1. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 1 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Risk vs. Reward Activity Winnings Chart Number of Guesses 654321 Number of Candies Won 01251015 Activity Number on Die 123456 Number Rolled Number of Guesses Candies Won Round 1 Round 2 Round 3 Round 4 Round 5 Total

2. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 2 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Group Questions 1.How did the number of candies won relate to the number of guesses made? 2.Who had the largest return? Did you have a strategy for play? 3.Did anyone have a strategy for activity play? If so, did the strategy work? 4.Did anyone choose only one number every time? If so, how many candies did you win? 5.Did anyone choose five numbers every time? If so, how many candies did you win? 6.If you had to give up candies every time you chose a number would you have played differently? Discuss and then answer on the back of activity sheet. Please use complete sentences.

3. Introduction to Investing Take Charge of Your Finances Family Economics and Financial Education

4. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 4 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Saving and Investing Once an appropriate amount of liquid assets are reached Refocus goals from savings to investing Remember: The purpose of savings is to develop financial security.

5. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 What is Investing? The purchase of assets with the goal of increasing future income Characteristic: Focuses on wealth accumulation Investing is appropriate for long-term goals. What are examples of long-term goals that can be accomplished by investing?

6. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Rate of Return Investments usually earn higher rates of return than savings tools Rate of Return – The total return on an 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.

7. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 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? $$ Mandy’s rate of return on investment is %

8. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 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? $ $ Derek’s rate of return on investment is %

9. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Risk POTENTIAL RETURN RISK Risk The uncertainty regarding the outcome of a situation or event Investment Risk The possibility that an investment will fail to pay the expected return or fail to pay a return at all

10. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 10 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Investment Risk Risk is a trade-off for the potential to receive high returns All investments carry some level of risk Financial Risk Pyramid Illustrates the trade-offs between risk and return for a number of saving and investing tools What is the risk level of savings tools?

11. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 11 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Financial Risk Pyramid Wealth Accumulation- Investments Financial Security- Savings Tools Speculation Increasing potential for higher returns Increasing risk

12. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 12 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Inflation The rise in the general level of prices Inflation Risk The danger that money won’t be worth as much in the future as it is today Inflation risk should not be a concern with savings since the goal of savings is to provide current financial security The rate of return on an investment should be higher than the rate of inflation.

13. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 13 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Investment Philosophy Each individual has a tolerance level for the amount of risk they are willing to take on Investment Philosophy An individual’s general approach to investment risk The greater the risk a person is willing to make on an investment, the greater the potential return will be. Generally divided into three categories: conservative, moderate, and aggressive

14. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 14 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Discussion Questions 1.When playing Risk vs. Reward, what do you believe your investment philosophy was? 2.Did your investment philosophy change throughout the activity? 3.Do you think your investment philosophy during the activity is or will be the same in real life?

15. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 15 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Portfolio Diversification Portfolio Diversification- reduces risk by spreading investment money among a wide array of investment tools Creates a collection of investments that will provide an acceptable return with an acceptable exposure to risk Assists with investment risk reduction Referred to as “Building a Portfolio.”

16. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 16 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Types of Investment Tools StocksBonds Mutual Funds Index Funds Real Estate Speculative Investments

17. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 17 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Stocks Stock – A share of ownership in a company Stockholder or shareholder – Owner of the stock Usually a stockholder owns a very small part of a company.

18. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 18 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Return on Stocks The share of profits distributed in cash to stockholders Stockholder may or may not receive dividends- depends on company profit Dividends The current price that a buyer is willing to pay for stock If stock is sold for a market price higher than what was paid, stockholder will receive a return If stock is sold for a market price lower than what was paid, stockholder will lose money Market Price

19. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 19 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Bonds A form of lending to a company or the government (city, state, or federal) The company or government pays annual interest to the investor until the maturity date is reached – The specified time in the future when the principal (or initial investment) amount of the bond is repaid to the bondholder Bonds are less risky than stocks but do not have the potential to earn as much as a stock.

20. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 20 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Mutual Funds Mutual fund- Created when a company combines the funds of many different investors and then invests that money in a diversified portfolio of stocks and bonds Always research the fees charged by a mutual fund. Reduces investment risk by helping people diversify their portfolio Fees can be high Saves investors time

21. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 21 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Index Fund Index fund – A mutual fund that was designed to reduce fees by investing in the stocks and bonds that make up an index Index- a group of similar stocks and bonds – Examples- Standard and Poor 500, Wilshire 5000 Offer high diversification with low fees What is the difference between a mutual fund and an index fund?

22. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 22 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Real Estate Includes any residential or commercial property or land as well as the rights accompanying that land A family home is not considered an investment asset Can be risky and more time consuming but has potential for large returns Examples of real estate investments include rental units and commercial property.

23. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 23 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 Speculative Investments Have the potential for significant fluctuations in return over a short period of time – Examples- future, options, commercial paper, collectibles Recommended for people with an aggressive investment philosophy and a high level of financial security

24. © Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 24 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1.12.1.G1 DISCOUNT BROKER Buying and Selling Investments Investors must utilize a brokerage firm that acts as a buying and selling agent for the investor (except for when buying real estate and certain speculative investments). FULL SERVICE GENERAL BROKERAGE FIRM Complete investment transactions Offer investment advice and one-on- one attention from a broker Only complete investment transactions Offer no advice to investors but charge 40-60% less