1. Recap Saving and Investing

2. Review Questions
Which of these saving/investing options has the highest risk? a. stocks b. savings accounts c. U.S. government bonds d. money market accounts If you bought an investment for $1,000 and it grew to $1,050 1 year later, what is your ROI? a. 50% b. 0.5% c. 5% d. 5.5%
Slide 2

3. Just a Couple More
When investing, the higher the risk you are willing to take
a. the less return you can expect
b. the greater your possible return may be
c. the lower your possible return may be
d. the less return you can expect and the lower your possible return may be
A long-term, planned approach to making investments is called
a. systematic investing
b. contingency fund planning
c. political risk
d. hedging
Slide 3

4. Answers Are
Which of these saving/investing options has the highest risk?
Stocks
If you bought an investment for $1,000 and it grew to $1,050 1 year later, what is your ROI?
c. 5%
When investing, the higher the risk you are willing to take
b. the greater your possible return may be
A long-term, planned approach to making investments is called
a. systematic investing
Slide 4

5. Saving and Investing Saving is accumulating money for future needs
Savings accounts and CDs
Money market accounts
Investing is attempting to make your money grow
Stocks and bonds
Real estate
10-1 Reasons for Saving and Investing
Slide 5

6. Short-Term Needs Contingency planning Vacations Short-term goals
Liquidity
Emergency fund
Vacations
Short-term goals
Savings can be used to help pay for emergency expenses.
10-1 Reasons for Saving and Investing
Slide 6

7. Long-Term Needs Education Buying a house Providing for a family
Many people make investments to provide for future needs of their families.
Financial security
Retirement planning
10-1 Reasons for Saving and Investing
Slide 7

8. Sample Financial Plan
10-1 Reasons for Saving and Investing
Slide 8

9. Growth of Principal Principal grows through
Additional deposits to the account
Interest earned
Simple interest
Compound interest
Capital Appreciation
Return on Investment (ROI)
10-2 Saving and Investing Principles
Slide 9

10. Growth of Principal COMPOUND INTEREST Annual Interest Rate 6% Period
Adjusted
(Quarterly)
Principal
Rate
Interest 1
$5,000.00
0.015
$75.00
$5,075.00 2
$76.13
$5,151.13 3
$77.27
$5,228.39 4
$78.43
$5,306.82 5
$79.60
$5,386.42 6
$80.80
$5,467.22 7
$82.01
$5,549.22 8
$83.24
$5,632.46
10-2 Saving and Investing Principles
Slide 10

11. Return on Investment Is the amount that money saved or invested grows
ROI formula
Selling Price – Purchase Price = Gain
Gain / Purchase Price = ROI
RETURN ON INVESTMENT
Purchase
Price
Selling Price
Gain
ROI
$500.00
$525.00
$25.00
5.00%
10-2 Saving and Investing Principles
Slide 11

12. Systematic Saving and Investing
Is a strategy for regularly setting aside cash that can be used to achieve goals
Has a long-term focus
Dollar-cost averaging is one strategy for systematic investing
Achieving financial goals requires discipline, just as preparing for a marathon does.
10-3 Saving and Investing Strategies
Slide 12

13. Tax Advantages
Tax-deferred investments have no taxes on gains until the money is taken from the account
Tax-free investments have no taxes on gains
10-2 Saving and Investing Principles
Slide 13

14. Risk and Return Investment risk Inflation risk Industry risk
Stock risk
Political risk
Natural disasters, such as a hurricane, can damage investment properties.
10-2 Saving and Investing Principles
Slide 14

15. Diversification Means holding a variety of investments to reduce risk
An investment portfolio is a collection of assets
Certificates of deposit
Stocks
Bonds
Real estate
Other holdings
10-3 Saving and Investing Strategies
Slide 15

16. Understanding the Market
Bull market
Prices are steadily increasing
Profit-taking may cause a temporary drop in some stock prices
Bear market
Prices are steadily decreasing
May be a good time to buy stocks that are sound investments because prices are lower
Economic conditions
10-3 Saving and Investing Strategies
Slide 16