Unit 3 - Investing: Making Money Work for You

1. In Units 1 & 2 students have learned some powerful tools for reaching financial goals, including a financial plan to help map a route of spending to achieve goals. You’ve been talking about “Pay Your self first” in Unit 2 and that is carried forward into Unit 3. In this unit more powerful tools- saving and investing-putting your money to work are introduced. The focus of unit 3 is investing. Students might not know that they can invest their money and earn income from it as well. The difference between saving and investing is a key topic. Please open your Student manual and Teaching Guide to Unit 3 In Units 1 & 2 students have learned some powerful tools for reaching financial goals, including a financial plan to help map a route of spending to achieve goals. You’ve been talking about “Pay Your self first” in Unit 2 and that is carried forward into Unit 3. In this unit more powerful tools- saving and investing-putting your money to work are introduced. The focus of unit 3 is investing. Students might not know that they can invest their money and earn income from it as well. The difference between saving and investing is a key topic. Please open your Student manual and Teaching Guide to Unit 3

2. Agenda Overview of Unit 3- Investing Activity from the curriculum Optional activities, supplementary materials Website suggestions Questions

3. Unit 3Target Competency

4. Learning Objectives Differentiate between saving and investing Assess the time value of money Compare investment options Compare the relationship between risks and returns related to saving and investments Recommend ways to integrate savings and investing strategies into financial planning

5. Savings and Investments This is a PowerPoint slide fro the NEFE website to guide students in a Venn diagram discussion comparing saving and investing. What's the difference between saving and investing? Unique features: Savings is setting aside money for short-term goals saving accounts CDs Money Market funds- not insured Readily available-liquid Many FDIC insured Investing is setting aside money for long term goals long term parking/goals stocks, real estate, mutual funds May not be readily available / liquid Potential for higher rate of return Higher risk Common features: PYF, a basic principle that is reinforced is that the amount saved is not nearly as important as simply developing the saving habit by “paying yourself first”, a them introduced in unit 2. While savings generally involves less risk and one of the safest investment around, it is subject to the risk that that earnings won’t keep pace with inflation, thereby reducing the investors’ future purchasing power. Help us reach financial goals PYF- principle applies Basic principles of in vesting- time value of money more money, more time, more interest the greater your investment will growThis is a PowerPoint slide fro the NEFE website to guide students in a Venn diagram discussion comparing saving and investing. What's the difference between saving and investing? Unique features: Savings is setting aside money for short-term goals saving accounts CDs Money Market funds- not insured Readily available-liquid Many FDIC insured Investing is setting aside money for long term goals long term parking/goals stocks, real estate, mutual funds May not be readily available / liquid Potential for higher rate of return Higher risk Common features: PYF, a basic principle that is reinforced is that the amount saved is not nearly as important as simply developing the saving habit by “paying yourself first”, a them introduced in unit 2. While savings generally involves less risk and one of the safest investment around, it is subject to the risk that that earnings won’t keep pace with inflation, thereby reducing the investors’ future purchasing power. Help us reach financial goals PYF- principle applies Basic principles of in vesting- time value of money more money, more time, more interest the greater your investment will grow

6. In Unit 3 Time Value of Money Key Investments Principles Saving and Investment Choices 3 addition key concepts in Unit 3 Time Value of Money Key Investments Principles Saving and investment Choices3 addition key concepts in Unit 3 Time Value of Money Key Investments Principles Saving and investment Choices

7. Time Value of Moneypage 30 Student Manual Compounding --Albert Einstein “Compounding is the 8th wonder of the world” Exercise 3B: The Power of Compounding Compounding is making money work for you, it grows in value or compounds. Earning interest on interest Albert Einstein “compounding the 8th wonder of the world” Assignment in the Student workbook on page 30 figuring compound in interest- Hand held calculators nice. Some inexpensive “Dollar Store” Have figure compound interestCompounding is making money work for you, it grows in value or compounds. Earning interest on interest Albert Einstein “compounding the 8th wonder of the world” Assignment in the Student workbook on page 30 figuring compound in interest- Hand held calculators nice. Some inexpensive “Dollar Store” Have figure compound interest

