Download saving and investing slide show

INVESTMENTS
The greater the risk –
the greater the return
Stocks
Bonds
Savings Accounts
Collectibles
Mutual Funds
Futures
Real Estate
PYF?
• PLAN YOUR FUTURE (pay yourself first)
• What are our goals?
– Short and long term
– WHERE DO YOU SEE YOURSELF 5 YEARS FROM TODAY?
– WHERE DO YOU SEE YOURSELF 10 YEARS FROM TODAY?
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Needs vs. Wants?
Investigate your options – risk vs. reward
Time is on your side … start today!
Prepare a budget
Stick with the plan and you will succeed!
Pay Yourself First 10%
5%
5%
10%
Charity 5%
5%
Housing 20%
12%
Food 15%
20%
Clothing 7%
Transportation 9%
12%
Utilities 12%
9%
15%
7%
Medical
Entertainment
Extras
3
Saving involves an opportunity cost. If you choose to
spend $20 on a movie and popcorn, you won’t be
able to put $20 in your college fund. On the other
hand, if you save $20, you give up a night with your
friends.
Having a savings goal
means making choices.
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A Great Saving Formula
The larger the money pile
+ the higher the interest rate
+ the more time you have to save
= more in savings!
Increase the amount, interest, or time
and you may earn even more.
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Every investment
has risks and
rewards, which a
smart investor must
evaluate and weigh.
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SAVINGS AND INVESTMENTS
Security vs. Risk
3 VARIABLES TO CONSIDER
• Amount
• save the most possible each month
• Interest Rate
• higher rate = higher growth
• Time
• longer your money is invested = faster it will grow
• start with first paycheck
BANK ACCOUNTS
Bank or Credit Union
SAVINGS ACCOUNT
(pro: use money anytime con: low interest rate)
• Save money in an account
• Lowest interest rate offered (lucky to get 1% per year)
• Less risk – will not lose insured by FDIC (Federal Deposit Insurance
Corporation) up to $250,000.00 per account
• Withdraw funds at anytime
CERTIFICATE OF DEPOSIT
(pro: greater return con: cannot touch money)
• Savings account requires minimum balance and commitment to not
use money for a period of time (months, years,
• Fixed interest rate and time frame (lucky to get 3% for 5 years)
• Cannot use money when need/want, without penalty
SAVINGS CHART
Save Each Week
Interest (annual)
Savings in 10 Years
$ 7
5%
$4,731
$14
5%
$9,463
Interest
Savings in 10 Years
Savings in 20 Years
$19.20
5%
$12,977
$34,337
$19.20
6%
$13,705
$38,632
$19.20
7%
$14,484
$43,599
$19.20
8%
$15,320
$49,353
$19.20
9%
$16,218
$56,029
Note: Savings calculation totals are approximate.
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COMPOUND INTEREST
• Earning interest on the interest
Simple interest
$100 x 6% interest = $6.00 = $106.00
Compound Interest
$106 x 6% interest = $6.36 = $112.36
TIME:
The shorter the window of time,
the smaller the return
Short-Term
Options
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Savings account
Certificates of
deposit
Money market
account
Long-Term
Options
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Bonds
Stocks
Mutual funds
401(k) retirement
account
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HOW LONG WILL IT TAKE TO GROW
MY MONEY?
