How Does $ grow over Time Mr. Coronado Consumer Ed/C.A.H.

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Presentation transcript:

How Does $ grow over Time Mr. Coronado Consumer Ed/C.A.H

What does interest mean when saving/investing?  Means the amount of $ you earn on the $ you put to work by saving or investing.  Different types of Investments Savings Accounts Savings Accounts Individual Retirement Accounts (IRA) Individual Retirement Accounts (IRA) Certificates of Deposit (CD) Certificates of Deposit (CD) Money market accounts Money market accounts

Two types of Interest  Compound Interest Calculates initial investment amount + interest earned to that time. Calculates initial investment amount + interest earned to that time. Ex: Put 1,000 in CD for annual interest rate of 4% Ex: Put 1,000 in CD for annual interest rate of 4% 1 st yr=1,040, 1 st yr=1,040, 2 nd yr= 1, nd yr= 1, rd yr= 1, rd yr= 1,  Simple Interest $ you investment earns is based on principal (initial investment amount) Ex: You put $1,000 in savings account for annual interest rate of 4% 1 st yr=1040, 2 nd yr=1080, 3 rd =1,120

Calculating compound & simple interest.  Compound Interest  To calculate 2 nd yrs gains, multiply previous yr total (1,040) by interest rate of.04 and add to previous total.  Simple Interest  Calculate multiply interest rate (.04) by # of yrs and + result to princple ($1000)

Rule of 72  Helps estimate how long it will take you to 2x your $  Ex: If your investment were paying 3% interest rate, you would 2x your investment in 24 years. (24x3=72)

How should I invest my $?  “Don’t leave your eggs in one basket”  If you have the money you should diversify!  Diversification Spreading investment funds through a variety of savings & investments to reduce risk Spreading investment funds through a variety of savings & investments to reduce risk

Different Investment Plans  401(k) Plan  A Retirement savings plan funded by employee and (often) matching contributions from the employer.  Contributions taken from pre-tax salary & funds grow tax free until withdrawn  Individual Retirement Account (IRA)  Allows person whether covered by employer or not to save $.  Defers taxes on accounts earnings when persons withdraws $ (Penalty)  $ is taxed before invested in account.

Diff Investment Plans contined  Certificate of Deposit (CD)  A special form of deposit offered by banks that generally pays compound interest for a fixed period of time.  (Short time frame)  (IRA not short time limit)  Money Market Account  A special savings account that usually pays interest rates comparable to those offered by money market mutual funds.  These accounts also offer check-writing priveleges.