8. Investing Weekly at 5% Interest Time value of Money from the NEFE PowerPoint Slides –can run as an overhead. Is a dollar always worth a dollar? May seem like a silly question but as we know is not always worth a dollar. The value of a dollar changes dramatically depending on when you get it and whet you do with it. Time is a critical variable in the exact value of a dollar. Time value of money refers to the relationship among time, money and rate of interest. Here’s an example- if you save $7 a week at 5% in 10 years you’d have $4720. If you save $14 you’d have $9,440 $21--$14,160 $28--$$18,880 $35--$23,600 Time value of Money from the NEFE PowerPoint Slides –can run as an overhead. Is a dollar always worth a dollar? May seem like a silly question but as we know is not always worth a dollar. The value of a dollar changes dramatically depending on when you get it and whet you do with it. Time is a critical variable in the exact value of a dollar. Time value of money refers to the relationship among time, money and rate of interest. Here’s an example- if you save $7 a week at 5% in 10 years you’d have $4720. If you save $14 you’d have $9,440 $21--$14,160 $28--$$18,880 $35--$23,600

9. Rule of 72 Anyone heard of the rule of 72? Time Value of Money Rule of 72- How long it takes money to double in value Divide 72 by the interest rate to determine the number of years it will take your money to double How long will it take money to double at 6%- 12 years On the other hand, you have a set period of time in mind. You can figure our what interest rate you will need to double your money. If you need money to double in 8 years what interest do you need? 9%Anyone heard of the rule of 72? Time Value of Money Rule of 72- How long it takes money to double in value Divide 72 by the interest rate to determine the number of years it will take your money to double How long will it take money to double at 6%- 12 years On the other hand, you have a set period of time in mind. You can figure our what interest rate you will need to double your money. If you need money to double in 8 years what interest do you need? 9%

10. Key Investment Principle Time is money More time More money More interest More Money Time is money. 3 factors that determine how much money will be available to meet your financial goals The more time you have to save, the more money you will have at the end of the period. The higher the rate on interest you can earn, the more money you will have at the end of the time period.Time is money. 3 factors that determine how much money will be available to meet your financial goals The more time you have to save, the more money you will have at the end of the period. The higher the rate on interest you can earn, the more money you will have at the end of the time period.

11. Touched on time and then expanded and on this key point. The more time you have to reach your savings goal, the more money you will have at the end of that time. This example is very graphic and illustrates the impact of time. Assume you start investing $2000 every year when you are 18. You put it into an account that grows by 7% each year, and continue to invest the same amount for 10 years. Then you stop and just let the money sit for the next 38 years, where it continues to grow at 7% a year, until you’re 65. Now your sister decides to invest at age 31 and puts $2000 a year into an account that also earns 7% a year— and does it for the next 35 years, until she turns 65. Who will have the most money? Even though you sister invested more than twice as much as you did, you end up with $84,944 more. Why? You took advantage of time , by started to save earlier.Touched on time and then expanded and on this key point. The more time you have to reach your savings goal, the more money you will have at the end of that time. This example is very graphic and illustrates the impact of time. Assume you start investing $2000 every year when you are 18. You put it into an account that grows by 7% each year, and continue to invest the same amount for 10 years. Then you stop and just let the money sit for the next 38 years, where it continues to grow at 7% a year, until you’re 65. Now your sister decides to invest at age 31 and puts $2000 a year into an account that also earns 7% a year— and does it for the next 35 years, until she turns 65. Who will have the most money? Even though you sister invested more than twice as much as you did, you end up with $84,944 more. Why? You took advantage of time , by started to save earlier.

