1. lesson twelve
saving and investing
presentation slides
04/09

2. pay yourself first (a little can add up)
Save this each week … at % interest … in 10 years you’ll have
$ % $4,720
% $9,440
% $14,160
% $18,880
% $23,600
You can buy … one fast food meal or save $7.00 this week.
You can buy … one movie ticket or save $14.00 this week.
What can you give up to save for your financial goals?
teens – lesson 12 - slide 12-A

3. What is Investing?
Purchase of assets with the goal of increasing future income
Focuses on wealth accumulation
Appropriate for long-term goals

4. Stocks, Bonds & Mutual Funds
What factors determine the degree of risk investors take?
Age
Risk tolerance
Investment goals
Age – investors with more time to invest can tolerate the market going up and down
Risk tolerance – comfort level of the investor to deal with the ups and downs
Investment goals – what the investor wants to achieve with the money and when.

5. Stocks, Bonds & Mutual Funds
Investor Profiles
Very Conservative – seeks to maintain the original value of the investments and is prepared to accept lower returns for lower risk.
Conservative – seeks relatively stable returns and accepts some risk through a diversified portfolio.
Moderate – seeks higher medium-term returns and accepts the possibility of negative returns over short periods.
Aggressive – seeks high long-term returns and accepts the higher possibility of sustained negative returns over short periods.
Very Aggressive – seeks to maximize long-term returns and accepts the possibility of greater volatility and short-term capital losses.
The comfort level of an investor regarding ROI determines at which level they should invest.

6. Future Value
Refers to the amount of money to which an investment will grow over a finite period of time at a given interest rate.
Put another way, future value is the cash value of an investment at a particular time in the future.

7. Financial Planning Pyramid
Highest Risk
Highest Earnings
Penny
Stock
Com- modities
Collectibles
Speculative
Stock / Bonds /Mutual Funds
Real
Estate
Blue-Chip
Common
Growth
Mutual
Funds
High-Grade
Convertible
Bonds
Preferred
Balanced
Corporate Bonds
or Mutual Funds
Municipal Bonds
Money Market
Accounts
Certificates
of Deposit
U.S. Savings
Insured Savings /
Checking Accounts
Treasury
Issues
Lower Risk
Lower Earnings
Risky Business
When many people hear the word “investment,” they think of the stock market, the place where stocks are bought and sold, and they think about the risk of losing all their money. But risk is simply the uncertainty that the anticipated return will be achieved. All investments involve some degree of risk, even relatively safe investments such as an insured savings account. That’s because the interest earned on the savings account may not keep pace with inflation, decreasing an investor’s future purchasing power. But a savvy investor understands and takes steps to manage her or his risk. The risk/reward trade-off is the principle that an investment must offer higher potential returns to compensate for the increased potential unpredictability. So the greater the risk you take with your money, the higher the potential returns on your investments. The lower the amount of risk you take, the lower the potential returns likely will be. The Financial Planning Pyramid demonstrates this for some common types of investments.
The risk/reward trade-off is key to choosing investments that are right for you because most people have different ideas about how much risk they should take with their money. Some are conservative and want to keep their money someplace safe, such as a savings account. Others are more aggressive and are willing to invest it someplace riskier, such as the stock market. In the end, you have to decide how comfortable you would be with an investment that frequently could go up and down in price.
Of course, the reward for taking on risk is your return on investment. Return can be made up of income such as interest or dividends (which are a share of the profits you receive as a stockholder). Return also can come about from growth stock prices, called capital gains. If an investor buys a stock and sells it later at a higher price, the difference between the purchase price and the selling price is called a capital gain. So if you bought Stock Z for $10 per share in 2000, then sold it for $25 per share in 2005, your profit, or capital gain, is $15 per share. If an investor
ends up selling a stock at a lower price, the difference is called a capital loss.
When talking about return, people usually cite an investment’s rate of return or rate of interest, which is simply the annual percentage return on an investment. In short, it tells you how fast your money is growing.

