1. PERSONAL FINANCE & CREDIT
UNIT FOUR
PERSONAL FINANCE & CREDIT

2. INVESTING Examine goals & objectives Risk Tolerance
Ex. retirement, home purchase, college fund
Risk Tolerance
Can I tolerate or recover from a potential loss or downturn in my investment
Need to save consistently
Importance of Diversification
Power of compounding
Interest or amount earned is added to the initial principal or amount that is invested; subsequent interest is added to that amount

3. INVESTING Potential Reward vs. Degree of Risk
Low risk/low reward: Bank Savings Account
High Risk/higher potential reward: Stocks

4. INVESTING
Bonds:
“IOU’s” or debt issued by states, cities, public authorities, corporations, or the Federal Government
Bonds have a specific maturity date, interest rate, and face value
Bonds are rated based on credit worthiness of the issuer: BBB-AAA
Lower rated usually pay higher interest, ex. Junk bonds
Bond prices are inversely related to current interest rates
Ex. Interest rates rise>bond prices decline
Interest rates fall>bond prices rise

5. INVESTING
Stocks represent ownership or equity in a company. Companies sell stock in order to raise financial capital.
Goals of Investing in Stocks:
Growth: Shares go up in value
Income: Company pays dividends to itshareholders
Publicly traded companies usually sell their shares on two main exchanges—
New York Stock Exchange (NYSE)
NASDAQ
Mutual Funds: pool of various stocks &/or bonds that are managed by investment professionals
Allow for diversification
Management fees are charged

6. INVESTING Stock Indexes
Lists of major stocks classified in various groups by various factors such as, size of company or type of market
Examples:
Dow Jones Industrial Average: List of Top 30 companies
S & P 500: List of top 500 companies

7. INVESTING Other Choices: Real Estate/Property
Mortgages
Fixed rate—Interest rate and amount of the monthly payment does not change during the life of the mortgage
Adjustable Rate—Interest rate and the amount of the monthly payment can change during the life of the mortgage depending on the rate of inflation
Options: Contracts that provide the right to puchase or sell commodities or financial assets at some point in the fture at a price agreed upon today
Futures: An agreement to buy or sell at a specific date in the future at a predetermined price regardless of the market price

8. CREDIT Factors influencing credit approval
Credit History/Credit Score—prior record of making payments
Income—ability to manage payments
How to establish a good Credit History/Credit Score
Need to make payments on time in a consistent manner
Maintain a good debt-to-income ratio
Credit Scores are determined by three credit reporting agencies– TransUnion, Equifax, & Experian