Investing

Saving vs. Investing

Savings is the portion of current income

not spent on consumption.

Savings account, money markets,

certificate of deposit (CD)

Investing is the purchase of assets with the

goal of increasing future income.

Stocks, bonds, mutual funds, real estate,

collectables

Key Terms

Principal: The original amount invested,

borrowed, or saved.

Interest Rate: Percentage rate paid on

the money saved or invested expressed

as an annual percentage rate (ex: 5%).

Liquidity is the ability of an investment to

be converted into cash quickly without

loss of value.

Inflation – Importance of Investing

Steady rise in the general level of prices that occurs when the supply of money rises faster than the supply of goods and services available for purchase.

Example: You have $1

A small soda at McDonalds is $1

Instead of spending your dollar, you put it into a savings account with a 5% interest rate

One year later, you have $1.05

You go to McDonalds to buy a soda but now it costs $1.10.

You can no longer afford the soda

Investment Options Stocks: An investment that represents ownership in a

company or corporation.

Bonds: An “IOU” from an agency for the money a person invests for a set time period, which pays a fixed rate of interest.

Mutual Funds: An investment that pools money from several investors to buy a particular type of investment, such as stocks.

Real Estate: An investor buys a piece of property, such as land or building, in hope of generating a profit.

Collectibles: Unique items that are relatively rare or highly valued such as art work, baseball trading cards, coins, automobiles, antiques.

Retirement Funds: Money that is set aside specifically for use at retirement age.

Risk and Return

Risk is the chance that the value of an

investment will decrease.

Return is the profit or yield from an

investment.

Relationship between risk and return:

The higher the risk, the higher the return.

Typically LOW liquidity

The lower the risk, the lower the return.

Typically HIGH liquidity

Investment Risk Activity

Risk and Return:

Expanding Your Understanding

Interest Types

Compounding Interest: Earning interest on

interest.

Fixed Interest Rate: The interest rate will

not change for the lifetime of the

investment

Rule of 72

Formula figuring the

number of years it

takes to double

principle using

compound interest.

This is found by

dividing the interest

rate the money will

earn into the

number 72.

Investing Tips – What’s My Interest? Bonds, Mutual Funds, Stocks

Saving for Retirement

Ideally, you'd start saving in your 20s, (or

earlier) when you first begin earning

paychecks. The sooner you begin saving,

the more time your money has to grow.

Traditional IRA (Individual Retirement Arrangements)

Roth IRA

401K / 403B

Traditional IRA

A Traditional IRA is an Individual

Retirement Account to which you

contribute pre-tax dollars which allows

your money to grow tax-deferred.

When you make withdrawals after age

59½, they're treated as current income.

YOU PAY TAXES WHEN YOU WITHDRAW THE

MONEY FROM YOUR ACCOUNT.

Roth IRA

A Roth IRA is an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year.

Both earnings on the account and withdrawals after age 59½ are tax-free.

YOU PAY TAXES BEFORE THE MONEY IS PUT IN YOUR ACCOUNT – NOT WHEN YOU WITHDRAW.

Traditional or Roth IRA?

You'll have to decide what strategy works for you.

In a traditional IRA, contributions and growth are tax-deferred. Tax is paid upon withdrawal in retirement.

In a Roth IRA, withdrawals and growth are tax-free.

Choosing between the two types depends on your income tax bracket now, versus in the future.

401K

A 401(k) is a retirement savings plan

sponsored by an employer. It lets workers

save and invest a piece of their paycheck

before taxes are taken out. Taxes aren't

paid until the money is withdrawn from

the account.

Employers can contribute to employees’

accounts.

403B

A 403(b) plan (also called a tax-sheltered

annuity or TSA plan) is a retirement plan

offered by public schools and certain tax-

exempt organizations.

Employees save for retirement by

contributing to individual accounts.

Employers can also contribute to

employees' accounts.

Saving for Retirement

These are the BASICS when it comes to

saving for retirement.

There are MANY other details and factors

that play a role in these retirement

options.

When you begin to earn a regular

income, it is important to meet with a

financial advisor who can help you

choose the option that is best for you!

General Tips for Investing:

Never invest in something that you don’t

understand.

Do your research on your investments to

get the most of your money.

Invest for the long-term. Do not be

influenced by short-term fluctuations.

Invest risky when your young and become

more conservative as you get older.

If time…

Stock Investments Worksheet

https://www.youtube.com/watch?v=S_M

996Djcf8