Investing: Basics Explain the difference between saving and investing and when to use each strategy Explain how compound interest works, its benefits to savers, and how to calculate it using an online calculator Explain the concept of inflation and how it impacts an individual’s investment decisions Understand the three main classes of investments and the risk and return associated with each

Opener Discuss the question below with a neighbor. Unexpectedly, you win $2500 in a raffle.  You don’t need the cash right now, so you decide to invest it.  How would you invest the money?  

25 Investing Basics Complete the worksheet. You will have to work with 1 or 2 other class mates. The link to the article is found on my website When finished, keep the worksheet with your notes & be prepared to share about your discussion.

Road Map to Saving and Investing Click on the link of my website called Road Map to Saving and Investing. To use this interactive, click along the roadmap’s marker posts 2-9 and skim the text for each.   Reflect back to the hypothetical $2500 from the Opener, which step of the roadmap would be best for you to use your money, given your current financial situation?  

Compound Interest Revisited While watching the compound interest video, be prepared to answer the following questions: https://youtu.be/wf91rEGw88Q Why do you earn more money using compound interest than you would using simple interest?   Does compound interest have more of an impact for short-term investments or long-term investments?  Why?

Compound Interest Revisited cont. Use the compound interest calculator (the link is found on my website) to answer each of the questions below. Raul is a saver.  He sets aside $200 per month during his career of 40 years to prepare for a comfortable retirement.  He does not like the idea of investing so he puts his money in a savings account which earns 2% interest per year.  What is the balance of his retirement account after 40 years? If you are using annually compounding= $145,406.37 If your using Daily compounding= $147,504.16

Compound Interest Revisited cont. Pamela is also a saver.  She sets aside $200 per month during her 40 year career.  She invests in the US stock market* through an index fund that averages a 7% return over this 40 year period.  How much is her retirement account worth? If you are using annually compounding= $$482,119.16

Compound Interest Revisited cont. Isaiah reads articles about the insufficient savings of those in retirement and decides he needs to start saving now, even though he’s in his 50s.  He saves $500 per month for 15 years and earns 7% by investing in the stock market* through an index fund.  What is the value of his retirement account after 15 years?  

Compound Interest Revisited cont. On scrap paper, make up your own scenario and switch with a neighbor. Solve your neighbors problem.

Compound Interest Revisited cont. What are the lessons that you can draw from these examples regarding compound interest? Compound growth means your interest earns interest.  *Note: The stock market does not actually guarantee compound interest. Stocks rise and fall in price daily, and even throughout the day, so your total earnings ultimately depend on the price at which you buy and sell the shares. Compound interest is an approximate model for how indexes have historically grown, not a guarantee for future growth. We use it here for simplicity.

What is Inflation? https://youtu.be/XwhFAuBSl9g After the video, click on the link from my website about impact’s of inflation on savings then read the article Inflation impact on Savings

What is Inflation? With your partner/s discuss the following questions: If you look at average interest rates on savings accounts today, how do they compare with inflation? Explain why investing in some riskier options is necessary if you want to grow your money substantially for the future.

What is Inflation? Saving money in a bank account that earns less in interest (ex: 0.75%) than the economy experiences. The latest inflation rate for the United States is 1.5% through the 12 months ended September 2016, as published by the US government on October 18, 2016. If you save $500 in a savings account now, you’ll be able to buy LESS with it in 2025 than you could today. That’s what makes INVESTING an important part of your long-term financial health.  

Inflation Problems Click on the link from my website to access the inflation calculator. Inflation Calculator Suppose you’re heading off to college next year somewhere cold, and you want to purchase a North Face parka for $350. From each paycheck of your afterschool job, you’re able to save $45 toward the coat. You get paid twice a month. How many months will it take you to save enough money to buy your North Face jacket? Using this strategy, how will inflation impact your ability to buy the jacket?

Inflation Problems You’re thinking $350 is a lot of money for a high school student, and you understand that, due to inflation, that same jacket would have cost less than $350 in the past. Use the calculator to determine how much the same jacket, had it been available, would have cost the year you were born. How much cheaper was the coat the year you were born?

Inflation Problems Let’s say, instead of buying you the coat when you were born, your parent put money, equal to your answer in question 3, into a savings account that earned 1% interest. Would you be able to buy your coat today with those funds? Why or why not? You can use the compound interest calculator if you need to.

Inflation Problems So lets say your parents less then 2 decades ago, somehow knew, the day you were born, that you’d someday want a North Face parka for your first year of college, what would he or she have needed to do, financially, to have $350 for the coat today?

Inflation Problems You’re thinking a lot about inflation, and you think it might be a good idea to set aside the money to buy a fancy leather couch for your first home, which you’d like to purchase 10 years after you graduate from high school. Why does the inflation calculator not tell you what the inflation adjusted price will be 10 years from now?  

Investing 101: Types Of Investments Click on the link to my website to read up on an overview of the different types of investments. Be prepared to be called on to answer if an investment has a low, medium, or high return or risk. Create a table on the white board and list all the types of investments. Then, enter an H for “high,” an M for “medium,” or an L for “low” to describe each investment type’s ranking in each category.  

Determining Risk and the Risk Pyramid Begin reading this article “Determining Your Risk Preference.” This can be found by clicking on the link located on my website. In your current situation, which is a bigger concern for you -- time horizon or bankroll?  Why?   After reading the section on the risk pyramid, how would you describe the concept of “diversifying your investments?”

Important Financial Advice for Young People https://youtu.be/E8TzmlqlPWE Do the two experts have you convinced that investing is something you should do as a young adult?  What, if anything, still has you worried?  

Links to every article and calculator Roadmap to Saving and Investing Compound Interest Cal. Inflation impact on Savings Inflation Calculator Different types of investments Risk Pyramid