Savings is the portion of current income not spent on consumption. Savings account, money markets, certificate of deposit (CD)

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1 Investing

2 Saving vs. Investing Savings is the portion of current income not spent on consumption. Savings account, money markets, certificate of deposit (CD) Investing is the purchase of assets with the goal of increasing future income. Stocks, bonds, mutual funds, real estate, collectables

3 Key Terms Principal: The original amount invested, borrowed, or saved. Interest Rate: Percentage rate paid on the money saved or invested expressed as an annual percentage rate (ex: 5%). Liquidity is the ability of an investment to be converted into cash quickly without loss of value.

4 Inflation Importance of Investing Steady rise in the general level of prices that occurs when the supply of money rises faster than the supply of goods and services available for purchase. Example: You have $1 A small soda at McDonalds is $1 Instead of spending your dollar, you put it into a savings account with a 5% interest rate One year later, you have $1.05 You go to McDonalds to buy a soda but now it costs $1.10. You can no longer afford the soda

5 Investment Options Stocks: An investment that represents ownership in a company or corporation. Bonds: An IOU from an agency for the money a person invests for a set time period, which pays a fixed rate of interest. Mutual Funds: An investment that pools money from several investors to buy a particular type of investment, such as stocks. Real Estate: An investor buys a piece of property, such as land or building, in hope of generating a profit. Collectibles: Unique items that are relatively rare or highly valued such as art work, baseball trading cards, coins, automobiles, antiques. Retirement Funds: Money that is set aside specifically for use at retirement age.

6 Risk and Return Risk is the chance that the value of an investment will decrease. Return is the profit or yield from an investment. Relationship between risk and return: The higher the risk, the higher the return. Typically LOW liquidity The lower the risk, the lower the return. Typically HIGH liquidity

7 Investment Risk Activity Risk and Return: Expanding Your Understanding

8 Interest Types Compounding Interest: Earning interest on interest. Fixed Interest Rate: The interest rate will not change for the lifetime of the investment

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10 Rule of 72 Formula figuring the number of years it takes to double principle using compound interest. This is found by dividing the interest rate the money will earn into the number 72.

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12 Investing Tips What s My Interest? Bonds, Mutual Funds, Stocks

13 Saving for Retirement Ideally, you'd start saving in your 20s, (or earlier) when you first begin earning paychecks. The sooner you begin saving, the more time your money has to grow. Traditional IRA (Individual Retirement Arrangements) Roth IRA 401K / 403B

14 Traditional IRA A Traditional IRA is an Individual Retirement Account to which you contribute pre-tax dollars which allows your money to grow tax-deferred. When you make withdrawals after age 59½, they're treated as current income. YOU PAY TAXES WHEN YOU WITHDRAW THE MONEY FROM YOUR ACCOUNT.

15 Roth IRA A Roth IRA is an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free. YOU PAY TAXES BEFORE THE MONEY IS PUT IN YOUR ACCOUNT NOT WHEN YOU WITHDRAW.

16 Traditional or Roth IRA? You'll have to decide what strategy works for you. In a traditional IRA, contributions and growth are tax-deferred. Tax is paid upon withdrawal in retirement. In a Roth IRA, withdrawals and growth are tax-free. Choosing between the two types depends on your income tax bracket now, versus in the future.

17 401K A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account. Employers can contribute to employees accounts.

18 403B A 403(b) plan (also called a tax-sheltered annuity or TSA plan) is a retirement plan offered by public schools and certain taxexempt organizations. Employees save for retirement by contributing to individual accounts. Employers can also contribute to employees' accounts.

19 Saving for Retirement These are the BASICS when it comes to saving for retirement. There are MANY other details and factors that play a role in these retirement options. When you begin to earn a regular income, it is important to meet with a financial advisor who can help you choose the option that is best for you!

20 General Tips for Investing: Never invest in something that you don t understand. Do your research on your investments to get the most of your money. Invest for the long-term. Do not be influenced by short-term fluctuations. Invest risky when your young and become more conservative as you get older.

21 If time Stock Investments Worksheet 996Djcf8