Unit 3 - Investing: Making Money Work for You

1. Unit 3 - Investing: Making Money Work for You

2. Saving/Investing Options • Savings Account • Certificate of Deposits (CD’s) • Stocks • Bonds • Mutual Funds • Retirement Plans

3. Some background Info… • Money grows on the principle of interest • Compound interest- interest earned on both your principal (money you invested) and on the interest it earns

4. Amount Saved Per Week Value After 10 Years Investing Weekly at 5% Interest $ 7.00 $ 4,720 $ 14.00 $ 9,440 $ 21.00 $ 14,160 $ 28.00 $ 18,880 $ 35.00 $ 23,600 3-B 1

5. Investment Tools • The basic tools for most investors include • Stocks • Bonds • Mutual Funds • Together known as securities

6. A bit about Risk • Investments pay a percentage in interest as determined by a bank, stock market or federal reserve. • The greater the risk the greater the return • (or the greater the risk the greater the fall )

7. Stocks • Stock: a share of a company • When you buy a share you are actually buying a small piece of the company • -Buy “certificates of stock” that change value over time • -Usually based on the well being of the company you invest in

8. How do stocks pay? • Have money invested in stock itself and opportunity to collect dividends • Dividends: Money paid to share holders when company claims a profit

9. A $1,000 investment a decade ago would today be worth: • Apple (AAPL) -- $32,280 • Southwestern Energy (SWN) -- $31,880 • Cliffs Natural Resources (CLF) -- $26,460 • Range Resources (RRC) -- $12,440

10. Bonds • When you buy a bond you are essentially making a loan of money to a company or government • Companies/Government issue bonds to raise money • Designed to pay a specified rate of interest at the end of a certain period of time • ex. 10 year $100 bond guaranteed to pay 6%/year

11. Mutual Funds • Invests in a number of different tools • Could include investments in stocks, bonds, foreign stocks and others • Choose due to diversification: don’t have all your money invested in one place • Most retirement plans invest in mutual funds

12. Retirement Plans • Types of retirement plans • IRA (personal retirement plan) • 401K (sponsored by company) • Stock Ownership (in company employed) • Profit Sharing Plan

13. Investing Annually to Achieve a Goal Value of $20 1 Year 2 Years 4 Years 6 Years $20.80 $21.63 $23.40 $25.31 4% $21.00 $22.05 $24.31 $26.80 5% Building…. $21.20 $22.47 $25.25 $28.37 6% $21.60 $23.33 $27.21 $31.74 8% $22.00 $24.20 $29.28 $35.43 10% 3-C 1 2 3 4 5

14. Investing a $10,000 Lump Sum Interest Rate 5 Years 10 Years 15 Years 20 Years 5% $12,763 $16,289 $20,789 $26,533 6% $13,382 $17,908 $23,966 $32.071 7% $14,026 $19,672 $27,590 $38,697 8% $14,693 $21,589 $31,722 $46,610 9% $15,386 $23,674 $36,425 $56,044 10% $16,105 $25,937 $41,772 $67,275 11% $16,851 $28,394 $47,846 $80,623 12% $17,623 $31,058 $54,736 $96,463 3-E 1

15. 72 Years Needed to Double Investment = Interest Rate 72 = Interest Rate Required Years Needed to Double Investment Rule of 72 3-H

16. Rule of 72: $10,000 Invested INTEREST RATE Year 3% 6% 12% 6 $20,000 12 $20,000 $40,000 18 $80,000 24 $20,000 $40,000 $160,000 3-I

17. NEFE High School Financial Planning Program Commo- dities Penny Stock Speculative Stock / Bonds / Mutual Funds Collectibles Blue-Chip Common Stock Growth Mutual Funds Real Estate Balanced Mutual Funds High-Grade Preferred Stock High-Grade Convertible Bonds High-Grade Municipal Bonds or Mutual Funds Money Market Accounts or Mutual Funds High-Grade Corporate Bonds or Mutual Funds Insured Savings / Checking Accounts U.S. Savings Bonds Certificates of Deposit Treasury Issues FinancialPlanningPyramid Unit Three – Investing: Making Money Work for You Highest Risk Highest Earnings Lower Risk Lower Earnings 3-J

18. The Impact of Higher Returns on Savings and Investments Rule of 72: The approximate frequency with which $100 doubles at specific interest rates Interest Rate 6 Yrs. 9 Yrs. 12 Yrs. 18 Yrs. 24 Yrs. 3% $200 4% $200 6% $200 $400 8% $200 $400 12% $200 $400 $800 3-K 1 2