Savings and investing Personal Finance

Diversification Spreading out the risk of a portfolio over many different types of investments Mutual Funds Collect small amounts money from many investors Buy small amounts of equities from many sources Money Market Accounts Spreading risk over many different savings accounts

Risk vs. Return More risk, more return; less risk, less return Depends on the goals of the saver Age Time Income Expenses Dependents

Liquidity Measures availability of money for the saver If the liquidity is up, return is usually down Liquidity is basically another way of asking how much time it takes for saver to get the money out of the investment and spend it

Balancing risk/return and liquidity depends on the needs of the saver – consider 3 options

Dollar-Cost Averaging Directing regular, small amounts of money toward the stock market 10-15% gross income each paycheck Automatically Buy low and Sell high

Buying Bonds Loaning money with a promise to pay back with interest Corporate – private company or Government – public provider

Buying Stock Minor ownership in the company Common Stock Performance dividends; voting rights Preferred Stock Fixed dividends; no voting rights Convertible Stock Fixed dividend; voting rights The links below will give you a chance to see the elements on a stock table and try to play a stock market simulation if you would like How to Read a Stock Table Stock Market Game

Stock Exchanges Markets for the sale of stock NYSE – New York Stock Exchange NASDAQ – National Association of Securities Dealers Automated Quotient OTC – over the counter NYME – New York Mercantile Exchange CBT – Chicago Board of Trade

Stock Indices Conglomerate averages of many stocks Measure the performance of the market General overview of market performance DJIA – Dow Jones Industrial Average 30 stable “blue chip” companies S&P – Standard and Poors 500 diverse companies

Performance Bull Market Bear Market Steady rise of the market Steady decline of the market

Retirement plans Individual Retirement Arrangement Usually tax deferred no tax now, pay tax later on growth in fund Roth IRA is tax sheltered pay tax now, growth not taxed later Some plans are offered through employers Your contribution may be matched by your company 401(k) – IRS code for for-profit companies 403(b) – IRS created for employees of non-profits

Compound interest Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Check out the link (yellow font) and data about the power of starting your retirement early. If you let compound interest work for you your retirement will be much bigger. The totals below are based on an average US salary of $50,000 per year with no raises. $416/MONTH AT 8% ANNUALLY If you pay in every month for 40 YEARS = $1,472,039.32 Pay in for first 10 then stop for the last 30 = $847,916.14 WAIT 10 YEARS then pay for the next 30 = $628,672.36

Baby Steps Dave Ramsey Small, smart steps will get you to security http://www.daveramsey.com Small, smart steps will get you to security A place where your money is working for you Not you working for your money Be Radical In decision making, not spending Be Intentional “On paper, on purpose”

Steps $1000 Emergency Fund ($500) $0 of Personal Debt 3-6 Months of Living Expenses ($25,000) 10-15% in a Retirement Account College Funding $0 “For Your Children” Get Scholarships Save and Work 20/20* Down Payment/Life of the Loan (House) 50/50* Living/Giving