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Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside.

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Presentation on theme: "Chapter 10 Basics of Saving and Investing. Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside."— Presentation transcript:

1 Chapter 10 Basics of Saving and Investing

2 Slide 2 How Are Saving and Investing Related? 10-1 Reasons for Saving and Investing Savings is money set aside for the future. Investing is a strategy to earn more on your money than the rate of inflation. Wealth is the accumulation of assets over time.

3 Slide 3 How Do Saving and Investing Meet Personal Goals? 10-1 Reasons for Saving and Investing Short-Term Goals o Contingency planning o Vacation planning Medium-Term Goals o Buying a car o Paying for college o Planning a wedding Long-Term Goals o Providing for a family o Buying a house

4 Slide 4 How Does Investing Prepare You for Retirement and Beyond? 10-1 Reasons for Saving and Investing Retirement is the period of time when you are not working but are able to meet expenses. Sources of income include: o Retirement plans o Social security o Savings o Investments

5 Slide 5 Investment Growth Over Time 10-1 Reasons for Saving and Investing Amount Invested Interest Rate Investment Term Maturity Value $10,000 investment6%20 years$32,071 $10,000 investment6%30 years$57,435 $1,000 investment8%30 years$10,063 $1,000 investment8%40 years$21,725 $1,000 per year investment5%20 years$33,066 $1,000 per year investment5%30 years$66,439 $1,000 per year investment5%40 years$120,800 $100 per month investment7%25 years$81,007 $100 per month investment7%30 years$121,997 $100 per month investment7%40 years$262,481

6 Slide 6 Success Skills Having a Will and Health Care Directive A will is a document that passes title of property after a person dies. o A simple will describes your wishes for distribution of property. o A trust will leaves your estate in trusts to benefit your children and other heirs. A health care directive is also a “living will.” o It describes your wishes at the end of life Reasons for Saving and Investing

7 Slide 7 How Is Risk Related to Return? The higher the risk, the greater your possible return. Risk-free investments are guaranteed by the government—U.S. savings bonds, Treasury bills. Return on Investment (ROI) is the amount that savings or investments grow expressed as a percentage Principles of Saving and Investing

8 Slide 8 Return on Investment 10-2 Principles of Saving and Investing Example 1:Bought an investment for $500; received dividends of $18 for the year Return: $18 Rate of return: $18 ÷ $500 = 3.6% (annual rate of return) Example 2:Bought an investment for $500 on March 1; sold it on October 1 for $525. Return: $25 Rate of return: $25 ÷ $500 = 5% Note: The 5% return was received after only 7 months. The annual return would be higher. Calculate the annual ROI as follows: 0.05 ÷ 7 months × 12 months = 8.6% (annual rate of return)

9 Slide 9 What Types of Risk Do Investors Face? 10-2 Principles of Saving and Investing Inflation risk Industry risk Political risk Stock risk Investment risk is the potential for change in the value of an investment.

10 Slide 10 What Are Tax Advantages of Investing? 10-2 Principles of Saving and Investing Tax deferral is a postponement of taxes to be paid. o Taxes on gains are not paid until the money is withdrawn. Tax exemption means savings and investments are not taxed. o Example: Series EE and Series I savings bonds are tax-free if used for education.

11 Slide 11 Building Communications Skills 10-2 Principles of Saving and Investing Good News Messages Use a direct approach. Place the answer or main point of the message early in the message. Include details in later paragraphs. Be clear, leaving no doubt about the answer or point to be shared. Be complete and concise.

12 Slide 12 What Are Systematic Saving and Investing Strategies? Systematic saving involves regularly setting aside cash to achieve goals. Systematic investing is a planned approach to making investments on a regular basis. Market timing involves buying and selling stocks based on what the market is expected to do Strategies for Saving and Investing

13 Slide 13 Stock Trend Line 10-3 Strategies for Saving and Investing Investment tracking involves making investment choices by following stock prices over time.

14 Slide 14 How Can You Reduce Investment Risk? 10-3 Strategies for Saving and Investing

15 Slide 15 How Can You Maximize Investment Return? 10-3 Strategies for Saving and Investing A bull market exists when stock prices are steadily increasing. A bear market exists when prices are steadily decreasing. Economic conditions (growth or decline) can affect investment strategies.

16 Slide 16 Focus On... Dollar-Cost Averaging The systematic purchase of an equal dollar amount of the same stock at regular intervals 10-3 Strategies for Saving and Investing


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