• RULE OF 72
Use this calculation to figure out the rate or the
number of years needed to double your money
– Divide Interest Rate by 72
• 72/6 = 12 years to double your money at that rate
– Divide Number of Years by 72
• 72/12 = 6 percent to double your money at that rate
Type
Maturity
Risk of loss
of principal
Yield
Minimum
Savings Account
None
Low: insured
Low
$0/–$25 (varies)
Certificates of
Deposit (CDs)
90 days up to 5
years
Low: insured
Low
$50–$500
Money Market
Account
None
Low: insured
Low
$50–$2,500 +
Bonds
1–5 years +
Medium
Moderate
$1,000–$5,000
Stocks
Long term
Medium–high
Moderate–high
Varies
Mutual Funds
Long term
Low–high
Moderate–high
$1,000 or higher
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Stock/Shares of Stock
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Represent ownership in company/corporation = shareholder
Publicly traded on NYSE or NASDAQ
Price changes several times daily (value)
Long term investment (20 years)
High risk, not insured – could lose investment
Buy low, sell high …
Must sell ownership to see profit (profit = income= taxes)
Sometimes Dividends are paid based on profit of company (Earnings
to shareholder – pay tax)
Paid on a per share basis (example $1.00 per share)
An Annual Report is published each year
The SEC (Securities and Exchange Commission) oversees/regulates
the sale of stock
If you see the stock price fall …. What would you do? (sell or buy)
DOW JONES INDUSTRIAL AVERAGE
• Index of 30 major US companies
• Represent variety of industries in the US
• Used to measure how all stocks are
performing
• See next slide for actual companies chosen for
the Down Jones Industrial Average for last
year
DOW JONES INDUSTRIAL AVERAGE – Sept. 2013
BONDS
• Represent an IOU from company or
government
• For your purchase today, a promise is made of
a greater amount to be paid to you in the
future (future date varies – 5, 10, 20 years)
• Does not represent ownership
• Not insured but less likely to lose your
investment than with stocks
STOCK: COMMON & PREFERRED
Common Stock
• Ownership share in a corporation. Each share of
common stock permits 1 vote to elect members of the
Board of Directors of the corporation. Fluctuating
dividend paid after Preferred stockholders are paid.
Last in line to collect on assets if the corporation goes
bankrupt.
Preferred Stock
• An ownership share in a corporation with a fixed
dividend that is paid before any dividends are paid to
common stockholders. No voting rights.
Blue Chip vs. Penny Stocks
Blue Chip Stocks (a/k/a Glamour Stocks)
• High quality, high priced stock
• Large, strong, financially-stable
• Industry-leader with dominant product/service
• Long record of steady earnings
• IBM, CAT, MMM, JNJ, DIS, GM
Penny Stocks
• Less than $5 a share
• Highly volatile, very risky
• New companies
• High possible gains, very short time
Buying on Margin & Selling Short
• Buying on Margin (borrowing money)
Buying stock by paying only a percentage of the
purchase price (typically 50%) and borrowing the
balance from a broker.
• Selling Short (borrowing stock)
A stock transaction that allows an investor to make
money on a stock expected to fall in value. This
transaction involves immediate sale of shares not
owned by the seller, who expects to buy them back
later at a lower price.
Bull vs. Bear Market
Bull Market (optimistic)
• Economy is great
– People are working and spending money
– Stock prices are going up (can cause
overvaluation)
Bear Market (pessimistic)
• Economy is bad
– Recession is looming (people are not working and
not spending money)
– Stock prices are falling
• Good time for short selling
MUTUAL FUND (most popular)
• Professionally managed by a Fund Manager
• People invest in the fund based on it’s purpose –
growth or income
• The fund consists of a variety of stocks, bonds, real
estate, precious metals, etc.
• A prospectus – published report explaining fund goal
and types of securities purchased to make up the fund.
• Represents partial ownership in fund’s collective
holdings. Dividends paid can be re-directed into the
company or cashed for personal projects.
– Everyone in the fund shares the wealth or lose together
(more shares = more profit/loss)
COLLECTIBLES
• Baseball cards, antiques, stamps, coins,
jewelry, figurines, toys
• “One man’s garbage is another man’s
treasure”
• Anything that appreciates in value over time
• Must be a buyer in order to sell
REAL ESTATE
• Flipping (short term)
– Buying a house, fixing it up, and selling for more
than you paid
– Some real estate properties will always appreciate
in value – LOCATION, LOCATION, LOCATION
– Some real estate properties are a real gamble – no
guarantee you can sell at a profit
– Must pay property taxes to town and monthly
mortgage (type of loan) to bank/credit union
issuing the mortgage
FUTURES
• Commodities Exchange (similar to NYSE)
• Obligation to buy/sell a specific commodity on
specific date and amount
– Corn
– Wheat
– oil
– gold
– bonds
PORTFOLIO
• a/k/a your collection of investments
• Include a mixture of types of investments
• DIVERSITY – balance risks with rewards
– Purchase stocks and mutual funds with bonds and
savings accounts (Jim Cramer video clip: Diversify)
• REMEMBER the greater the risk the better the
return (or percentage earned)
– Why?