12. Key Investment Principle Diversification Don’t have all your eggs in one basket People feel differently about how much risk they should take on. Some of us are conservative and want to keep money in a safe place. Others are more aggressive and are willing to invest in some place riskier, like the stock market. Regardless of your risk tolerance every wise investor knows that diversification is a critical element of any investment plan. Diversification is spreading your invested dollars among several different investments. It is simply spreading your money around. Not having all your eggs in one basket. People feel differently about how much risk they should take on. Some of us are conservative and want to keep money in a safe place. Others are more aggressive and are willing to invest in some place riskier, like the stock market. Regardless of your risk tolerance every wise investor knows that diversification is a critical element of any investment plan. Diversification is spreading your invested dollars among several different investments. It is simply spreading your money around. Not having all your eggs in one basket.

13. FinancialPlanningPyramid Another one of the PowerPoint slide to use in teaching Figure 3-2 and page 33 of the student workbook. Another key investment principle is the relationship of risk and reward When many people hear the word stock they immediately think of the risks that go with it. But with the higher risk comes the potential to earn higher rewards on your investment. The risk-to- return relationship is another key investment principle Today when people hear the word stock market they think of 2001Another one of the PowerPoint slide to use in teaching Figure 3-2 and page 33 of the student workbook. Another key investment principle is the relationship of risk and reward When many people hear the word stock they immediately think of the risks that go with it. But with the higher risk comes the potential to earn higher rewards on your investment. The risk-to- return relationship is another key investment principle Today when people hear the word stock market they think of 2001

14. Activity Exercise 3D: Risk vs. Reward Page 78 Instructor Manual Page 34 Student Manual Page 79 Answer key Instructor Manual Let’s take a minutes and do Exercise 3D: Find a partner. In the exercise we have 2 people that have different investment strategies. Read about their situation and then follow directions to compare their investment portfolios. Carrie Montgomery, age 22 and single, has an emergency fund in an insured savings account. Her other investments include a balanced mutual fund, a growth mutual fund, and collectibles in the form of baseball cards. Sixty percent of the money in these investments is in a growth fund, and 20 percent of the money is in each of the other two investments. Darren Miller is 22 and also single. He has an emergency fund in U.S. savings bonds. The remainder of his investment program includes equal amounts of money invested in a money mutual fund, high-grade preferred stock, and blue-chip common stock. Directions: Use the information provided and refer to the Financial Planning Pyramid to compare and contrast Carrie’s and Darren’s investments. The answer key is on page 79 of the instructor manualLet’s take a minutes and do Exercise 3D: Find a partner. In the exercise we have 2 people that have different investment strategies. Read about their situation and then follow directions to compare their investment portfolios. Carrie Montgomery, age 22 and single, has an emergency fund in an insured savings account. Her other investments include a balanced mutual fund, a growth mutual fund, and collectibles in the form of baseball cards. Sixty percent of the money in these investments is in a growth fund, and 20 percent of the money is in each of the other two investments. Darren Miller is 22 and also single. He has an emergency fund in U.S. savings bonds. The remainder of his investment program includes equal amounts of money invested in a money mutual fund, high-grade preferred stock, and blue-chip common stock. Directions: Use the information provided and refer to the Financial Planning Pyramid to compare and contrast Carrie’s and Darren’s investments. The answer key is on page 79 of the instructor manual

15. An Array of Investment Options Income Investments Lenders The High School Financial Planning Program approaches income investments as lenders and growth as ownership-owning a piece of the company. Income investments- referred to as lenders include savings accounts, us saving bonds, CD’s, Money Market accounts Corporate and government bonds. With the low rates of return, it is hard to stay ahead of inflation with these saving vehicles. The High School Financial Planning Program approaches income investments as lenders and growth as ownership-owning a piece of the company. Income investments- referred to as lenders include savings accounts, us saving bonds, CD’s, Money Market accounts Corporate and government bonds. With the low rates of return, it is hard to stay ahead of inflation with these saving vehicles.

