Saving and Investing What’s the big deal?

What is the difference between saving and investing?

Saving  To meet financial goals  For emergencies  Short term  Lower return  Higher Liquidity

Investing  To meet long term goals like retirement  Higher potential return  Lower liquidity

Who Protects Savers  FDIC- Federal Depository Insurance Corporation  -Insures funds in a federally chartered bank up to $100,000  per account.  -Created in 1933 to maintain public confidence and stability  SAIF- Savings Association Insurance Fund  -Insures funds in a savings and loans institution up to $100,000  per account.  NCUA- National Credit Union Association  -Insures funds in a credit union up to $100,000 per account.

Terms to Know  Risk  Return  Liquidity  Relationship between risk and return  Stocks  Bonds  Mutual Funds  Real Estate  Certificate of Deposit  Compounding interest  Fixed Interest Rate  Inflation  Interest  Interest Rate  Money Market Account  Pay Yourself First  Principal  Rule of 72  Savings Account  Savings bond  Simple Interest  Time Value of Money

How does your money Grow?

Paying Interest vs. Earning Interest  Interest is the price it costs you to borrow money. You pay a fee for being able to use the bank’s money today when you can’t afford to use your own money.  When you deposit your savings at the bank, you earn interest because the bank is now using your money for a certain period of time.

 The formula for finding simple interest is: Interest = Principal * Rate * Time.  If $100 was deposited for 2 years at a 4% interest rate, the interest would be $100*4%*2 = $8.00.  The total amount balance in the account would be $100+$8=$108. Simple Interest

 Deposit: $500  Interest rate: 2.5%  Time: 3 years  Formula: Deposit*Rate*Time=Interest earned. $500 * 2.5% * 3 years= $37.50 Simple Interest Practice

 Compound interest is interest that is paid on both the principal and also on any interest from past years.  For example, if I got 15% interest on my $1000 investment, then in the second year, I would get 15% interest on $1150.  Over time, compound interest will make much more money than simple interest. Compound Interest

 Interest which is calculated not only on the initial principal, but also the accumulated interest of prior periods. Would You Rather Have, A Million Dollars Today, Or A Penny That Doubles Every Day For Thirty Days?

I Hope You Chose The Penny! Why…

Compound Interest Follow the link to Watch the Money Tree grow!

The 8 th Wonder of the World -Albert Einstein

 nterest_calculator.htm nterest_calculator.htm Use a compound interest calculator

 It’s all about risk and return  What is your risk tolerance?  Take the quiz  How much do you have to invest?  How long do you have to invest?  Choose the investment tool that best meets your needs. Where Should I put my money?

The Investment Pyramid

 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 Real Estate Examples of real estate investments include rental units and commercial property

 The stock market is the core of America’s economic system  Stock is a share of ownership in the assets and earnings of a company  Stock market is a general term used to describe all transactions involving the buying and selling of stocks and bonds issued by a company Why Learn About Stocks

When a company would like to grow, it issues stocks to raise funds and pay for ongoing business activities  It is popular because:  The company does not have to repay the money  Paying dividends is optional  Dividends are distributions of earnings paid to stockholders © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market – Slide 22 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Why Companies Issue Stock

How Well the Stock Market is Doing Overall

 Dow Jones Industrial Average (“DOW”)  Lists the 30 leading industrial blue chip stocks  Standard and Poor’s 500 Composite Index  Covers market activity for 500 stocks  More accurate than DOW because it evaluates a greater variety of stock  National Association of Security Dealers Automated Quotations (“NASDAQ”)  Monitors fast moving technology companies  Speculative stocks, show dramatic ups and downs 3 Basic Indicators

 The term bull market means the market is doing well because investors are optimistic about the economy and are purchasing stocks  The term bear market means the market is doing poorly and investors are not purchasing stocks or selling stocks already owned Ups and Downs

 BONDS  A bond is a printed promise to pay a definite amount of money, with interest, at a specific time.  Long term loan Bonds

 Mutual funds are investment companies which pool their money from thousands of shareholders and invest it  Advantages 1.They are diversified 2.You have a professional manager 3.Low minimum investment required 4.You can easily cash in shares by writing a letter, or sometimes even a phone call Mutual Funds

 Hard Assets are investments with intrinsic value such as oil, natural gas, gold, silver, farmland, natural colored diamonds and commercial real estate. Hard Assets

 Rule of 72  Rule of 115 How Can I tell how fast my money will grow?

 How long will it take to double your investment?  The “Rule of 72" is a handy mathematical rule which helps in estimating how many years it will take for an investment to double in value  72 / Interest Rate = # years to double  72 / 2 (2%) = 36 years  72 / 10 % = 7.2 years Rule of 72

 How long will it take to triple your investment?  115/Interest Rate = # Years to Triple  115 / 5= 23 years  115 / 10 = 11.5 years Rule of 115

Rules of 72 & 115

Are you ready to make your…

Compare starting at age 25 to starting at age 35 Start Early

 Write a 20 word statement about saving and investing.  Share it with your neighbor.  Share it with the class. Conclusion