UNIT 4: SAVING AND INVESTING

1. Discuss how saving contributes to financial well-being

2. Explain how investing builds wealth and helps meet financial goals.

3. Evaluate investment alternatives.

4. Describe how to buy and sell investments.

5. Explain how taxes affect the rate of return on investments.

PREPARING FOR AN INVESTMENT PROGRAM

Establishing Your Investment Goals Goals should correspond with your values Middle of the road = wisest Questions:

What will I use money for?

How much money do I need to satisfy my goal?

How will I get the money?

How long will it take me to get the money?

How much risk am I willing to take when I invest?

PERFORMING A FINANCIAL CHECKUP

TIPS:

1. Balance your budget!!! Spend less money than you make, stay out of debt, and limit your credit

card use.

2. When you’re on your own, you should have enough insurance to cover financial losses from events, such as a car accident, a medical emergency, or a theft.

OBTAINING THE MONEY YOU NEED TO GET STARTED

1. Pay Yourself First 2. Take Advantage of Employer-Sponsored

Retirement Plans 3. Participate in an Elective Savings Program 4. Make a Special Savings Effort One or Two

Months Each Year 5. Take Advantage of Gifts, Inheritances, and

Windfalls

THE VALUE OF LONG-TERM INVESTMENT PROGRAMS

FACTORS THAT AFFECT YOUR CHOICE OF INVESTMENTS

SAFETY & RISK Safety – the chance of losing your money in an investment is fairly

small Risk – you cannot be certain about the outcome of your investment

5 COMPONENTS OF THE RISK FACTOR INFLATIOIN RISK

Inflation rate – interest rate = loss of buying power (5%- 3% = 2% loss)

INTEREST RATE RISK BUSINESS FAILURE RISK FINANCIAL MARKET RISK GLOBAL INVESTMEST RISK

INVESTMENT INCOME Savings accounts, certificate of deposits, bonds, etc.

INVESTMENT GROWTH “growth’ = investment increase in value Retained earnings = profits that are reinvested

INVESTMENT LIQUIDITY Ability to buy or sell an investment quickly without substantially

affecting its value

AN OVERVIEW OF INVESTMENT ALTERNATIVES

Types of Investments: 1. Stock or Equity Financing

Money that a business gets from its owners in order to operate

2. Corporate and Government Bonds Written pledge to repay a specified amount of money along with interest

3. Mutual funds Investors pool their money to buy stocks, bonds, and other securities

based on the selections of professional managers who work for an investment company.

4. Real Estate

EVALUATING INVESTMENT ALTERNATIVES

Diversification: The process of spreading your assets among several different types

of investments to lessen risk.

DEVELOPING A PERSONAL INVESTMENT PLAN

Steps: Establish goals How much money to achieve goal by particular date Amount of money to invest List of investments to evaluate Evaluate risk and return on each Reduce list to reasonable number Choose 2 investments to give some diversity Recheck investment program periodically