INVESTING

Saving: is what people usually do to meet short-term goals. Investing: means you’re setting your money aside for longer-term goals. Saving vs. Investing

Why Are Saving and Investing Important? Saving or investing money for your financial goals makes you less tempted to spend it. Your money can actually earn you MORE money. Why Are Saving and Investing Important?

Consider the following examples of 15 year old John and 35 year old Mary. John, a high school student, invests $100 just once . How will that money grow? After 25 years it will keep growing because he has more time. (When Mary is 60, John will be just 40 and will probably have another 20 to 25 years to let his money keep growing).

Investment Example JOHN Growing @ 5% 10% 15% 20% 15 Years $100 20 Years $128 $161 $201 $249 25 Years $163 $259 $405 $619 30 Years $208 $418 $814 $1,541 40 Years $339 $1,083 $3,292 $9,540 50 Years $552 $2,810 $13,318 $59,067 60 Year $889 $7,289 $53,877 $365,726 65 Years $1,147 $11,739 $108,366 $910,044 Investment Example JOHN

Mary invests $100 once and forgets about it Mary invests $100 once and forgets about it. How fast that money will grow depends on the interest it earns. At a bank, she might earn 5%; if she does well as the stock market on average, she might earn 10%; if she does a little better then the stock market on average, she might earn 15%; and if she chooses her investments very wisely, she might earn 20%.

Investment Example MARY Growing @ 5% 10% 15% 20% 35 Years $100 40 Years $128 $161 $201 $249 45 Years $163 $259 $405 $619 50 Years $208 $418 $814 $1,541 60 Years $339 $1,083 $3,292 $9,540 65 Years $432 $1,744 $6,621 $23,737 Investment Example MARY

Time, Money, and Rate of Interest The more money you have to save or invest, the more money you are likely to earn. The higher the rate of interest you earn, the more money you are likely to have. The sooner you invest your money, the more time it has to make new money, making it likely that you could earn much more as a result. Time, Money, and Rate of Interest

Number of Years Joe’s Age Account Balance 5 23 $1,565 10 28 $2,450 15 33 $3,838 20 38 $6,009 25 43 $9,408 30 48 $14,730 35 53 $23,063 40 58 $36,109 45 63 $56,536 50 68 $88,518 The first summer after high school graduation, Joe saved $1,000 and decided to invest in a tax-deferred account that averaged a 9% return per year. At what point did Joe double his $1,000 investment? Why did the rate of growth increase more rapidly in later years?

Time Value of Money: Refers to the relationship among time, money, and rate of interest. Inflation: which is a rise in the cost of goods and services over time. Inflation decreases the spending power of each dollar you have. Earned Interest: is the payment you receive for allowing a financial institution or corporation to use your money. The Time Value of Money

Age Years Contribution Year End Value 25 1 $2,000 $2,188 26 2 $4,580 27 3 $7,198 28 4 $10,061 29 5 $13,192 30 6 $16,617 31 7 $20,363 32 8 $24,461 33 9 $28,944 34 10 $33,846 35 11 $37,021 40 16 $57,963 45 21 $90,752 50 $142,089 55 $222,466 60 36 $348,311 65 41 $545,344 Age Years Contribution Year End Values 25 1 26 2 27 3 28 4 29 5 30 6 31 7 32 8 33 9 34 10 35 11 $2000 $2,188 40 16 $10,000 $16,617 45 21 $39,209 50 $74,580 55 $129,961 60 36 $216,670 65 41 $352,427