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Investing in Your Future Developed by: Joel Schumacher Associate Specialist Dept. of Agricultural Economics & Economics MSU Extension.

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Presentation on theme: "Investing in Your Future Developed by: Joel Schumacher Associate Specialist Dept. of Agricultural Economics & Economics MSU Extension."— Presentation transcript:

1 Investing in Your Future Developed by: Joel Schumacher Associate Specialist Dept. of Agricultural Economics & Economics MSU Extension

2 What are your goals? This year: Improve your free throw shooting? Improve your grades? Buy a car? In the next few years: Have a grand champion project at the fair? Improve your ACT score? Go to college?

3 How are you going to achieve your goal? Jays Goal Jay wants to be a starter on next years basketball team. How does Jay achieve this goal? Jay gives up time he could have spent doing other things. Jay spends this time in the gym improving his basketball skills.

4 How are you going to achieve your goal? Kaylas Goal Kayla wants to buy a car How does Kayla achieve this goal? Spends less money on food, music & clothes Kayla gives up some of these items to save money Kayla saves this money to help purchase a car Spends more time working at a job Kayla gives up time she could have spent doing other things Kaylas employer pays her for time & effort Kayla uses this money to help purchase car

5 What does college cost? Tuition & Mandatory Fees Carroll College$25,198 Rocky Mountain$22,892 MSU $6,428 MSU-Billings $5,470 MSU-Northern$4,642 Montana Tech$6,094 UM$5,775 UM-Western$3,945 * Tuition & Mandatory Fees for full time students, 2011-2012

6 College Costs What % of MT College Graduates have student debt? 68% What was the average student debt? $22,346 Source: Project on Student Debt (2009)

7 How can I invest in my future? We all have one resource? Time Time can be used to work to earn money. Time can be used to learn new skills that will improve our future opportunities.

8 Where is this money coming from? Job Gifts (birthday, Christmas) Allowance 4-H Animal Project Sale Others places? Next Question: Where do I put my money until I need it?

9 Part II: Investments

10 Investment Options Insured Assets Savings Account, CDs Bonds Corporate, Government, Savings Bonds Stocks Common & Preferred Hard Assets Livestock, Real Estate, Gold Mutual Funds

11 Insured Investments Types of Investments Savings Accounts Certificates of Deposit Some Money Market Accounts Checking Accounts

12 What is the current national average rate for 6 month CDs? A.0.78% B.1.19% C.1.92% D.2.40% E.3.12%

13 Insured Investments Low Risk Generally these accounts pay interest as a set interest rate Insured by FDIC or NCUA Historically Lower Returns $100 invested 1/1/1990 would be worth: 12/31/2009 6-Month CD: $253 S&P 500: $326 Gold: $285 20 Year Average Return: 4.59% annually

14 Insured Investments Federal Deposit Insurance Corporation (FDIC) National Credit Union Administration (NCUA) $250,000 per person per category If the bank fails… FDIC takes over the bank It sells the pieces to other banks Then pays depositors up to the insurance limits

15 Lower Volatility

16 Savings Bonds Basic Information: Savings Bond is a very small loan from you to the federal government These bonds earn interest for 30 years or until you redeem them Individuals under age 18 can purchase them directly Can be purchased in amounts of $25 and up Can be purchased online ( or many financial Interest may be tax free if used for educational expenses

17 Savings Bonds Two Types of Savings Bonds Series I: Part of the interest rate is fixed for the life of the bond. Part of the interest rate is based on inflation. Series EE: Rate is adjusted semi-annually Based on average rate of 10 year Treasury Securities.

18 Bonds A bond is a loan from an investor to a company or organization Who issues bonds? Big Businesses School Districts City, County, State and Federal Governments Water and Sewer Districts Airport & Port Authorities

19 How a Bond Works:

20 Bond Pricing The company holds a bond auction Investors bid on bonds. The company doesnt know the price until the sale. Bonds from issuers with strong credit ratings will sell for higher prices.

21 Calculating Current Yield Divide the Interest Payment by the Price of the bond Current PriceInterestYield $ 975 $606.15% $1,000 $606.00% $1,050 $605.71%

22 Bond Risks Default Risk: The bond issuer might not make the bond payments Some bonds have collateral Inflation Risk: Interest payments on bonds generally dont adjust for inflation

23 Stocks A share of stock represents ownership of a company Residual Interest Holder Everybody else gets paid before shareholders Suppliers, Employees, Bond Holders, Banks, Utility Companies, etc. Everything that is left belongs to shareholders

24 Risks & Rewards of Stocks Higher Volatility Historically Higher Returns $100 invested 1990 would be worth: 2009 6-Month CD: $253 S&P 500: $326 Gold:$285 20 Year Average Return: 7.6%

25 Higher Volatility

26 Stocks Ways to make money from a stock: 1.The Share Price Increases Capital Appreciation 2.The Stock issues a Dividend Income

27 Stocks Share Price Equals: +Value of assets -Value of liabilities +Present value of future earnings Do we know what these values are?

28 Hard Assets Examples: Real Estate Precious metals: Gold, Silver, etc. Collectibles: Art, Baseball Cards, Coins Ag Commodities: Corn, Cattle, Wheat, etc. Energy Commodities: Oil, Natural Gas, Coal

29 Hard Assets Different Risks than for Monetary Assets Livestock require upkeep (feed, shots, etc.) Livestock can die, be stolen, or fail to produce a calf. How quickly can you convert it to cash if you need the money?

30 Mutual Funds A mutual fund share represents a small piece of ownership in a large investment pool. Each mutual fund has different investment goals. Examples: Fund X invests only in stocks of US companies. Fund Y invests in stocks and bonds of manufacturing companies based in Europe.

31 Mutual Funds Advantages: Diversification: You own dozens of stocks and bonds buy purchasing just one share of a mutual fund. Professional Investment Management: The fund has a professional investment management team that manages the fund.

32 Steps to Get Started Put your goals in writing How much will they cost? When do you want to achieve the goal? Where will your savings come from? Job, animal sale, gifts Where will you put your money until you need it? How much risk are you willing to take?

33 Other Issues for Young Investors Minimum Investment Rules Lower rates for accounts will small balances Mutual Fund companies often require $500 to $10,000 to open an account. Restrictions on ownership for minors Might need a joint account to own stocks & bonds

34 Investing at a Young Age Key Points Save for a reason. What is your reason? What is your goal? How much and when? Where will you put your money until you need it?

35 Questions

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