The Basics of Savings and Investing Mrs. Sandy Prestage Marketing II

Unit 1 Key Terms (refer to handout for definitions) Benefits Choices Compound Interest Decision Making Diversification Financial Plan/ Investment Plan Goals Interest Rate Investing Limited Resources Market returns Needs vs. Wants Opportunity Costs Rainy Day Fund Risk Savings Time Value of Money Trade-offs Values

Why People Save and Invest Preparing for a career, often by going to college Saving for major purchases (college education, a family, a first home) Building up a “rainy day” fund for emergencies (job layoff, etc) Developing a personal financial/investment plan Starting a savings and investment program

How to think about making financial decisions.. Decision Making Model Define the issue or problem Gather info Consider alternatives and consequences (the trade-offs/opportunity costs) Make a decision and take action Modify plans as needed

Key Concepts of Saving and Investing Pay yourself first (Make investing a habit) Start early (refer to the Time Value of Money handout) Set goals that will inspire success (instead of saying you want financial security at retirement, say $500,000 net worth by age 60)

Types of Goals Short term goals will happen within a few months (ex. Senior trip). Low-risk vehicles such as CD’s are better than investments like stock. Medium term goals – a few years to accomplish (ex. – first car, college) consider mutual funds that pay dividends that don’t fluctuate too much in price. Long-term goals – several years away (ex. Retirement) Higher risk investments such as stocks, bonds, long term CDs, Individual Retirement Accounts (IRA),

3. Don’t take unnecessary risks Risk and investing goes hand-in-hand. With greater risk comes the potential for a greater reward. Remember, there are NO Guarantees! Control risk by having 3-6 months living expenses in a savings account. 4. Put time to work for you. (see handout) Compounded interest can create impressive sums when even small amounts are invested regularly.

Mary, Mary quite contrary, 5. DIVERSIFY… Mary, Mary quite contrary, How does your financial garden grow? With STOCKS, BONDS, and MUTUAL FUNDS… A DIVERSIFIED Portfolio! Never put all your “eggs in one basket” The greater the diversification, the lower the exposure to risk!

Video Links (if these do not work, go to www. investorprotection Video Links (if these do not work, go to www.investorprotection.org and look under the correct Unit. http://www.investorprotection.org/learn/videos/?fa=mrEarl http://www.investorprotection.org/learn/videos/?fa=basics

Unit 2: Key Terms Introduction to Financial Markets Economic indicators Economy Exchange Financial Industry Regulatory Authority (FINRA) Financial Markets Free Enterprise System Futures Gross domestic product Load vs No-load Market Economy Markets Mutual funds 12(b)-1 fees Blue Chip Companies Bond Market Caveat Emptor Commodity Futures Trading Commission (CFTC) Common vs Preferred Stock Consumer Coupon Rate Dividend Dollar Cost Averaging Dow Jones Industrial Average (DJIA) Economic growth

Unit 2: Key Terms, cont. NASDAQ Stock Market Net Asset Value (NAV) New York Stock Exchange (NYSE) Private vs public companies Prospectus Risk tolerance Securities and Exchange Commission (SEC) State securities regulators Stock Stock market Supply vs demand

Reasons to study financial markets… Young people today are the investors of tomorrow. A person doesn’t have to be rich to start investing. The financial markets will play a major role in the lives of most Americans. http://www.investorprotection.org/learn/videos/?fa=basics

6 major types of investment risks… What is your risk tolerance? It varies from person to person depending on the stages of life. 6 major types of investment risks… Interest rate risk Business failure risk Market price risk Inflation risk Political risk Fraud risk

Benefits of Mutual Funds Diversification Professional Management Often low-cost shares Liquidity Before investing in a mutual fund Learn the objective of the fund What securities the fund owns The level of risk Its earning record as compared to similar funds.

Five main factors that affect a stock or bonds value Investor actions Business conditions Government actions Economic indicators International events and conditions

Responsibilities of Self-Regulatory Organizations Establish rules governing trading and other activities Set qualifications for industry professionals Oversee the conduct of their members Impose discipline in instances of unethical or illegal behavior Administer the licensing process, including background investigations and licensing exams