Copyright 2007 Thomson South-Western Chapter 10 Understanding Saving and Investing

Slide 2 Saving and Investing Saving is accumulating money for future needs –Savings accounts and CDs –Money market accounts Investing is attempting to make your money grow –Stocks and bonds –Real estate 10-1 Reasons for Saving and Investing

Slide 3 Short-Term Needs Contingency planning –Liquidity –Emergency fund 10-1 Reasons for Saving and Investing Savings can be used to help pay for emergency expenses. Vacations Short-term goals

Slide 4 Long-Term Needs Education Buying a house Providing for a family 10-1 Reasons for Saving and Investing Many people make investments to provide for future needs of their families. Financial security Retirement planning

Slide 5 Sample Financial Plan 10-1 Reasons for Saving and Investing

Slide 6 Building Communications Skills Good News Messages The reader will find the news favorable Use the direct approach Place the answer or news early in the message Follow with complete details Make the message clear, concise, and courteous 10-1 Reasons for Saving and Investing

Slide 7 Growth of Principal Principal grows through –Additional deposits to the account –Interest earned Simple interest Compound interest 10-2 Saving and Investing Principles

Slide 8 Growth of Principal 10-2 Saving and Investing Principles COMPOUND INTEREST Annual Interest Rate 6% Period Adjusted (Quarterly)PrincipalRateInterestPrincipal 1$5, $75.00$5, $76.13$5, $77.27$5, $78.43$5, $79.60$5, $80.80$5, $82.01$5, $83.24$5,632.46

Slide 9 Return on Investment Is the amount that money saved or invested grows ROI formula Selling Price – Purchase Price = Gain Gain / Purchase Price = ROI 10-2 Saving and Investing Principles RETURN ON INVESTMENT Purchase Price Selling PriceGainROI $500.00$525.00$ %

Slide 10 Risk and Return Investment risk Inflation risk Industry risk Stock risk Political risk 10-2 Saving and Investing Principles Natural disasters, such as a hurricane, can damage investment properties.

Slide 11 Tax Advantages Tax-deferred investments have no taxes on gains until the money is taken from the account Tax-free investments have no taxes on gains 10-2 Saving and Investing Principles

Slide 12 Technology Corner Internet Investment Research Many Web sites provide information helpful to investors –Company Web sites –News Web sites –Investment Web sites Readers should consider the source of investing advice found on the Web 10-2 Saving and Investing Principles

Slide 13 Success Skills Lifelong Learning Means acquiring new skills and knowledge throughout your life Is important for success in career and personal activities Can help you to save and invest in an effort to build financial security 10-2 Saving and Investing Principles

Slide 14 Systematic Saving and Investing Is a strategy for regularly setting aside cash that can be used to achieve goals Has a long-term focus Dollar-cost averaging is one strategy for systematic investing 10-3 Saving and Investing Strategies Achieving financial goals requires discipline, just as preparing for a marathon does.

Slide 15 Diversification Means holding a variety of investments to reduce risk An investment portfolio is a collection of assets –Certificates of deposit –Stocks –Bonds –Real estate –Other holdings 10-3 Saving and Investing Strategies

Slide 16 Understanding the Market Bull market –Prices are steadily increasing –Profit-taking may cause a temporary drop in some stock prices Bear market –Prices are steadily decreasing –May be a good time to buy stocks that are sound investments because prices are lower Economic conditions 10-3 Saving and Investing Strategies

Slide 17 Focus on... Market Timing Many investors choose timing principles to follow –When to buy –When to sell Many investors follow recommendations from financial professionals –Individual stocks –Mutual funds 10-3 Saving and Investing Strategies

Slide 18 Ethics Price Gouging Means raising prices an unfair amount in times of emergency or crisis Is illegal in some states To avoid being a victim, prepare for emergencies by having essential items on hand before an emergency occurs 10-3 Saving and Investing Strategies