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Unit Four Savings & Investments Pages 43-57
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Biggest difference between saving & investing is time
Money Work For You Savings Investments Biggest difference between saving & investing is time
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Very safe & earns small amount of money
Savings Account Short-term goals Very safe & earns small amount of money Access money whenever want
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Investing Long-term goals No guarantees
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Time Value of Money Relationship between time, money, and rate of return (interest), and their effect on earnings growth
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Earned Interest Payment you receive for allowing a financial institution or corporation to use your money
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Three Most Important Factors
Time: more time more money Money: more money = more money Rate of interest: higher interest rate = more money
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Value of money change over time
Inflation Value of money change over time Prices of goods and services increase over time
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Earning interest on interest Greatest aspects of personal finance
Compounding Money working for you Earning interest on interest Greatest aspects of personal finance 8th wonder of the world
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How long takes money to double in value
RULE 72 How long takes money to double in value Divide 72 by interest rate to get how long to double Divide 72 by years to get what interest rate you need
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DAY 2
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Risk to Return Relationship
Greater risk = Greater return Less risk = Less return
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Rate of return is synonymous with rate of return
How fast your money grows
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Diversification The reduction of investment risk by spreading you money among several different investments
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Price of goods and services go up Between 3% & 4% a year
Inflation Price of goods and services go up Between 3% & 4% a year Stamp 1971 (8 cents) Inflation can be higher than your interest rate in a savings
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Make sure investment interest is higher than the rate of inflation
Investing Make sure investment interest is higher than the rate of inflation
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Income from savings does get taxed
Savings & Investments Income from savings does get taxed Taxes you on gains and profits
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Why people put their money to work
Income or Growth Why people put their money to work Income – get paid in cash for holding different types of investments. Growth – hold an investment hoping it will increase in value
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Income Investments More reliable returns Returns are lower
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Income Investments (Lenders)
Savings Account US Savings Bond Certificate of Deposit Money Market Accounts Corporate or government bond
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Difference between purchase and selling price of stock
Capital Gain Difference between purchase and selling price of stock
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Growth Investments (Owners)
Stocks (represent ownership in a company) Real Estate (land/building) Collectibles (paintings) Mutual Funds
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