8. Rule of 72 72 = 72 = Years Needed to Double Investment Interest Rate
Required =
Years Needed to
Double Investment
We discussed the concept of the time value of money in the savings unit. In this unit, we are going to expand our discussion and start with the Rule of 72.
The Rule of 72
You now know that the concept of compounding means that your money is making more money even while you sleep. One way to see how powerful this can be is called the Rule of 72.
Mathematicians say that you can see how long doubling your money will take simply by divide 72 by the interest rate. So let’s say your grandparents give you $200 for your birthday and you want to use it to start saving for your own car. If you put the money into an account that earns 6 percent interest a year, how long will your investment take to grow to $400?
72 ÷ 6% interest = 12 years
So in 12 years, your money will have doubled to $400. But what if your dad tells you about an account where you could earn 9 percent a year on your money?
72 ÷ 9% interest = 8 years
Now you will have that $400 in only eight years. By earning just a little bit more interest, you reduce the time to double your money in four years. And this doesn’t include any additional money that you may put into your account through time, which would only speed up the process.
But what if eight years seems too long to wait and you want that $400 in four years instead? The Rule of 72 also can tell you the interest rate you need to earn to double your money in a certain amount of time. So for four years, it would be
72 ÷ 4 years = 18% interest.
With only four years to invest, your money will double if you can find an investment that earns 18 percent interest. Of course, that may be difficult to do because the stock market typically averages only about 10 percent a year in the long term. But you certainly can see how even a small difference in the interest rate you earn can make a big difference in how quickly your money compounds, earning you more money, through time.

9. how simple and compound interest are calculated
simple interest calculation
Dollar Amount x Interest rate x Length of Time (in years) = Amount Earned
example
If you had $100 in a savings account that paid 6% simple interest, during the first year you would earn $6 in interest.
$100 x 0.06 x 1 = $6
At the end of two years you would have earned $12.
The account would continue to grow at a rate of $6 per year, despite the accumulated interest.
compound interest calculation
Interest is paid on original amount of deposit, plus any interest earned.
(Original $ Amount + Earned Interest) x Interest Rate x Length of Time = Amount Earned
If you had $100 in a savings account that paid 6% interest compounded annually, the first year you would earn $6.00 in interest.
$100 + $6 = $106
With compound interest, the second year you would earn $6.36 in interest.
The calculation the second year would look like this:
$106 x 0.06 x 1 = $6.36
$ = $112.36
teens – lesson 12 - slide 12-E

10. money-market deposit accounts
what they are and how they work
Checking/savings account.
Interest rate paid built on a complex structure that varies with size of balance and current level of market interest rates.
Can access your money from an ATM, a teller, or by writing up to three checks a month.
benefits
Immediate access to your money.
trade-offs
Usually requires a minimum balance of $1,000 to $2,500.
Limited number of checks can be written each month.
Average yield (rate of return) higher than regular savings accounts.
teens – lesson 12 - slide 12-C

11. certificates of deposit (CDs)
what they are and how they work
Bank pays a fixed amount of interest for a fixed amount of money during a fixed amount of time.
benefits
No risk
Simple
No fees
Offers higher interest rates than savings accounts.
trade-offs
Restricted access to your money
Withdrawal penalty if cashed before expiration date (penalty might be higher than the interest earned)
teens – lesson 12 - slide 12-D

12. bonds
what they are
A bond is an “IOU” between you and the government/organization.
how they work
Buyer may purchase bond at a discount. The bond has a fixed interest rate for a fixed period of time.
types
Corporate
Sold by private companies to raise money.
If company goes bankrupt, bondholders have first claim to the assets, before stockholders.
Municipal
Issued by any non-federal government.
Interest paid comes from taxes or from revenues from special projects.
Federal government
The safest investment you can make. Obligated to pay bonds no matter what happens.
teens – lesson 12 - slide 12-I

13. mutual funds what they are
Professionally managed portfolios made up of stocks, bonds, and other investments.
how they work
Individuals buy shares, and fund uses money to purchase stocks, bonds, and other investments.
Profits returned to shareholders monthly, quarterly, or semi-annually
advantages
Allows “every day” investors like me to diversify my money and not have to manage it.
types of mutual funds
Balanced Fund includes a variety of stocks and bonds.
Global Bond Fund has corporate bonds of companies from around the world.
Global Stock Fund has stocks from companies in many parts of the world.
Growth Fund emphasizes companies that are expected to increase in value; also has higher risk.
Income Fund features stocks and bonds with high dividends and interest.
Industry Fund invests in stocks of companies in a single industry (such as technology, health care, banking).
Municipal Bond Fund features debt instruments of state and local governments.
Regional Stock Fund involves stocks of companies from one geographic region of the world (such as Asia or Latin America).
teens – lesson 12 - slide 12-J

14. stocks
what they are
Stock represents ownership of a corporation. Stockholders own a share of the company and are entitled to a share of the profits as well as a vote in how the company is run.
how earnings are made
Company profits may be divided among shareholders in the form of dividends. Dividends are usually paid quarterly.
Larger profits can be made through an increase in the value of the stock on the open market.
advantages
If the market value goes up, the gain can be considerable.
Money is easily accessible.
disadvantages
If market value goes down, the loss can be considerable.
Selecting and managing stock often requires study and the help of a good brokerage firm.
teens – lesson 12 - slide 12-K

