Recap Saving and Investing

Review Questions Which of these saving/investing options has the highest risk? a. stocks b. savings accounts c. U.S. government bonds d. money market accounts If you bought an investment for $1,000 and it grew to $1,050 1 year later, what is your ROI? a. 50% b. 0.5% c. 5% d. 5.5% Slide 2

Just a Couple More When investing, the higher the risk you are willing to take a. the less return you can expect b. the greater your possible return may be c. the lower your possible return may be d. the less return you can expect and the lower your possible return may be A long-term, planned approach to making investments is called a. systematic investing b. contingency fund planning c. political risk d. hedging Slide 3

Answers Are Which of these saving/investing options has the highest risk? Stocks If you bought an investment for $1,000 and it grew to $1,050 1 year later, what is your ROI? c. 5% When investing, the higher the risk you are willing to take b. the greater your possible return may be A long-term, planned approach to making investments is called a. systematic investing Slide 4

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 5

Short-Term Needs Contingency planning Vacations Short-term goals Liquidity Emergency fund Vacations Short-term goals Savings can be used to help pay for emergency expenses. 10-1 Reasons for Saving and Investing Slide 6

Long-Term Needs Education Buying a house Providing for a family Many people make investments to provide for future needs of their families. Financial security Retirement planning 10-1 Reasons for Saving and Investing Slide 7

Sample Financial Plan 10-1 Reasons for Saving and Investing Slide 8

Growth of Principal Principal grows through Additional deposits to the account Interest earned Simple interest Compound interest Capital Appreciation Return on Investment (ROI) 10-2 Saving and Investing Principles Slide 9

Growth of Principal COMPOUND INTEREST Annual Interest Rate 6% Period   Adjusted (Quarterly) Principal Rate Interest 1 $5,000.00 0.015 $75.00 $5,075.00 2 $76.13 $5,151.13 3 $77.27 $5,228.39 4 $78.43 $5,306.82 5 $79.60 $5,386.42 6 $80.80 $5,467.22 7 $82.01 $5,549.22 8 $83.24 $5,632.46 10-2 Saving and Investing Principles Slide 10

Return on Investment Is the amount that money saved or invested grows ROI formula Selling Price – Purchase Price = Gain Gain / Purchase Price = ROI RETURN ON INVESTMENT Purchase Price Selling Price Gain ROI $500.00 $525.00 $25.00 5.00% 10-2 Saving and Investing Principles Slide 11

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 Achieving financial goals requires discipline, just as preparing for a marathon does. 10-3 Saving and Investing Strategies Slide 12

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 13

Risk and Return Investment risk Inflation risk Industry risk Stock risk Political risk Natural disasters, such as a hurricane, can damage investment properties. 10-2 Saving and Investing Principles Slide 14

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 15

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 16