access to other sources of cashHave access to other sources of cash

Line of credit with a bank or credit union

Cash advance capability from a credit card company

Use only for serious emergencies

Financial Checkup

Obtaining the Money You Need to Start an Investment Plan

1. Stable job(s)

2. Pay yourself first – 1%, 2%, ……12%

3. Take advantage of employer-sponsored retirement plans (401K) - Deferred Taxes!!!

4. Set up a “special” savings account – “Cut back to basics”

5. Gifts, inheritance, and windfalls

A. Start investing right away• Small amounts add up quickly• TVM – Time Value of Money

B. Continue to add money and watch your money grow!!!!

The Value of an Investment Plans

The relationship between risk and reward is POSITIVE

High Risk (hopefully) yields High Rewards Speculative!!!!!

Low Risk yields Low Rewards Very Secure!!!

Inflation Risk – general rise of price Investing helps to stay ahead of inflation

Interest Rate Inflation Business Failure Risk – stocks and bonds Financial Market Risk – social & political

conditions Global Investment Risk – Not the same

rules!

Risks Involved in Typical Investments

Preparing for an Preparing for an Investment PlanInvestment Plan

**Look at page 551 in the book**

How might you advise a friend about what to do with a $500 bonus she just received for accepting a job at a software design firm?

Think Critically

Preparing for an Preparing for an Investment PlanInvestment Plan

Income Investments – provides a dependable source of income $$$

Growth Investments – investment will increase in value Retained Earnings – profits reinvested into the

company – NO dividends, no $$$

Common Stock – ownership in a company

Preferred Stock – ownership in a company

Corporate Bond – IOU from a company Government Bond – IOU from the government Municipal Bond – IOU from the city or county

Mutual Funds – mixture of different investments

Real Estate – land and buildings