Basics of Saving and Investing Debra Pankow September 2003

Major Points Difference between saving and investing Difference between saving and investing Risk/rate of return trade-off Risk/rate of return trade-off Time value of money Time value of money Level of risk tolerance Level of risk tolerance Key factors in personal investment plan/asset mix Key factors in personal investment plan/asset mix

Savings vs Investment Safe Easily Accessible Low return Short-term goals Risk Volatile in short time frame Potential appreciation Mid & Long-term goals

Comparing the Returns Savings Account Stocks Initial Investment $100$100 Current Income $2(interest)$2(dividend) Capital Gain $0$3 Total Return $2$5 Rate of Return 2%5%

Rule of 72 The Number 72 The Number 72 Interest Rate Interest Rate Years to Double Years to Double

Average Annual Rates of Return, (Ibbotson Associates,2001)

Risk Inflation Inflation Business Failure Business Failure Changes in the Economy Changes in the Economy Interest Rate Changes Interest Rate Changes

Risk/Rate of Return Relationship

Diversification Savings/Certificates of Deposit Savings/Certificates of Deposit Bonds Bonds Variety of Securities Variety of Securities Small Stocks Large Stocks Mutual funds

Personal Assessment Time Line Time Line Risk Tolerance Risk Tolerance Personal Financial Goals Personal Financial Goals

Working with Financial Professionals Know yourself Know yourself Know what professional you may need Know what professional you may need Know your professional Know your professional Ask the right questions Ask the right questions Keep lines of communication open Keep lines of communication open

Basics of Saving and Investing