Chapter 10 Basics of Saving and Investing

Slide 2 How Is Risk Related to Return? The higher the risk, the greater your possible return. Risk-free investments are guaranteed by the government—U.S. savings bonds, Treasury bills. Return on Investment (ROI) is the amount that savings or investments grow expressed as a percentage Principles of Saving and Investing

Slide 3 Return on Investment 10-2 Principles of Saving and Investing Example 1:Bought an investment for $500; received dividends of $18 for the year Return: $18 Rate of return: $18 ÷ $500 = 3.6% (annual rate of return) Example 2:Bought an investment for $500 on March 1; sold it on October 1 for $525. Return: $25 Rate of return: $25 ÷ $500 = 5% Note: The 5% return was received after only 7 months. The annual return would be higher. Calculate the annual ROI as follows: 0.05 ÷ 7 months × 12 months = 8.6% (annual rate of return)

Slide 4 What Types of Risk Do Investors Face? 10-2 Principles of Saving and Investing Inflation risk Industry risk Political risk Stock risk Investment risk is the potential for change in the value of an investment.

Slide 5 What Are Tax Advantages of Investing? 10-2 Principles of Saving and Investing Tax deferral is a postponement of taxes to be paid. o Taxes on gains are not paid until the money is withdrawn. Tax exemption means savings and investments are not taxed. o Example: Series EE and Series I savings bonds are tax-free if used for education.

Slide 6 Building Communications Skills 10-2 Principles of Saving and Investing Good News Messages Use a direct approach. Place the answer or main point of the message early in the message. Include details in later paragraphs. Be clear, leaving no doubt about the answer or point to be shared. Be complete and concise.