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© 2010 South-Western, Cengage Learning Chapter © 2010 South-Western, Cengage Learning Investing for the Future 11.1Basic Investing Concepts 11.2Making.

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Presentation on theme: "© 2010 South-Western, Cengage Learning Chapter © 2010 South-Western, Cengage Learning Investing for the Future 11.1Basic Investing Concepts 11.2Making."— Presentation transcript:

1 © 2010 South-Western, Cengage Learning Chapter © 2010 South-Western, Cengage Learning Investing for the Future 11.1Basic Investing Concepts 11.2Making Investment Choices 11

2 © 2010 South-Western, Cengage Learning Why do people invest?

3 © 2010 South-Western, Cengage Learning Chapter 11 3 Lesson 11.1 Basic Investing Concepts GOALS ■Explain why you should consider investing. ■Discuss the stages of investing. ■Explain the concept of risk. ■Describe investment strategies and options.

4 © 2010 South-Western, Cengage Learning Chapter 11 4 Why Invest? ■Investing is the use of long- term savings to earn a financial return. Examples of investments: ■Stocks ■Bonds ■Mutual Funds (403b, 401K) ■CD’s (Certificate of Deposit) ****When you invest in stocks and bonds, you are helping businesses make and sell new products and services.

5 © 2010 South-Western, Cengage Learning Chapter 11 5 Investing Helps Beat Inflation ■Inflation is a rise in the general level of prices. ****Inflation reduces purchasing power over time. ■Investors seek investments that will grow faster than the inflation rate.

6 © 2010 South-Western, Cengage Learning Chapter 11 6 Rule of 72 ■A strategy to invest: ■The Rule of 72 is a technique for estimating the number of years required to DOUBLE your money at a given rate of return. ■Divide the percentage rate of return into 72 to estimate how long it will take to double your money. ■For example, if an investment is yielding an average of 6 %, it will take 12 years to double your money ( (72 ÷ 6=12).

7 © 2010 South-Western, Cengage Learning Chapter 11 7 Risk and Return ■Investing risk is the chance that an investment’s value will decrease. ■All types of investing involve some degree of risk. ■Conservative ■Moderate ■High *****The greater the risk you are willing to take, the greater the potential returns.

8 © 2010 South-Western, Cengage Learning Chapter 11 8 Investment Choices ■Low risk/low return ■Medium risk/medium return ■High risk/high return

9 © 2010 South-Western, Cengage Learning Chapter 11 9 Diversification ■Diversification is the spreading of risk among many types of investments. ■Diversification reduces overall risk because not all of your choices will perform poorly at the same time.

10 © 2010 South-Western, Cengage Learning Chapter 11 10 Low Risk/Low Return ■Corporate and municipal bonds ■Bonds are debt obligations of corporations (corporate bonds) or state or local governments (municipal bonds). EX:U.S. government savings bonds

11 © 2010 South-Western, Cengage Learning Chapter 11 11 Medium Risk/Medium Return 1.) Stocks ■Stock is a unit of ownership in a corporation. 2.) Mutual funds ■A mutual fund is the pooling of money from many investors to buy a large selection of securities. 3.) Real Estate

12 © 2010 South-Western, Cengage Learning Chapter 11 12 Collectibles Collectibles include : ■Coins ■Art ■Memorabilia ■Ceramics If you collect an item that goes up in value, you can reap large rewards by selling. ****The market for collectibles fluctuates. ****Collectibles gain value when interest is high and lose value when interest is low.

13 © 2010 South-Western, Cengage Learning Chapter 11 13 High Risk/High Return ■Futures- are contracts to buy and sell commodities or stocks for a specified price on a specified date in the future. (IE: products like corn, wheat, crude oil, Japanese Yen, U.S. Treasury Bonds) ■Options- The investor is betting that the price of the stock will rise ■Penny stocks

14 © 2010 South-Western, Cengage Learning Chapter 11 14 Penny Stocks ■Penny stocks are low-priced stocks of small companies that have no track record. ■The stock usually sells for under $5 per share. ■Occasionally, a penny stock will be successful, and the investor will make a large windfall.

15 © 2010 South-Western, Cengage Learning Let’s Practice ■Using your notes, complete the activity: ■Pyramid of Investments ■Rule of 72 Practice problems ■Reflection questions HW: Chapter 12 Outline

16 © 2010 South-Western, Cengage Learning ■http://www1.nyse.com/pdfs/TG_Mech.pdfhttp://www1.nyse.com/pdfs/TG_Mech.pdf


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