Chapter 17.1 Preparing for an Investment Plan Finance Mrs. A Chapter 17.1 Preparing for an Investment Plan

What’s the difference between Saving and Investing? Savings??? Investing???

To start an Investment Plan STAY ON THE POSITIVE NOT THE NEGATIVE! Financial Check-Up To start an Investment Plan Balance your budget Spend less money than you make Stay out of debt Limit your credit card use STAY ON THE POSITIVE NOT THE NEGATIVE!

Financial Check Up 2. Insurance to cover financial losses Car accident Medical emergency Theft 3. Have an emergency fund (liquidity) Disabled, laid off Save enough to cover living expenses Three to nine months

Financial Checkup Have access to other sources of cash Line of credit with a bank or credit union Cash advance capability from a credit card company Use only for serious emergencies

Obtaining the Money You Need to Start an Investment Plan Stable job(s) Pay yourself first – 1%, 2%, ……12% Take advantage of employer-sponsored retirement plans (401K) - Deferred Taxes!!! Set up a “special” savings account – “Cut back to basics” Gifts, inheritance, and windfalls

The Value of an Investment Plans Start investing right away Small amounts add up quickly TVM – Time Value of Money Continue to add money and watch your money grow!!!!

The relationship between risk and reward is Risks vs. Rewards The relationship between risk and reward is POSITIVE High Risk (hopefully) yields High Rewards Speculative!!!!! Low Risk yields Low Rewards Very Secure!!!

Five Components of Risk Inflation Risk – general rise of price Investing helps to stay ahead of inflation Interest Rate Inflation Business Failure Risk – stocks and bonds Financial Market Risk – social & political conditions Global Investment Risk – Not the same rules!

Preparing for an Investment Plan Risks Involved in Typical Investments **Look at page 551 in the book**

Preparing for an Investment Plan Think Critically How might you advise a friend about what to do with a $500 bonus she just received for accepting a job at a software design firm?

General Investments Income Investments – provides a dependable source of income $$$ Growth Investments – investment will increase in value Retained Earnings – profits reinvested into the company – NO dividends, no $$$

Types of Investments Common Stock – ownership in a company Preferred Stock – ownership in a company Corporate Bond – IOU from a company Government Bond – IOU from the government Municipal Bond – IOU from the city or county Mutual Funds – mixture of different investments Real Estate – land and buildings