15. real estate ways to invest
Buy a house, live in it, and sell it later at a profit.
Buy income property (such as an apartment house or a commercial building) and rent it.
Buy land and hold it until it rises in value.
advantages
Excellent protection against inflation.
disadvantages
Can be difficult to convert into cash.
A specialized type of investment requiring study and knowledge of business.
teens – lesson 12 - slide 12-L

16. Stocks, Bonds & Mutual Funds
What are collectibles?
Collectibles are items which have value due to its rarity and desirability, such as antiques, coins, cars, and art.
Collectibles are long-term investments.
Explain to students that a minimum amount of money is needed up front to purchase collectibles.
Collectibles not pay interest and it is uncertain if one gets their money back.
Examples of collectibles:
Antiques, coins, cars, and art

17. Stocks, Bonds & Mutual Funds
What are precious metals?
Precious metals are natural metals that have value, such as gold, silver, platinum, and palladium.
Precious metals are long-term investments.
Explain to students that a minimum amount of money is needed up front to purchase precious metals.
Precious metals do not pay interest and it is uncertain if one gets their money back.
Examples of precious metals:
Gold, silver, platinum, palladium

18. retirement plans what they are and how they work
Plans that help individuals set aside money to be used after they retire.
Income tax paid when money is withdrawn.
Income after retirement is usually lower, so tax rate is lower.
types
Individual Retirement Account (IRA)
Allows a person to contribute up to $5,000 of pre-tax earnings per year. Contributions can be made in installments or in a lump sum.
Roth IRA (also called the IRA Plus)
While the $5,000 annual contribution to this plan is not tax-deductible, the earnings on the account are tax-free after five years. The funds from the Roth IRA may be withdrawn after age 59, if the account owner is disabled, for educational expenses, or for the purchase of a first home.
401(k)
Allows a person to contribute to a savings plan from his or her pre-tax earnings, reducing the amount of tax that must be paid. Employer matches contributions up to a certain level.
teens – lesson 12 - slide 12-M

19. Investment Attributes
Identify the attributes (qualities) for different investments. Answer the questions for each type of investment.
Piggy
Bank
Savings Account
Individual Bonds
Mutual Funds
Individual Stocks
Real Estate
Collect-ibles
Precious Metals
Do you need a minimum amount of money to start/buy it?
Can you get initial money back?
Does it pay interest?
Can someone steal it?
Is it professionally managed?
Is it easy to access the money?
Best for Long-Term or Short-Term Goals?
Have students use their notes to complete the sheet. Complete the sheet as a class, as needed.

20. Investment Attributes
Identify the attributes (qualities) for different investments. Answer the questions for each type of investment.
Piggy
Bank
Savings Account
Individual Bonds
Mutual Funds
Individual Stocks
Real Estate
Collect-ibles
Precious Metals
Do you need a minimum amount of money to start/buy it? No
Maybe
Yes
Can you get initial money back?
Does it pay interest?
Can someone steal it?
Is it professionally managed?
Is it easy to access the money?
Best for Long-Term or Short-Term Goals?
Short
Long
Have students use their notes to complete the sheet. Complete the sheet as a class, as needed.

21. Stocks, Bonds & Mutual Funds
Uma will be retiring in five years. She needs a low-risk place to put her money that will earn interest. Where might she invest? Why?
Bonds would be a good place for her retirement monies. They are typically low-risk and still pay interest.

22. Stocks, Bonds & Mutual Funds
Skip will be retiring in 38 years. He has an emergency fund that could support him for nine months if something were to happen. Skip wants his money to work for him and he is not scared of market fluctuations. Where might he invest? Why?
Stocks and/or mutual funds would be good options. Typically, stocks and mutual funds perform well over time and outperform other investments.

23. Stocks, Bonds & Mutual Funds
Imogene needs to start an emergency fund.
Where might she invest? Why?
A savings account in a bank would be a good option for her. It is a low-risk investment, easily accessible and it earns interest.

24. Stocks, Bonds & Mutual Funds
Anne is saving for a new car. She wants to buy the car in three years. Where might she invest? Why?
A savings account in a bank would be a good option for her. She would earn interest, and it is a low-risk investment.

25. Stocks, Bonds & Mutual Funds
There are different types of investments and all have different ROI.
The greater the risk on an investment, the greater the possibility of high returns and also negative returns.
The type of investment should align with your investment profile.