1. Investing
Econ 10/18

2. Warm Up
What is your most important financial goal right now? What are you specifically doing to reach it?

3. Saving Vs. Investing
Saving: Savings accounts, piggy bank, under the mattress, in a safe
Investing: Buying stocks and bonds, buying property, opening interest earning accounts

4. How to Build Wealth: Investing
1. Make enough money to cover essential expenses and have something left to save and invest.
2. Have a plan to save and use part of your income to invest.
3. Invest to put money to work for you.

5. Savers and Borrowers Borrowers Borrow money Savers Deposit money
Credit Union Bank Store money Lend money
Borrowers Borrow money
Pay Interest
Pay Interest

6. The Mighty Power of Compounding
Earning Interest
The Mighty Power of Compounding
Year
Interest Earned
Ending Balance
Beginning
$1,000.00 1 ? 2 3 4 5
Let’s say you have $1,000 saved in an account that earns 3 percent interest once a year.
What is the balance and the compounded interest earned each year over five years?
Without any physical effort on your part, your money has “worked” to earn you how much interest?

7. Other Ways to Invest
An income investment provides expected earnings, usually in predictable amounts.
Earned interest – payment received in return for use of your money
Dividends – share of profits some companies pay to their stockholders
Rent payments – received from people or companies in return for using your property
Growth investments are purchased because of the potential that the value will increase over time; an unpredictable amount of money is received when the investment is sold.
Real estate
Business
Crops
Precious metals

8. Other Ways to Invest: Stock
Stock can be bought from a business as an investment by following these steps:
Select Broker
Place bid (or ask) order with broker to buy (or sell) quantity at a certain price.
Place order for broker to complete trade through an exchange
Keep record of buy (or sell) for tax reporting
Deposit Cash to open a brokerage account
Decide what you want to buy (or sell)
Pay transaction fee to broker at time of buy (or sell)
Pay attention to stock news and price

9. Investing
Asset  something of value that can be turned into cash Examples: stock, home, lake-front property, business
Liability  something owed to another person Examples: loan, rent
Rate of Return  degree to which an asset gains (or loses) value over a given period of time Examples: APY interest on savings, stock value increase/decrease
Risk  uncertainty of achieving a desired result

10. Risk Tolerance Your risk tolerance depends on … Tame the risk
When you need the money (short-term or long-term)
Your financial goals
Your ability to live with any investing decisions with unpleasant consequences
Tame the risk
Be sure you can cover your necessary financial needs
Know what you are getting into before you invest
Invest in different types of investments

11. Diversify your Investments
Don’t put all your eggs in one basket.
Invest in a combination of asset categories:
More than one asset (Example: not all Facebook stock)
Variety of assets (Example: not all CDs)
Mix investments within an asset category:
Different industries (Example: not all retail)
Different-sized companies (Example: not all small)
Divide investments among several “baskets”.