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How Does $ grow over Time

How Does $ grow over Time. Mr. Coronado Consumer Ed/C.A.H. What does interest mean when saving/investing?. Means the amount of $ you earn on the $ you put to work by saving or investing. Different types of Investments Savings Accounts Individual Retirement Accounts (IRA)

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How Does $ grow over Time

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  1. How Does $ grow over Time Mr. Coronado Consumer Ed/C.A.H

  2. What does interest mean when saving/investing? • Means the amount of $ you earn on the $ you put to work by saving or investing. • Different types of Investments • Savings Accounts • Individual Retirement Accounts (IRA) • Certificates of Deposit (CD) • Money market accounts

  3. Compound Interest Calculates initial investment amount + interest earned to that time. Ex: Put 1,000 in CD for annual interest rate of 4% 1st yr=1,040, 2nd yr= 1,081.60 3rd yr= 1,124.86 Simple Interest $ you investment earns is based on principal (initial investment amount) Ex: You put $1,000 in savings account for annual interest rate of 4% 1st yr=1040, 2ndyr=1080, 3rd=1,120 Two types of Interest

  4. Compound Interest To calculate 2nd yrs gains, multiply previous yr total (1,040) by interest rate of .04 and add to previous total. Simple Interest Calculate multiply interest rate (.04) by # of yrs and + result to princple ($1000) Calculating compound & simple interest.

  5. Rule of 72 • Helps estimate how long it will take you to 2x your $ • Ex: If your investment were paying 3% interest rate, you would 2x your investment in 24 years. (24x3=72)

  6. How should I invest my $? • “Don’t leave your eggs in one basket” • If you have the money you should diversify! • Diversification • Spreading investment funds through a variety of savings & investments to reduce risk

  7. 401(k) Plan A Retirement savings plan funded by employee and (often) matching contributions from the employer. Contributions taken from pre-tax salary & funds grow tax free until withdrawn Individual Retirement Account (IRA) Allows person whether covered by employer or not to save $. Defers taxes on accounts earnings when persons withdraws $ (Penalty) $ is taxed before invested in account. Different Investment Plans

  8. Certificate of Deposit (CD) A special form of deposit offered by banks that generally pays compound interest for a fixed period of time. (Short time frame) (IRA not short time limit) Money Market Account A special savings account that usually pays interest rates comparable to those offered by money market mutual funds. These accounts also offer check-writing priveleges. Diff Investment Plans contined

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