finance - long run for kids

Bellringer

You don’t have to write this down:

1.How old will you be in 2061?

2.Do you think $13/hour is a lot of

money?

3.Get out your notes

10 richest people in the WorldForbes (2012)

1. Carlos Slim Helú $69 B

2. Bill Gates

3. Warren Buffett

4. Bernard Arnault

5. Amancio Ortega

6. Larry Ellison

7. Eike Batista

8. Stefan Persson

9. Li Ka-shing

10. Karl Albrecht

2, 3, 6

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Credit Cards• Loan from the

bank

• High interest rates

• Keep control

• Bankruptcy

• Video clip

Chances are….Only 3% of the US earns

over $250,000/year You will workYou will have a limited

supply of wealthYou will need to think

about your income and make good choices

You need a budgetYou need to think about

investing

Do you want to be?• Rich & Retired

Social Security

Specifics about investing

• Opportunity cost of investing?

• Things to consider:– Liquidity– Risk– Diversify

Liquidity

• “How easy is it to turn this investment into cash”?

Cash under mattress

• Bad idea, why?

• No return, risky

• 100% liquid

• Inflation, you will lose the inflation rate

Savings Account• Low interest rate

• No risk in USA

• Today: 1%, yuck! Money Market Acct 3-3.5 %

Pension Plan

• Employee plan

• Usually union or large firm

• For example: 10% from State employees, 80% of salary when you retire, after 30+ years

• Not liquid at all

• Low risk, long term

Bonds• Issued by

government or large corporation

• Low risk, low return

• Must wait for maturity

• Can be traded (liquidity!!)

• WW1 & WW2 War Bonds

Mutual Funds

• Managed stocks

• Lower risk, lower control

• Some sort of theme

• Saves you time

Traditional IRA• Individual Retirement

Account

• You have to set it up

• You can deposit up to $5000 per year

• (into mutual funds, stocks or bonds)

• Tax loopholes (breaks)

• Can’t touch until 60

• Not liquid

At 10% interest, a $5000 IRA becomes $226,000 over 40 years! $10,000 is over $400,000!

Roth IRA• Individual Retirement

Account

• You have to set it up

• You can deposit up to $5000 per year

• (into mutual funds, stocks or bonds)

• No tax break, but tax free when you retire

• Can’t touch until 60

• Not liquid

At 10% interest, a $5000 IRA becomes $226,000 over 40 years! $10,000 is over $400,000!

401 K Plan• Set up by employer

• Payroll deduction

• Invested into stock market

• Lowers tax incidence

• Tax break for employee

• Employee match

• Not liquid

Investment calculator

Real Estate• Risky, high capital

• Relatively liquid

• Speculation

• Average real estate in Tucson in 1970 $23,000

• Average real estate in Tucson in 2008 $161,000!!!

International Markets• Invest in

foreign markets

• Invest in currency

• Can be very risky

• George Soros

List by liquidity• Traditional IRA

• Roth IRA

• 401 K

• Real Estate

• Stocks

• Mutual Funds

• Int’l currency

• Pension plan

• bonds

List by risk

• Traditional IRA

• Roth IRA

• 401 K

• Real Estate

• Stocks

• Mutual Funds

• Int’l currency

• Pension plan

• bonds

Finance Closure on your BR

401K plan

Trad. IRA

Roth IRA

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