1. Unit 3 - Investing: Making Money Work for You

2. UniqueSavingsFeatures UniqueInvestmentFeatures CommonFeatures Short-term Low risk Earns small amount of interest Easy to get to Long-term More risky No guarantee investment will grow Have to sell to get cash

3. Amount Saved Per Week Value After 10 Years $ 7.00 $ 14.00 $ 21.00 $ 28.00 $ 35.00 $ 4,720 $ 9,440 $ 14,160 $ 18,880 $ 23,600

4.  Time Value of Money  value of money figuring in a given amount of interest earned over a given amount of time  Interest ▪ A fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets ▪ Price paid for the use of borrowed money  Time ▪ Present Value ▪ Future Value

5.  As an investment increases in value, its earnings start to generate even more earnings  Driven by two variables:  Time more time = more money  Rate of Return higher rate of return = more money

6. Value of $20 1 Year 2 Years 4 Years 6 Years 4% 5% 6% 8% 10% $20.80 $21.00 $21.20 $21.60 $22.00 $21.63 $22.05 $22.47 $23.33 $24.20 $23.40 $24.31 $25.25 $27.21 $29.28 $25.31 $26.80 $28.37 $31.74 $35.43 Building….

7. 6 4 2 Number of Years Saving MonthlyAmountDailyAmount* $1,928.03$63.17 $29.06 $17.79 $887.31 $543.33 * Assumes a 365-day year for daily amounts

8. 11% 10% 9% 8% 7% 6% 5% 12% InterestRate5Years20Years15Years10Years $12,763 $17,623 $16,851 $16,105 $15,386 $14,693 $14,026 $13,382 $16,289 $31,058 $28,394 $25,937 $23,674 $21,589 $19,672 $17,908 $20,789 $54,736 $47,846 $41,772 $36,425 $31,722 $27,590 $23,966 $26,533 $96,463 $80,623 $67,275 $56,044 $46,610 $38,697 $32.071

9. 11% 10% 9% 8% 7% 6% 5% 12% InterestRate5Years20Years15Years10Years $5,526 $6,353 $6,228 $6,105 $5,985 $5,867 $5,751 $5,637 $12,578 $17,549 $16,722 $15,937 $15,193 $14,487 $13,816 $13,181 $21,579 $37,280 $34,405 $31,772 $29,361 $27,152 $25,129 $23,276 $33,066 $72,052 $64,203 $57,275 $51,160 $45,762 $40,995 $36,786

11. 6 12 18 24 Year 3%6% 12% INTEREST RATE $20,000 $40,000 $160,000 $20,000 $40,000 $80,000 $20,000 72 ÷ 3% = 24 years $10,000 x 2 = $20,000 72 ÷ 6% = 12 years $10,000 x 2 = $20,000 Doubles again in 24 years 72 ÷ 12% = 6 years $10,000 x 2 = $20,000 Doubles again in 12 years Doubles again in 18 years Doubles again in 24 years

12.  Income Investments  Lending your money to a bank or credit union in exchange for earning interest  Example: savings accounts (1%), bonds (1% - 3%), Certificates of Deposits (1% - 3%)  Growth Investments  Investors become owners  Example: stocks  Historically, over long periods of time, growth investments have outperformed income investments

13. Penny Stock Commo- dities Collectibles Speculative Stock / Bonds / Mutual Funds Real Estate Blue-Chip Common Stock Growth Mutual Funds High-Grade Convertible Bonds High-Grade Preferred Stock Balanced Mutual Funds High-Grade Corporate Bonds or Mutual Funds High-Grade Municipal Bonds or Mutual Funds Money Market Accounts or Mutual Funds Certificates of Deposit U.S. Savings Bonds Insured Savings / Checking Accounts Treasury Issues

14.  Buy Low Sell High  Diversification  Spread the risk around; some high risk, some low; some long term, some short, etc.  Dollar Cost Averaging  Systematically invest the same amount in the same investment at regular intervals to reduce the impact of price swings

15.  Remember, Do NOT print Financial Data, instead provide the following:  Balance Sheet ▪ Total Assets ▪ Total Liabilities  Income Statement ▪ Total Revenue ▪ Net Income  Don’t forget to log any purchases or sales on your Making a Trade Sheet!!!

17. In 30 years, $100,000 will become $432,194 if invested at 5% $100,000 will become $1,006,266 if invested at 8% That is 132% more. Your investment choices make a big difference!

18. The S&P 500 Index earned an average annual return of 8.4% during 1988-2008 ($1 would have become $5) The average individual investor earned an annual return of just 1.9% ($1 would have become $1.50)

19. $10,000 invested in the S&P 500 Index in February 1989 would have become $29,382 in February 2009. If an investor had missed the best 30 days of daily return, it would have become $6,531 (77% less). If an investor had missed the best 10 days, it would have become $15,123 (48% less)

20. Assuming an annual return of 7% per year, if you invest $10,000 per year from age 30 to age 40 ($100,000 invested), you would have $809,844 at age 65. If you invest $10,000 per year from 40 years old to 65 years old ($250,000 invested), you would have $690,564 at 65 years old. This is 15% less!

21. From 1929 to 1949 (20 years) and from 1968 to 2009 (41 years), $1 invested in bonds was a better investment than in stocks

22. From 1926 to 2008: large company stocks had a 9.6% annual return Government long bonds had a 5.7% annual return Treasury bills had a 3.7% annual return

23. Over any 10-year rolling period from 1969 to 2008, stocks had only a 1% probability of a negative absolute return (vs. 37% for gold or commodities)

24. Housing price increases since 1890 have been close to 0% factoring in the effects of inflation. Housing prices adjusted for inflation were also flat between 1945 and 2000.

25. Small cap stocks $9,550 in 2008 Large caps$2,045 Bonds$99 Gold$41 Cash$20

26. The last two times US large-cap stocks total return was negative over a 10-year period was in 1938 and 2008

27. The US stock market return was 13% but the average investor had a 7.9% return which was 5.1% less. The average equity fund return was 10.3%. This highlights why you need a good financial advisor