1. Introduction to Investing
"Take Charge of Your Finances"
Financial Literacy

2. What is Investing?
Purchase of assets with the goal of increasing future income
Focuses on wealth accumulation
Appropriate for long-term goals
What are examples of long-term goals that can be accomplished by investing?

3. Investments usually earn higher rates of return than savings tools
Rate of Return
Total return on investment expressed as a percentage of the amount of money invested
Total Return
Amount of Money Invested
Rate of Return
Remember: Return is the profit or income generated by savings and investing
Investments usually earn higher rates of return than savings tools

4. What is Mandy’s Rate of Return?
Mandy saved $2,200 in a money market deposit account. After one year, she has a return of $110. What is Mandy’s rate of return?
$110
$2,200
.05 = 5%
Mandy’s rate of return on investment is 5%

5. What is Derek’s Rate of Return?
Derek invested $900. When he withdrew his money from the investment, he had a total of $1,050. What is Derek’s rate of return?
$150
$900
.167 = 16.7%
Derek’s rate of return on investment is 16.7%

6. Number of years needed to double the principal investment
Rule of 72
Allows a person to easily calculate when the future value of an investment will double the principal amount 72
Interest Rate
Number of years needed to double the principal investment

7. “It is the greatest mathematical discovery of all time.”
Albert Einstein
Credited for discovering the mathematical equation for compounding interest, thus the “Rule of 72.” At 10% interest rate, money doubles every 7.2 years,
T=P(I+I/N)YN
“It is the greatest mathematical discovery of all time.”

8. What Can the “Rule of 72” Determine?
How many years it will take an investment to double at a given interest rate
How long it will take debt to double if no payments are made
The interest rate an investment must earn to double within a specific time period
How many times money (or debt) will double in a specific time period

9. “Rule of 72” FYI Only an approximation
Interest rate must remain constant
Interest rate is not converted to a decimal
Equation does not allow for additional payments to be made to the original amount
Interest earned is reinvested
Tax deductions are not included

10. Jessica’s Credit Card Debt
Jessica has a $2,200 balance on her credit card with an 18% interest rate. If Jessica chooses to not make any payments and does not receive late charges, how long will it take for her balance to double?
$2,200 balance on credit card
18% interest rate 72 18
4 years to double

11. Jacob’s Car 18% interest rate 4 years 72 $5,000 to invest
Jacob currently has $5,000 to invest in a car after graduation in 4 years. What interest rate is required for him to double his investment?
$5,000 to invest
Wants investment to double in 4 years 72
4 years
18% interest rate

12. Rhonda’s Treasury Note
Rhonda is 22 years old and would like to invest $2,500 into a U.S. Treasury Note earning 7.5% interest. How many times will Rhonda’s investment double before she withdraws it at age 70?
Age
Investment 22
$2,500
31.6 (double once)
$5,000
41.2 (double twice)
$10,000
50.8 (double 3 times)
$20,000
60.4 (double 4 times)
$40,000
70 (double 5 times)
$80,000 72 =
9.6 years
7.5%
to double investment

13. Another Example Age Investment 18 $500 28.2 (double once) $1,000
$500 invested at age 18
7% interest
How many times will investment double before age 69?
Age
Investment 18
$500
28.2 (double once)
$1,000
38.4 (double twice)
$2,000
48.6 (double 3 times)
$4,000
58.8 (double 4 times)
$8,000
69 (double 5 times)
$16,000 72 =
10.2 years 7%
to double investment

14. Summary What is the relationship between risk and return?
How can a person reduce investment risk?
Who should a person contact to purchase investment tools?
What are the six main investment tools?
What is a tax-sheltered investment?
What is the Rule of 72?