Saving & Investing

1. Saving & Investing Use your money to make money

2. What is saving? • Saving sounds boring

3. What is saving? • Saving sounds boring • $1 saved is $1 not spent on something you want right now

4. What is saving? • Saving sounds boring • $1 saved is $1 not spent on something you want right now • Try thinking about it differently: Rather than focusing on what you’re NOT buying now, think about what you CAN buy in the future

5. What is saving? • Think of this: The Opportunity Cost of buying something -- like a cheeseburger or an Oreo Blizzard (which will quickly be used up) -- is the Future Value of the money.

6. What is saving? • If you had $5,000 today, what would you do?

7. What is saving? • If you had $5,000 today, what would you do? • If you invest it at 7% interest for 4 years… • End of year 1 = $5,350 • End of year 2 = $5,724 • End of year 3 = $6,125 • End of year 4 = $6,553

8. What is saving? • If you had $5,000 today, what would you do? • If you invest it at 10% interest for 4 years… • End of year 1 = $5,500 • End of year 2 = $6,050 • End of year 3 = $6,655 • End of year 4 = $7,320

9. What is saving? • Saving early is best – it takes advantage of the power of compound interest.

10. What is saving? • Saving early is best – it takes advantage of the power of compound interest. • Remember the Rule of 72? 72/rate of interest tells you how long it takes your money to double.

11. What is saving? • Saving early is best – it takes advantage of the power of compound interest. • Remember the Rule of 72? 72/rate of interest tells you how long it takes your money to double. • If you invest when you’re young, your money has more chances to double.

12. Compound Interest

13. Compound Interest

14. Compound Interest

15. So you should save… • So once you’re convinced you should save, where do you put your money? How do you find these great returns – and not lose money when the stock market nosedives?

16. Investment options • Mattress • Savings account • CDs • Bonds • Stocks • Mutual funds • Retirement accounts • College savings accounts

17. The “mattress” plan • Some people keep all of their earnings in their house, whether in a piggy bank, buried in the, garden, or sewn into a mattress. This is because they distrust banks. • RISK ANALYSIS Your money is losing value to inflation, and you could lose it in a robbery. No FDIC insurance for the mattress.

18. Savings account • A savings account is a basic bank account that pays interest. The average savings account is paying about 0.6% right now. • RISK ANALYSIS Money in savings accounts earns interest and is FDIC insured. However, the interest rate is often lower than inflation, so the real interest rate is negative.

19. Certificate of Deposit • A CD is like a savings account, but you promise to leave the money there for a set period, like 12 months. 12-month CDs are paying 2% right now. They are FDIC insured. • RISK ANALYSIS Similar to a savings account, but less liquid.

20. Bonds • A bond is a loan to a business or the government. There are many, many kinds of bonds, from “junk” bonds to Treasury Bills. • RISK ANALYSIS Bonds are riskier than CDs but safer than stocks. They are not FDIC insured. EE bonds are paying 1.5% Most junk bonds earn 5% a year.

21. Stocks • Stock is a share of ownership in a corporation. As you know, stock prices fluctuate wildly. • RISK ANALYSIS Over time, stocks usually outperform bonds. But in any given year, they may lose a lot more value. They are not FDIC insured.

22. Stocks v. Bonds • From Naked Economics: From 1945-1997, a portfolio of 100% stocks earned 12.9% annual return. In the same period, a portfolio of 100% bonds earned 5.8% annual return. BUT….

23. Stocks v. Bonds • In its worst year, the stock portfolio lost 26.5% of its value. OUCH. • The bond portfolio never lost more than 5% of its value in a single bad year. • Also, the stock portfolio had negative annual returns 8 times, while the bond portfolio only lost money once. • “Risk is rewarded, if you have a tolerance for it.”

24. Mutual Funds • A mutual fund is a professionally managed pool of money. The manager invests in a mix of stocks, bonds and the money market, depending on the level of risk. • RISK ANALYSIS Less risky than individual stocks because you’re not putting all your eggs in one basket. However, managers rarely beat the S&P 500 index. Not FDIC insured.

25. Retirement Accounts • Retirement accounts include pensions, 401(k)s, 403(b)s, IRA accounts, etc. • RISK ANALYSIS Retirement accounts make it easy for you to set money aside, usually tax free. Risk level depends on the type of account, but not FDIC insured. An essential first step in retirement planning.

26. College Savings Accounts • New financial tools to help parents afford skyrocketing tuition. Some include pre-payment. Most are tax-deferred. • RISK ANALYSIS Not FDIC insured, carries the same risk/return as mutual funds, but with some tax benefits. Can only be spent on college costs.

27. Being Smart with your $$$ To summarize, you’ll have more money in the future if you start saving now. It’s better to be the lender -- that’s what you are when you invest -- than the borrower, because YOU get paid the interest.

28. Being Smart with your $$$ • Live below your means

29. Being Smart with your $$$ • Live below your means • Create an emergency fund

30. Being Smart with your $$$ • Live below your means • Create an emergency fund • Make your money work for you

31. Being Smart with your $$$ • Live below your means • Create an emergency fund • Make your money work for you • Use credit cards correctly

32. Being Smart with your $$$ • Live below your means • Create an emergency fund • Make your money work for you • Use credit cards correctly • Take enough risk – possibly consult a financial planner

33. Being Smart with your $$$ • Live below your means • Create an emergency fund • Make your money work for you • Use credit cards correctly • Take enough risk – possibly consult a financial planner • Set up a house fund

34. Being Smart with your $$$ • Live below your means • Create an emergency fund • Make your money work for you • Use credit cards correctly • Take enough risk – possibly consult a financial planner • Set up a house fund • Buy the smallest house on the nicest block

35. Being Smart with your $$$ • Live below your means • Create an emergency fund • Make your money work for you • Use credit cards correctly • Take enough risk – possibly consult a financial planner • Set up a house fund • Buy the smallest house on the nicest block • Take advantage of employer-matched retirement accounts

36. Being Smart with your $$$ • Live below your means • Create an emergency fund • Make your money work for you • Use credit cards correctly • Take enough risk – possibly consult a financial planner • Set up a house fund • Buy the smallest house on the nicest block • Take advantage of employer-matched retirement accounts • Buy a used car, not a new one

37. Being Smart with your $$$ • Live below your means • Create an emergency fund • Make your money work for you • Use credit cards correctly • Take enough risk – possibly consult a financial planner • Set up a house fund • Buy the smallest house on the nicest block • Take advantage of employer-matched retirement accounts • Buy a used car, not a new one • Start saving TODAY!