1. Savings & Investments REVIEW How to Make a Million Dollars

2. How to get started… Pay Yourself First (PYF) Save 10% of your net income each month Establish an Emergency Fund 1 st : $1000 2 nd : 3-6 months income Put in a savings account that is not too easy to access Pizza is not an emergency!

3. Basic Investment Terms Safety: How “safe” is your money? (Is there any risk that you might lose your investment?) Liquidity: How fast can it be turned in to cash? (Example: A savings account is very liquid, while a CD or Bond is restricted and a house is illiquid) Yield: How much will the investment earn during a time period? (APY: annual percentage yield)

4. Investment Choices Savings Account High Liquidity = Low Yield Money Market ( restricted savings account) Medium Liquidity = Medium Yield Certificate of Deposit (CD) Longer the Term/Larger the Deposit = Higher the Yield * HIGH SAFETY!: All are insured by the FDIC

5. Investment Choices Cont. Bonds A loan to a company (such as McDonalds or General Motors) or government agency (like schools, hospitals, etc.) Pays interest when the bond “matures” (finishes the term). If the interest rate the bond is paying is more than the current interest rate, bonds go up in value. If the bond is paying less than the current interest rate, they go down in value.

6. Investment Choices Cont. Stocks Simply ownership of a piece of a company “Do you want to go to MY coffee stand after school? I own part of Starbucks.” Stocks go up and down in value based on the demand for the stock – Supply and Demand. If the Demand is high – the price goes up. You make money! If the Demand is low – the price goes down. You lose money!

7. Investment Choices Cont. Mutual Funds A “Basket of Stocks” You buy a percentage of a variety of different stocks all grouped together. This diversity increases the safety of your investment while also reducing the potential yield.

8. IRA’s (Individual Retirement Agreements) Basically… a retirement plan account that provides some tax advantages Roth IRA - contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free. Traditional IRA contributions are often tax-deductible, all transactions and earnings within the IRA have no tax impact and withdrawals at retirement are taxed as income. Contributions: cannot contribute more than your annual income (with maximum contribution of $5,000).

9. Dividends Sometimes stocks pay DIVIDENDS Dividends are part of the profit a company makes, shared with the stock holders. (Because you owned stock and the company made money, - they will give you a dividend) Companies are NOT required to give Dividends. They may choose to put their profits back into improving or expanding their company Which could still be good for you! (Your stock value might rise)

10. What are the risks of investing? 1. Financial Risk – company goes bankrupt 2. Market Price Risk – value of investment went down 3. Liquidity Risk – how quick can you turn it into cash 4. Inflation Risk – return does not keep up with the rate of inflation 5. Fraud Risk – misrepresentation of the investment

11. How bad can it get? You could end up losing all of the money that you originally invested. With all of this potential risk…is it worth investing? YES! In any 10 year period since the beginning of the stock exchange – the stock market has always shown a gain.

12. Investment Pyramid L Highest Risk : Speculative Stocks Real Estate Individual Stocks Stock Mutual Funds Lowest Risk: Money Market Certificate of Deposit Insured Savings Accounts U.S. Savings Bonds U.S. Government Securities

13. Diversification Have you ever heard the saying…don’t put all your eggs in one basket? Diversification means don’t put all your money into one company or one type of investment If you end up putting all your eggs into one investment…you could end up getting fried!

14. Recommendations Invest over the long term (minimum 5 years) Select good quality stocks, bonds & mutual funds Diversify! (have a little bit of everything) If the interest rate is too good to be true, it probably is. Forget about getting rich quick ( remember about the tortoise and the hare - slow and steady wins the race)