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Transcript
```Investing for the Future
CH 11
Personal Finance CH 11 Investing in the
Future
pg.239
1
11.1 Basic Investing Concepts
Why Invest?
Investing is the use of long term savings to earn a
financial return.
Investing is a proven and powerful way to
Investing helps beat inflation.
Personal Finance CH 11 Investing in the
Future
2
Inflation

Inflation is a RISE in the general level of prices.

The value of the US dollar FALLS.

Personal Finance CH 11 Investing in the
Future
3
Rule of 72
A way to estimate how long it will take to double
How to do it?
Divide the % (percentage) rate of return into 72.
Personal Finance CH 11 Investing in the
Future
4
Rule of 72
EXAMPLE
Question:
An investment is yielding 6% how long will
it take to double your money?
How to do it?
Divide the % (percentage) rate of return into 72.
72 / 6 = 12 years
At an interest rate of 6%, it will take 12
Personal Finance CH 11 Investing in the
Future
5
Rule of 72
You Do
Question:
An investment is yielding 4% another is yielding 12%
how long will it take to double your money with
each investment?
How to do it?
Divide the % (percentage) rate of return into 72.
72/X
At a interest rate of 4%, it will take _____ years
At a interest rate of 12%, it will take _____ years
Personal Finance CH 11 Investing in the
Future
6
At a interest rate of 4%, it
will take 18 years to double
72 / 4 = 18
At a interest rate of 12%, it
will take 6 years to double
72 / 12 = 6
Personal Finance CH 11 Investing in the
Future
7
Question:
An investment is yielding 5.5%
how long will it take to double
Personal Finance CH 11 Investing in the
Future
8
Stages of Investing pg. 241-243
1.
2.
3.
4.
5.
Put and Take Account
Initial Investing
Systematic Investing
Strategic Investing
Speculative Investing
Personal Finance CH 11 Investing in the
Future
9
1. Put and Take Account
When you get a paycheck you will put it in an
account.
Put and Take accounts = Checking and Savings
This is where your emergency fund goes.
Why is it called Put and Take?
Because you EASILY put money in and EASILY
take money out. = Liquid
Personal Finance CH 11 Investing in the
Future
10
Liquidity or Liquid Assets
Assets = things you own
Liquidity or Liquid = something that you can turn
into \$ cash \$
-
FAST!
Personal Finance CH 11 Investing in the
Future
11
2. Initial Investing
Do this when you have excess in your saving account.
“a little here, a little there”
When to do this?
Teens - Twenties - Thirties
What to invest in?
SAFE Things
CD’s, Bonds, Mutual Funds, Gold, Silver
Personal Finance CH 11 Investing in the
Future
12
3. Systematic Investing
Making investments on a regular and planned basis.
Less Liquid
When to do this?
Teens - Twenties - Thirties
What to invest in?
 Long Term / Long Range Investments
 Big Cap (Big Company) Mutual Funds
 Well Established Companies
 Precious Metals – Gold, Silver
Personal Finance CH 11 Investing in the
Future
13
Systematic Investing Continued…
GOAL
Growth over a LONG period of time
Vehicles
Roth IRA’s - 403B ‘s - 401K ‘s
Have a Diversified Portfolio
Portfolio = A collection of different Investments
DO NOT
Example – all your money in Apple Computer
Personal Finance CH 11 Investing in the
Future
14
4. Strategic Investing


Take gains & Shave Losses
TAKING A LOOK AT WHATS GOING ON!
Portfolio = your collection of investments
Personal Finance CH 11 Investing in the
Future
15
5. Speculative Investing
Higher Risk Investing
Possible: BIG GAINS or BIG LOSSES
When to do this?
After you have:
 Emergency Fund
 Initial Investing
 Systemic Investing
What to invest in?
Small Cap Stocks, Mutual Funds
Commodities – Food, Oil, Natural Gas, Gold, Silver, Platinum
Technology Start up Companies
Personal Finance CH 11 Investing in the
Future
16
Risk & Return
Investing Risk
A chance that an investments value will decrease
You could make ALOT or…..
You could loose A LOT
Diversification
Spreading the risk among many types of investments.
Ex. Mutual Funds, Bonds, Gold, CD’s, Real Estate
EX. Putting all your money in EA Sports because the new Madden is coming
out.
Personal Finance CH 11 Investing in the
Future
17
Types of Risks pg 244
Interest Rate Risk
Political Risk
-The chance that inflation will rise faster than
-Government interferences
EX. Taxes, regulations
Market Risk
NonMarket Risk
-How is the economy doing?
-Unpredictable nature of events
EX. War, Terrorism, Natural Disasters
Company Risk
-Owning any single company stock
EX. Ford, Dell, Abercrombie & Fitch
Industry Risk
EX. GM, Toyota, Honda
EX. McDonalds, Wendy's, Taco Bell
Personal Finance CH 11 Investing in the
Future
18
Investment Strategies pg. 245
Common Remark:
“I don’t have enough money to save”
TRUTH:
Even small sums of money grow over time.
Bottom Line:
Save SOME \$, even if it is a small amount
Personal Finance CH 11 Investing in the
Future
19
Criteria for Choosing an Investment

Degrees of safety
How Liquid is the Investment?

Liquidity - How quick can you get your money








Expected interest or dividends?
Expected growth?
Can you buy it for a good price?
Any tax benefits?
NO investment has all of these
DIVERSIFICATION is KEY
Personal Finance CH 11 Investing in the
Future
20
Wise Investment Practices


GO SLOW
EX. Temporary investments 1 year or less

EX. Permanent investments are to be held for the “long haul”


Keep good records
(from trained professionals with experience)


Personal Finance CH 11 Investing in the
Future
21
11.2 Making Investment Choices
pg. 249

Sources of Financial Information
Personal Finance CH 11 Investing in the
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22
Sources of Financial Information

Newspapers
EX. Wall Street Journal, Barron's

EX. Moody’s,

Valueline
Financial Magazines
EX. Money, Fortune, Forbes
Personal Finance CH 11 Investing in the
Future
23
Brokers
Provide customers with an actual advisor to talk to
Provide clients with analysis and opinions
Based on judgments and opinions of the experts
EX. Vanguard, Fidelity Investments, American Express
Personal Finance CH 11 Investing in the
Future
24
Discount Brokers



Allow a person to buy and sell stocks for a
reduced commission
Provide customer with electronic information
Do not provide a person to give advice