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The Fundamentals of Investing

The Fundamentals of Investing. Agenda. Let’s talk about the Wise test and how to prepare for it. There could be snow Friday, you need a plan! First 30 minutes: Basics of Investing with Teacher 2 nd 30 minutes: Investment types on computer using PPT on website Last 30 minutes

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The Fundamentals of Investing

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  1. The Fundamentals of Investing

  2. Agenda • Let’s talk about the Wise test and how to prepare for it. There could be snow Friday, you need a plan! • First 30 minutes: • Basics of Investing with Teacher • 2nd 30 minutes: • Investment types on computer using PPT on website • Last 30 minutes • Questions you have and practice quiz on Moneypower • If it snows on Friday, please complete Practice test at home!!

  3. Wise test Standardized test with 50 MC questions A Day will test on 1/26 or 1/28 depending on weather If you are absent on test day, you still need to take it. You will receive a testing slip from myself or testing coordinator Practicing will help! The questions are very similar.

  4. How Can You Prepare for Wise? • Take practice quizzes and tests online • www.moneypower.org • Login ID: Pfhs46 • Password: hS3200 • Use Quizlet • There are many flashcards already prepared for you!

  5. Investing • Why Invest? • Write down 2 reasons why people invest money!

  6. Investments Investments -assets purchased with the goal of providing additional income from the asset itself but with the risk of loss

  7. Saving vs. Investing http://www.youtube.com/watch?v=SoHgDXLj9hY

  8. Investments Help Accomplish Long-Term Goals It is recommended that at least 10% of net income is dedicated to savings and investments each time income is received

  9. Time Value of Money Is the same amount of money today worth more or less one year from now? Why? Hint: it is not!! Time Value of Money: money you receive today is worth morethan the same amount of money received in the future http://www.youtube.com/watch?v=MdK-A1VQJls

  10. Inflation Inflation Risk The danger that money won’t be worth as much in the future as it is today http://www.youtube.com/watch?v=WKZvm_fqYRM Inflation Rise in the general level of prices

  11. Rate of Return Strive to have the rate of return on investment be higher thanthe rate of inflation Total return on investment expressed as a percentage of the amount of money saved

  12. Risk vs. Return Generally, the greater the risk the higher chance for return on investment. This also means the greater potential for ___________________a partial or _______________ ______________.

  13. What is Mandy’s Rate of Return? Mandy’s rate of return on investment is 5% Mandy saved $2,200 in a money market deposit account. After one year, she has a return of $110. What is Mandy’s rate of return?

  14. Types of Investment Tools What do you already know about each investment tool?

  15. Let’s Take a Look at Bonds

  16. Lending vs. Owning When investing, consumers either lend money to the company/organization or they own the asset Examples Returns

  17. Bond Maturity date – specified time in the future when the principal amount of the bond is repaid to the bondholder

  18. Bonds! Is a form of lending to a company or government. Organization paysinterestto the lender (purchaser) until the maturity date is reached. people who buy the bonds are called the bond holder. The date the issuer must pay back the amount of money borrowed is the maturity date. The interest rate is also called the coupon rate. Bonds issued by local governments and their agencies are called municipal bonds Interest on municipal bonds are often exempt fromstate and local taxes Seriess EE savings bonds are safe, low risk bonds that at maturity are double the purchase price

  19. Stock A share of ownership in a company Owner of the stock Usually a stockholder owns a very small part of a company

  20. Stock A company can issue/sellstock after registering their shares (filing a prospectus) with the SEC Securities and Exchange Commission. The shareholders meet yearlyat the annualmeeting to discuss the company’s performance and to voteon company policy and to make changes or elect aboard of directors. A stock split is when a company votes to split the number of shares outstanding. Most common type is 2 for 1. After the split, owner had double the number of shares, but the stock is worth half the price!

  21. Stock Returns - Dividends Re-invest the dividend is when the cash received is used to buy more of the company’s stock.

  22. Stock Returns – Capital Gains

  23. Real Estate Ownership of residential or commercial property or land Real estate can be time consuming but the potential for returns is high

  24. Mutual Funds When a company combines the funds of many different investors and then invests that money in a diversified portfolio of stocks and bonds

  25. Mutual Funds Reduces investment risk Fees may be high Saves investors time

  26. Mutual Funds http://www.youtube.com/watch?v=3RU4y1JFzEI

  27. Ariana has $150 to InvestOption 1 – Buy Stock Ariana invests in one company’s stock Company C has had a bad year and their market price drops significantly. Ariana may lose her $150 investment

  28. Ariana Has $150 to InvestOption 2 – Buy a Mutual Fund • Market price of companies C and F decreased • Market price increased for all other companies • Ariana has reduced her investment risk and may still earn money

  29. Portfolio Diversification Investing in a mutual fund is an automatic form of portfolio diversification

  30. Stock Exchange Investments are purchased from a stock exchange (except for real estate and collectibles)

  31. Brokerage Firms Brokerage firms facilitate the buying and selling of investments on the stock exchange

  32. Discount Brokerage Firm Fees Will usually charge a fee for completing a buy/sell transaction • Additional fees may include: Total fees are often lower, but an individual must have the knowledge and time to monitor their investments

  33. Full-Service Brokerage Firm Fees Financial advisors are compensated for the time and knowledge they provide investors. Most charge fees using one of these methods. In addition to fees, financial advisors may earn commissions paid by the company.

  34. Choosing a Brokerage Firm Important to research the financial advisor and firm he/she works for

  35. Tax-Advantaged Investments Savings and investments are a form of unearned income and therefore subject to income tax Tax-advantaged investments reduce, defer or adjust the current year tax liability • Most common: • Retirement • Education Government encourages people to invest in certain types of investments

  36. When are taxes for tax-advantaged investments usually paid? OR

  37. Summary

  38. Investing for Retirement

  39. Retirement Accounts The trade-off to tax advantages is most accounts have penalties if money is withdrawn early There are many other types of plans available

  40. Summary

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