What are some ways we’ve discussed already to make money with your
money?• What are the pros and cons of these
methods?
Savings Tools- What are the pro/cons of these for making money?
• Checking Account• Savings Account• Money Market Deposit Account• Certificate of Deposit• Savings Bond
Savings Tools-Low risk, low rate of return/interest rates
• Checking Account ~0.00% • Savings Account ~0.01-0.05• Money Market Deposit Account ~0.05-0.1%• Certificate of Deposit ~0.3-1.5%• Savings Bonds ~ 1.18% through October 31,
2013
• Why is it important to not only save money in safe, low interest accounts, but also invest in more risky ones?
• http://blog.blakeyautoplexsuzuki.com/wp-content/uploads/2012/08/Infographic-Historical-Gas-Prices.jpg
• Inflation rate varies – but it has been about 4% annual average since 1950– Last few years - ~2% a year
• How can you beat the inflation rate with your savings?
Stocks and Investments – Higher Risk, Higher Return
POTENTIAL RETURN
RISK
Risk- uncertainty regarding the outcome of a situation or event
Investment Risk- possibility that an investment will fail to pay the expected
return or fail to pay a return at all
All investment tools carry some level of risk
What is the risk level of savings
tools?
Stocks
Stock Stockholder or shareholder
Usually a stockholder owns a very
small part of a company
A share of ownership in a company
Owner of the stock
Dividends Market Price
Return on Stocks
If stock is sold for a market price
higher than what was paid
Share of profits distributed in cash
to stockholders
Stockholder may or may not
receive dividends- depends on
company profit
Current price that a buyer is willing to pay for stock
If stock is sold for a market price
lower than what was paid
Stockholder will receive a return
Stockholder will lose money
Definition
What is received?
Stocks – High Risk, High Potential Return
• http://stockcharts.com/freecharts/historical/djia1900.html
• GREAT after 1930s• Pretty bad in 1928
Bonds
Form of lending to a company or the government
(city, state, or federal)
Annual interest is paid to investor
Once the maturity date is reached, the principal is
repaid to the bondholder
Bonds are less risky than stocks but
usually do not have the
potential to earn as high of
a return
Definition
Return
Advantage Disadvantage
Mutual Funds
Mutual fund- when a company combines
the funds of many different investors and
then invests that money in a diversified portfolio of stocks and
bondsMake sure to research the fees charged by a mutual
fund
Reduces investment
riskFees may be
highSaves
investors time
Index Fund
Index
Index Fund
A mutual fund that invests in the stocks and bonds that make up an index
A group of similar stocks and bonds- Standard and Poor 500
Index Fund
What is the difference between a
mutual fund and an index
fund?
Advantage Disadvantage
High diversification
Usually charge lower fees than
mutual funds
Still charge fees
SPY
• https://www.spdrs.com/product/fund.seam?ticker=spy
Real Estate
• Any residential or commercial property or land as well as the rights accompanying that land
• A family home is usually not considered an investment asset
• Can be risky and more time consuming but has potential for large returns
Examples of real estate
investments include rental
units and commercial
property
Speculative Investments
High risk investmentsHave the potential for significant fluctuations
in return over a short period of time
Futures Options Commercial Paper
Collectibles
Financial Risk Pyramid
Speculative Investment
ToolsIncreasing potential for
higher returns
Increasing risk
Savings ToolsChecking
AccountSavings Account
Money Market Deposit Account
Certificate of Deposit
Savings Bonds
Investment Tools
Bonds
Stocks
Mutual Funds
Real Estate
Options Collectibles
Futures
Commercial Paper
Index Funds
The risk level for specific investment tools may vary
Online Risk Tolerance Quiz:
• Click HERE• Want to improve your personal finances? Start by taking this
quiz to get an idea of your risk tolerance--one of the fundamental issues to consider when planning your investment strategy, either alone or in consultation with a professional.
• Choose the response that best describes you--there are no "right" or "wrong" answers. Just have fun!