chapter 10 basics of saving and investing. slide 2 how are saving and investing related? 10-1...
TRANSCRIPT
Chapter 10
Basics of Saving and Investing
Slide 2
How Are Saving and Investing Related?
10-1 Reasons for Saving and Investing
• Savings is money set aside for the future.
• Investing is a strategy to earn more on your money than the rate of inflation.
• Wealth is the accumulation of assets over time.
Slide 3
How Do Saving and Investing Meet Personal Goals?
10-1 Reasons for Saving and Investing
• Short-Term Goalso Contingency planningo Vacation planning
• Medium-Term Goalso Buying a caro Paying for collegeo Planning a wedding
• Long-Term Goalso Providing for a familyo Buying a house
Slide 4
How Does Investing Prepare You for Retirement and Beyond?
10-1 Reasons for Saving and Investing
• Retirement is the period of time when you are not working but are able to meet expenses.
• Sources of income include:oRetirement planso Social securityo Savingso Investments
Slide 5
Investment Growth Over Time
10-1 Reasons for Saving and Investing
Amount Invested
Interest Rate
Investment Term
Maturity Value
$10,000 investment 6% 20 years $32,071
$10,000 investment 6% 30 years $57,435
$1,000 investment 8% 30 years $10,063
$1,000 investment 8% 40 years $21,725
$1,000 per year investment 5% 20 years $33,066
$1,000 per year investment 5% 30 years $66,439
$1,000 per year investment 5% 40 years $120,800
$100 per month investment 7% 25 years $81,007
$100 per month investment 7% 30 years $121,997
$100 per month investment 7% 40 years $262,481
Slide 6
Success Skills
Having a Will and Health Care Directive• A will is a document that passes title of
property after a person dies.o A simple will describes your wishes for
distribution of property.o A trust will leaves your estate in trusts to
benefit your children and other heirs.• A health care directive is also a “living will.”
o It describes your wishes at the end of life.
10-1 Reasons for Saving and Investing
Slide 7
How Is Risk Related to Return?
• The higher the risk, the greater your possible return.
• Risk-free investments are guaranteed by the government—U.S. savings bonds, Treasury bills.
• Return on Investment (ROI) is the amount that savings or investments grow expressed as a percentage.
10-2 Principles of Saving and Investing
Slide 8
Return on Investment
10-2 Principles of Saving and Investing
Example 1: Bought an investment for $500; received dividends of $18 for the year
Return: $18Rate of return: $18 ÷ $500 = 3.6% (annual rate of return)
Example 2: Bought an investment for $500 on March 1; sold it on October 1 for $525. Return: $25Rate of return: $25 ÷ $500 = 5%Note: The 5% return was received after only 7 months. The annual return would be higher. Calculate the annual ROI as follows:0.05 ÷ 7 months × 12 months = 8.6% (annual rate of return)
Slide 9
What Types of Risk Do Investors Face?
10-2 Principles of Saving and Investing
• Inflation risk
• Industry risk
• Political risk
• Stock risk
Investment risk is the potential for change in the value of an investment.
Slide 10
What Are Tax Advantages of Investing?
10-2 Principles of Saving and Investing
• Tax deferral is a postponement of taxes to be paid. o Taxes on gains are not paid until the
money is withdrawn.
• Tax exemption means savings and investments are not taxed.o Example: Series EE and Series I savings
bonds are tax-free if used for education.
Slide 11
Building Communications Skills
10-2 Principles of Saving and Investing
Good News Messages• Use a direct approach.• Place the answer or main point of the
message early in the message.• Include details in later paragraphs.• Be clear, leaving no doubt about the answer
or point to be shared.• Be complete and concise.
Slide 12
What Are Systematic Saving and Investing Strategies?• Systematic saving involves regularly
setting aside cash to achieve goals.
• Systematic investing is a planned approach to making investments on a regular basis.
• Market timing involves buying and selling stocks based on what the market is expected to do.
10-3 Strategies for Saving and Investing
Slide 13
Stock Trend Line
10-3 Strategies for Saving and Investing
Investment tracking involves making investment choices by following stock prices over time.
Slide 14
How Can You Reduce Investment Risk?
10-3 Strategies for Saving and Investing
Slide 15
How Can You Maximize Investment Return?
10-3 Strategies for Saving and Investing
• A bull market exists when stock prices are steadily increasing.
• A bear market exists when prices are steadily decreasing.
• Economic conditions (growth or decline) can affect investment strategies.
Slide 16
Focus On . . .
Dollar-Cost AveragingThe systematic purchase of an equal dollar amount of the same stock at regular intervals
10-3 Strategies for Saving and Investing