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Happy National
Checkers Day!
HHS
investing.
I can compare the level of risk and the
potential rate of return of various
investment alternatives.
HOMEWORK
Intro to Investments (Green)
Stock Tracker
AGENDA
Warm-Up
Investing 101
How the Stock Market Works
Reading a Stock Table
Pick your own
Rememb
er: The
purpose of
savings is
to develop
financial
security
WHAT IS INVESTING?
Purchase of assets with the goal of increasing
future income
Focuses on wealth accumulation
Appropriate for long-term goals
What are
examples of
long-term
goals that
can be
accomplish
ed by
investing?
RATE OF RETURN
Total return on investment expressed as a
percentage of the amount of money invested
Remembe
r: Return is
the profit
or income
generated
by savings
and
investing
Total
Retur
n
Amoun
t of
Money
Invest
ed
Rate
of
Retur
n
$110
$2,20
0
.05 =
5%
$150
$900
.167
=
16.7
%
RISK
POTENTIAL
RETURN
RISK
INFLATION
Inflation
Rise in the general level of prices
Strive to
have the
rate of
return on
investment
be higher
than the
rate of
inflation
Inflation Risk
The danger that money wont be worth
as much in the future as it is today
Bonds
Mutual
Funds
Index
Funds
Real
Estate
Speculati
ve
Investme
nts
STOCKS
Stock
A share of
ownership
in a
company
Usually a
stockholder
owns a very
small part
of a
company
Stockholde
r or
shareholde
r
Owner
of
the stock
RETURN ON STOCKS
Dividend
s
Share of profits
Definition distributed in
cash to
stockholders
Stockholder
may or may
What is
not receive
received?
dividendsdepends on
company
profit
Market Price
Current price that a
buyer is willing to
pay for stock
If stock is sold
for a market
price higher
than what was
paid
If stock is sold
for a market
price lower
than what
was paid
Stockholder
will receive a
return
Stockholder
will lose
money
BONDS
Definitio
n
Bonds are
less risky
than stocks
but usually
do not have
the
potential to
earn as
high of a
Return
Form of lending to a
company or the
government (city,
state, or federal)
Annual interest is
paid to investor
Once the maturity
date is reached, the
principal is repaid to
the bondholder
MUTUAL FUNDS
Advanta
when a
ge
company combines
the funds of many
Reduces
different investors
investmen
and then invests
t risk
that money in a
Saves
Make sure diversified portfolio investors
to research of stocks and
time
the fees
bonds
Mutual fund-
charged by
a mutual
fund
Disadvant
age
Fees may
be high
INDEX FUND
Index
A group of
similar stocks
and bondsStandard and
Poor 500 A mutual
Index fund that
Fund invests in the
stocks and
bonds that
make up an
index
INDEX FUND
Advanta
ge
Disadvanta
ge
High
diversificati
on
What is the
difference
between a
mutual fund
and an
index fund?
Usually
charge
lower fees
than
mutual
funds
Still
charge
fees
REAL ESTATE
Any residential or commercial property or land as well as
asset
Can be risky and more time consuming but has potential
SPECULATIVE INVESTMENTS
High risk investments
Have the potential for significant
fluctuations in return over a short
period of time
Futures
CommercialCollectibles
Options
Paper
Increasing
potential
for higher
returns
Commerci
al Paper
Options Collectibl
es
Stocks
Real
Speculati
ve
Investme
nt Tools
Investm
Mutu
al
ent Tools
Increasing
FundsBonds
risk
Money
Market Certific Savings Savings
CheckingSavings
Deposit ate of
Tools
Bonds
AccountAccount
Account Deposit
Estate
Index
Funds
INVESTMENT PHILOSOPHY
Everyone has a tolerance level for
the amount of risk they are willing
to take on
The greater
the risk a
person is
willing to
make on an
investment,
the greater
the
potential
PORTFOLIO DIVERSIFICATION
Portfolio Diversification- reduces
risk by spreading investment
money among a wide array of
investment tools
Referred to
as Building
a Portfolio
Creates a collection of
investments that will provide
an acceptable return with an
acceptable exposure to risk
Assists with investment
risk reduction
FULL SERVICE
GENERAL
BROKERAGE
FIRM
Complete
investment
transactions
Offer
investment
advice and
one-on-one
attention
from a broker
DISCOU
NT
BROKER
Only
complete
investment
transactions
Offer no advice
to investors
but charge 4060% less
TAXATION
Profits earned on
investments are unearned
income
Taxes are often owed on
unearned income
Taxes are due on most
investment returns in the year
the unearned income is
received
TAX-SHELTERED INVESTMENTS
Government tries to encourage certain
types of investments by making them taxsheltered
Taxsheltered
investmen
ts are
usually
not taxfree!
Taxsheltered
investmentseliminate,
reduce,
defer, or
adjust the
current year
tax liability
Retirement
Child/dependent
care
Education expenses
Health care
expenses
What is the
benefit of a
taxsheltered
investment
if taxes still
have to be
paid?
Money is invested
and taxes are
paid
Money is invested
Money grows
untaxed with help
from
compounding
interest
Money grows
untaxed with
help from
compounding
interest
Money is
withdrawn
O
R
Money is
withdrawn and
taxes are paid
EMPLOYER-SPONSORED
INVESTMENT ACCOUNTS
Type of tax-sheltered investment
Money is automatically taken out
of employees paycheck
Employers often contribute a
portion of money to the
Example:
investment with no additional cost
employee
Employee from the Employer
Employee
contributes
7% of
paycheck to
investment
account
contributes the
same amount of
money to the
employees
investment
account
benefits from
having double
the amount of
money
invested!
ADVANTAGES TO
EMPLOYER-SPONSORED
INVESTMENTS
It is
recommend
ed that a
person
utilize these
investment
tools as
much as
possible if
Reduce
s tax
liability
Makes
investing
automatic
Possibility for
employer to
match
investment
RULE OF 72
Allows a person to easily calculate when the future
value of an investment will double the principal
amount
72
Intere
st
Rate
Number of
years needed
to double the
principal
investment
ALBERT EINSTEIN
It is the greatest
mathematical
discovery of all time.
Credited for
discovering the
mathematical
equation for
compounding
interest, thus the
Rule of 72. At 10%
interest rate, money
doubles every 7.2
How long it
will take debt
to double if
no payments
are made
How many
times money
(or debt) will
double in a
specific time
period
RULE OF 72 FYI
Only an approximation
Interest rate must remain
constant
Interest rate is not converted
to a decimal
Equation does not allow for
additional payments to be
made to the original amount
Interest earned is reinvested
Tax deductions are not
included
Invested $2,500
Interest Rate is 6.5%
72
6.5
11
years
to
double
72
18
4 years
to
double
JACOBS CAR
Jacob currently has $5,000 to invest
in a car after graduation in 4 years.
What interest rate is required for
him to double his investment?
$5,000 to invest
Wants investment to double in 4
years
4
18%
72
year
interest
s
rate
SUMMARY
What is the
relationship
between risk
and return?
How can a
person
reduce
investment
Whorisk?
should a
person contact
to purchase
investment
tools?
What is a taxsheltered
investment?
What is the
Rule of 72?
industry leaders
Income = Stock you stand to make the
most money off of
Value = Sleeper stocks that you can
get in on for cheap and experience rapid
growth
Defensive = Staple industries (think
food, drugs, etc.) that hold their value
through recessions
MUTUAL FUNDS
Collection of companies that you invest
in as a group
Generally have something in common