1. INTRO TO INVESTING
Personal Finance

2. What is Investing?
Purchase of assets with the goal of increasing future income
Focuses on increasing wealth – more money
Use for long term financial goals
Rate of Return
Total Return/Amount of Money Invested = ROR
What is Mandy’s ROR?
Money Invested = $2,200
Total Return= $110

3. Risk Higher Potential Return = Higher Risk
Risk: Uncertainty of the outcome of a situation or even
Investment Risk: Possibility that an investment will fail to pay to the expected return or pay any return at all
ALL investment tools carry SOME level of risk

4. Types of Investment Tools
Stocks Bonds Mutual Funds Real Estate Speculative Investments

5. A share of ownership in a company
Stocks
Stock
Stockholder or shareholder
A share of ownership in a company
Owner of the stock
Usually a stockholder owns a very small part of a company

6. Dividends Market Price Return on Stocks Definition What is received?
Share of profits distributed in cash to stockholders
Current price that a buyer is willing to pay for stock
Definition
If stock is sold for a market price higher than what was paid
If stock is sold for a market price lower than what was paid
Stockholder may or may not receive dividends- depends on company profit
What is received?
Stockholder will receive a return
Stockholder will lose money

7. Annual interest is paid to investor
Bonds
Form of lending to a company or the government (city, state, or federal)
Definition
Bonds are less risky than stocks but usually do not have the potential to earn as high of a return
Annual interest is paid to investor
Return
Once the maturity date is reached, the principal is repaid to the bondholder

8. Reduces investment risk
Mutual Funds
Advantage
Disadvantage
Mutual fund- when a company combines the funds of many different investors and then invests that money in a diversified portfolio of stocks and bonds
Reduces investment risk
Make sure to research the fees charged by a mutual fund
Saves investors time
Fees may be high

9. Real Estate
Any residential or commercial property or land as well as the rights accompanying that land
A family home is usually not considered an investment asset
Can be risky and more time consuming but has potential for large returns
Examples of real estate investments include rental units and commercial property

10. Financial Risk Pyramid
The risk level for specific investment tools may vary
Speculative Investment Tools
Futures
Commercial Paper
Increasing potential for higher returns
Increasing risk
Options
Collectibles
Stocks
Real Estate
Investment Tools
Mutual Funds
Index Funds
Bonds
Money Market Deposit Account
Savings Tools
Checking Account
Savings Account
Certificate of Deposit
Savings Bonds

11. Investment Philosophy
Everyone has a tolerance level for the amount of risk they are willing to take on
The greater the risk a person is willing to make on an investment, the greater the potential return will be
Investment Philosophy- an individual’s general approach to investment risk
Generally divided into three categories: conservative, moderate, aggressive

12. Tax-Sheltered Investments
Government tries to encourage certain types of investments by making them tax-sheltered
Tax-sheltered investments- eliminate, reduce, defer, or adjust the current year tax liability
Retirement
Child/dependent care
Education expenses
Health care expenses

13. Employer-Sponsored Investment Accounts
Type of tax-sheltered investment
Money is automatically taken out of employee’s paycheck
Employers often contribute a portion of money to the investment with no additional cost from the employee
Employee contributes 7% of paycheck to investment account
Example:
Employer contributes the same amount of money to the employee’s investment account
Employee benefits from having double the amount of money invested!

14. Number of years needed to double the principal investment
Rule of 72
Allows a person to easily calculate when the future value of an investment will double the principal amount 72
Interest Rate
Number of years needed to double the principal investment

15. What Can the “Rule of 72” Determine?
How many years it will take an investment to double at a given interest rate
How long it will take debt to double if no payments are made
The interest rate an investment must earn to double within a specific time period
How many times money (or debt) will double in a specific time period

16. “Rule of 72” FYI
Only an approximation
Interest rate must remain constant
Interest rate is not converted to a decimal
Equation does not allow for additional payments to be made to the original amount
Interest earned is reinvested
Tax deductions are not included

17. Doug’s Certificate of Deposit
Doug invested $2,500 into a Certificate of Deposit earning a 6.5% interest rate. How long will it take Doug’s investment to double?
Invested $2,500
Interest Rate is 6.5% 72
6.5
11 years to double

18. Jessica’s Credit Card Debt
Jessica has a $2,200 balance on her credit card with an 18% interest rate. If Jessica chooses to not make any payments and does not receive late charges, how long will it take for her balance to double?
$2,200 balance on credit card
18% interest rate 72 18
4 years to double

19. 18% interest rate 4 years 72 Jacob’s Car $5,000 to invest
Jacob currently has $5,000 to invest in a car after graduation in 4 years. What interest rate is required for him to double his investment?
$5,000 to invest
Wants investment to double in 4 years 72
4 years
18% interest rate