1. The Basics of Investing
Stocks, Bonds & Cash Accounts

2. Why Invest (save) Money?
Purchasing power = amount of goods/services money buys
Money (savings) loses purchasing power over time
Prices for goods rise on average +2.5% per year
rising prices is called inflation
Investors must earn more than the rate of inflation for purchasing power to rise

3. Types of Investments: 4 Asset Classes
Stocks:
Over 5000 individual stocks to choose from!
Bonds:
Government bonds, corporate bonds, mortgage bonds
Cash Accounts:
Savings accounts, CD’s, money markets
Real Estate
Residential, commercial, houses, apartments, etc….

4. Reading: Intro. To Investing
ANSWER KEY: B C A D

5. Returns before inflation = nominal return
Real & Nominal return per year by Asset Class
Returns before inflation = nominal return .
= real return
Savings
Account

6. Risk vs. Reward? Holding period = when do you need your money back?
Time horizon determines which asset class you should invest in
The longer the holding period----the more risk you should take!
Stocks = long term investment (5-years or longer)
Bonds = medium term investment ( 1-3 years)
Bank CD’s = short term investment (30 days to 2 years)

7. Process of picking sectors to invest in
Asset Allocation
Process of picking sectors to invest in
I think
I’m brilliant
very high risk
Cash
Account
Bonds
Stocks
no risk med. risk high risk

8. Rule of “70” 70 divided by RETURN = # Years for money to double
Money Doubles in:
70/2% = 35 years
70/5% = 14 years
70/10% = 7 years
70/15% = years
Average return of
stock market
over last 75 years

9. How Money Grows! Money grows exponentially as it compounds
The power
of compound
interest!
$10,000 invested at 4% return for 30-Years:
$33,000
$10,000 invested at 15% return for 30-years
$875,000

10. Bonds
Bonds: are a loan to a Gov’t or business where you earn interest every year until you are paid back.
If the company goes bankrupt => you usually will not be paid back!
You buy
a Bond
U.S. Gov’t
5-Year Bond
$1,000,000 cash
Gov’t pays you 2% interest per year
$20,000 per year
Plus $1 million in 5 years
$1.0 million turns into $1.1 over 5 Years

11. What does the Fed policy do to savers?
Janet Yellen leaves rates at ZERO
What does the Fed
policy do to savers?
0.0%

12. Bond Prices U.S. Government sells bonds to “borrow money”
Bond prices move inversely with interest rates!
Interest rates ↓ => Bond Prices ↑
You buy
a Bond
U.S. Gov’t
5-Year Bond
$1,000,000 cash
$20,000 interest per year