1. Introduction to Investing

2. What is Investing?
Remember: The purpose of savings is to develop financial security Once you’ve saved an appropriate amount of liquid assets (can be easily converted to cash), your new focus should be on acquiring overall wealth— the accumulation of resources, measured as net worth.
Most people do this through investing.
Investing is the purchase of assets with the goal of increasing future income
Characteristics:
Focuses on wealth accumulation
Appropriate for long-term goals

3. Two types of investments
PERSONAL INVESTING
Practiced by individuals
Depositing or spending money to make a financial gain in the future
Ex: buying stocks or bonds
Most often used in news reports to discuss investments
ECONOMIC INVESTING
Practiced by companies
Spending money to buy capital goods (machinery, technology, buildings) to make consumer goods/services
Most often used by economists

4. Complete Activity 1
What similarities can you find in these examples of investment?
Each involves risk and payment in money or effort now in order for the investor to receive a future benefit.

5. Criteria for Investing
Liquidity: ease with which savings or investments can be turned into cash
Risk: chance of losing some or all of the money invested
Return: earnings from an investment

6. Liquidity Financial investments are more liquid than other investments
Personal savings accounts/short-term interest-accruing (gaining) accounts
NOT certificates of deposit (cannot touch the money until time period of savings is complete)
Liquidity helps to explain why people value financial investments—it is relatively easy to convert stocks and bonds into cash (unlike equity in capital)

7. Risk Chance of loss of some or all of the money invested
Some investments involve more risk than others:
Investing money in a bank savings account has little risk; investing in ”high risk” stocks or bonds have a lot more risk
The greater the risk, the greater the potential return

8. Financial Risk Pyramid
The risk level for specific investment tools may vary
Increasing potential for higher returns
BUT has
Increasing
risk
Speculative Investment Tools
Futures
Commercial Paper
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

9. Return For investors, a return is the earnings from an investment
Some investments can earn higher returns than others
However, some of these include higher risk investments (“don’t put all of your eggs in one basket” is one adage) or require more initial investment

10. Investments usually earn higher rates of return than savings tools
Rate of Return
Total return on investment expressed as a percentage of the amount of money invested
Total Return
Amount of Money Invested
Rate of Return
Investments usually earn higher rates of return than savings tools

11. RoR Practice Problems
Mandy saved $2,200 in a money market deposit account. After one year, she has a return of $110. What is Mandy’s rate of return?
Derek invested $900. When he withdrew his money from the investment, he had a total of $1,050. What is Derek’s rate of return? 1, =$150
$110
$2,200
$150
$900
Remember to multiple the answer decimal answer by 100 to get %

12. Complete Activity 2
Most personal investments for young people include education and family investments in bulk purchases
The goal for successful financial investment is to gain a greater return in the future by forgoing short-term benefits (those in the present)