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Transcript
Recap Saving and Investing
Review Questions
Which of these saving/investing options has the highest risk?
a. stocks
b. savings accounts
c. U.S. government bonds
d. money market accounts
If you bought an investment for $1,000 and it grew to $1,050
1 year later, what is your ROI?
a. 50%
b. 0.5%
c. 5%
d. 5.5%
Slide 2
Just a Couple More
When investing, the higher the risk you are willing to take
a. the less return you can expect
b. the greater your possible return may be
c. the lower your possible return may be
d. the less return you can expect and the lower your possible return may
be
A long-term, planned approach to making investments is called
a. systematic investing
b. contingency fund planning
c. political risk
d. hedging
Slide 3
Answers Are
Which of these saving/investing options has the highest risk?
a. Stocks
If you bought an investment for $1,000 and it grew to $1,050 1
year later, what is your ROI?
c. 5%
When investing, the higher the risk you are willing to take
b. the greater your possible return may be
A long-term, planned approach to making investments is called
a. systematic investing
Slide 4
Saving and Investing
• Saving is accumulating money for future
needs
– Savings accounts and CDs
– Money market accounts
• Investing is attempting to make your money
grow
– Stocks and bonds
– Real estate
10-1 Reasons for Saving and Investing
Slide 5
Short-Term Needs
• Contingency planning
– Liquidity
– Emergency fund
• Vacations
• Short-term goals
Savings can be used to help
pay for emergency expenses.
10-1 Reasons for Saving and Investing
Slide 6
Long-Term Needs
•
•
•
•
•
Education
Buying a house
Providing for a family
Financial security
Retirement planning
Many people make investments to
provide for future needs of their
families.
10-1 Reasons for Saving and Investing
Slide 7
Sample Financial Plan
10-1 Reasons for Saving and Investing
Slide 8
Growth of Principal
• Principal grows through
– Additional deposits to the account
– Interest earned
• Simple interest
• Compound interest
– Capital Appreciation
• Return on Investment (ROI)
10-2 Saving and Investing Principles
Slide 9
Growth of Principal
COMPOUND INTEREST
Annual Interest Rate 6%
Period
Adjusted
(Quarterly)
Principal
Rate
Interest
Principal
1
$5,000.00
0.015
$75.00
$5,075.00
2
$5,075.00
0.015
$76.13
$5,151.13
3
$5,151.13
0.015
$77.27
$5,228.39
4
$5,228.39
0.015
$78.43
$5,306.82
5
$5,306.82
0.015
$79.60
$5,386.42
6
$5,386.42
0.015
$80.80
$5,467.22
7
$5,467.22
0.015
$82.01
$5,549.22
0.015
$83.24
$5,632.46
Slide 10
8 and Investing
$5,549.22
10-2 Saving
Principles
Return on Investment
• Is the amount that money saved or
invested grows
• ROI formula
Selling Price – Purchase Price = Gain
Gain / Purchase Price = ROI
RETURN ON INVESTMENT
Purchase
Price
Selling Price
$500.00
$525.00
10-2 Saving and Investing Principles
Gain
$25.00
ROI
5.00%
Slide 11
Systematic Saving and Investing
• Is a strategy for regularly setting aside cash
that can be used to achieve goals
• Has a long-term focus
• Dollar-cost averaging is one
strategy for systematic
investing
Achieving financial goals requires
discipline, just as preparing for a
marathon does.
10-3 Saving and Investing Strategies
Slide 12
Tax Advantages
• Tax-deferred investments have no
taxes on gains until the money is taken
from the account
• Tax-free investments have no taxes on
gains
10-2 Saving and Investing Principles
Slide 13
Risk and Return
•
•
•
•
•
Investment risk
Inflation risk
Industry risk
Stock risk
Political risk
Natural disasters, such as a hurricane,
can damage investment properties.
10-2 Saving and Investing Principles
Slide 14
Diversification
• Means holding a variety of investments to
reduce risk
• An investment portfolio is a collection of
assets
–
–
–
–
–
Certificates of deposit
Stocks
Bonds
Real estate
Other holdings
10-3 Saving and Investing Strategies
Slide 15
Understanding the Market
• Bull market
– Prices are steadily increasing
– Profit-taking may cause a temporary drop in
some stock prices
• Bear market
– Prices are steadily decreasing
– May be a good time to buy stocks that are sound
investments because prices are lower
• Economic conditions
10-3 Saving and Investing Strategies
Slide 16