MoneyCounts: A Financial Literacy Series Saving and Investing 11-A Grange Building University Park, PA 16802 financialliteracy.psu.edu finlit@psu.edu 814-863-0214

Description As we live in a complex world today, the realm of saving and investing for your future is just as complex. Complex and confusing financial products are necessary vehicles as you build a foundation for your future. You need basic knowledge to make informed decisions about how to proceed with your saving and investing plans.

Learning Outcome Understand the concepts of saving and investing Explore a variety of saving and investing vehicles and options Evaluate risk tolerance and return on investment decisions Plan for retirement through saving and investing

You Work for Money Money Works for You

Compound Interest Compound interest A = P (1 + r/n) (nt) A = the future value of the investment/loan, including interest P = the principal investment amount (the initial deposit or loan amount) r = the annual interest rate (decimal) n = the number of times that interest is compounded per year t = the number of years the money is invested or borrowed for

FV = PV x (1 + (i / n)) ^ (n x t) Time Value of Money Future Present FV = Future value of money PV = Present value of money i = interest rate n = number of compounding periods per year t = number of years FV = PV x (1 + (i / n)) ^ (n x t)

Susan invests $5,000 annually between the ages of 25 and 35 In total, she invests $50,000 $1,142,811 Bill invests $5,000 annually between the ages of 35 and 65 In total, he invests $150,000 $602,070 Chris invests $5,000 annually between the ages of 25 and 65 In total, he invests $200,000 $540,741

Save, Invest, or Both? Saving Investing OR It Depends !

What does money mean to you? Your style Your job Emergency fund Your meaning of money Your budget Your age Your debt Family situation Retirement account Your goals

Save, Invest, or Both? Interest Rate Total Debts Living Standard It Depends! Goals Risk Tolerance Time Horizon

Savings Vehicles Investment Vehicles Low Return High Safety (Low Risk) Savings Vehicles High Return Low Safety (High Risk) Investment Vehicles Saving account Checking account Money market account Certificates of Deposits Bonds Stock Mutual funds Real estate Commodity

Risk versus return

Tolerance level of risk Alternative Protected Equity Equity Bonds Property Return Cash Risk

Profit versus loss

Diversification

Diversification reduces risk!

Diversification

Retirement Accounts/Plans

Major Plans!

Retirement Accounts

Retirement Accounts

The end game!

MoneyCounts: A Financial Literacy Series Comments and questions 11A Grange Building University Park, PA 16802 financialliteracy.psu.edu finlit@psu.edu 814-863-0214