16.  An Array of Investment Options Growth Investments Ownership Stocks Real Estate Collectibles Growth investments include stocks or ownership. These investment represent ownership in a company. When a company first issues stock, it does so to raise money for itself. The company then puts the money to work to produce products and services. The investor who buys stock actually own a part of the company. Stock sell for a price and increases over time and ideally the owner will sell high and buy low. This difference between the purchase price and the selling price is called capital gain Real Estate-pieces of property, land or a building, apartments, undeveloped land, commercial buildings, farmland. Collectibles- art, coins, cars, stamps Growth investments include stocks or ownership. These investment represent ownership in a company. When a company first issues stock, it does so to raise money for itself. The company then puts the money to work to produce products and services. The investor who buys stock actually own a part of the company. Stock sell for a price and increases over time and ideally the owner will sell high and buy low. This difference between the purchase price and the selling price is called capital gain Real Estate-pieces of property, land or a building, apartments, undeveloped land, commercial buildings, farmland. Collectibles- art, coins, cars, stamps

17.  An Array of Investment Options Mutual Funds Income Growth If you want professional help with your investing, may want to buy mutual funds. Mutual funds pools money form investors and uses the money to buy a particular type investment such as stocks. A fund manger, who is an investment expert, makes all the buy and sell decisions for the investments in the fund. Because mutual funds own a variety of investments, investors enjoy the benefits of diversification, which we discussed earlier. For these reason mutual funds can be a great choice. Mutual funds are created for several different purposes or objectives. Some are to produce income and invest in bonds, cds and other income producing items. Some are designed for growth and invest in stocks and real estate. Mutual funds invest in about every segment of the business world. Technology, food, energy, medical,, precious metals and so on If you want professional help with your investing, may want to buy mutual funds. Mutual funds pools money form investors and uses the money to buy a particular type investment such as stocks. A fund manger, who is an investment expert, makes all the buy and sell decisions for the investments in the fund. Because mutual funds own a variety of investments, investors enjoy the benefits of diversification, which we discussed earlier. For these reason mutual funds can be a great choice. Mutual funds are created for several different purposes or objectives. Some are to produce income and invest in bonds, cds and other income producing items. Some are designed for growth and invest in stocks and real estate. Mutual funds invest in about every segment of the business world. Technology, food, energy, medical,, precious metals and so on

18. Dollar Cost Averaging 100/19.78 = 5.06 shares, not 5.08 (second to last row on the right) Total shares purchased then becomes 51.66, not 51.68 We talked about PYF and learned that a little money can build quickly thanks to the power of compounding and choosing the right investments. Another way to take advantage of time even if you don’t have a lot of money is Dollar Cost Averaging. This is the practice of investing a fixed amount in the same investment at regular intervals, regardless of what the market is doing. It’s another key investment principle to know because it eliminates having to worry about investing at the “right” or “wrong time” New in this version: this slide shows the difference between a one time investment of $1000, purchasing 50 shares at $20 each vs. dollar cost averaging- investing $100 a month for 10 months and buying at different share prices. This example shows that the average share price was lower and you purchased more shares100/19.78 = 5.06 shares, not 5.08 (second to last row on the right) Total shares purchased then becomes 51.66, not 51.68 We talked about PYF and learned that a little money can build quickly thanks to the power of compounding and choosing the right investments. Another way to take advantage of time even if you don’t have a lot of money is Dollar Cost Averaging. This is the practice of investing a fixed amount in the same investment at regular intervals, regardless of what the market is doing. It’s another key investment principle to know because it eliminates having to worry about investing at the “right” or “wrong time” New in this version: this slide shows the difference between a one time investment of $1000, purchasing 50 shares at $20 each vs. dollar cost averaging- investing $100 a month for 10 months and buying at different share prices. This example shows that the average share price was lower and you purchased more shares

19. Optional Activities Instructor Manual Unit 3 SM3-1-Dollars and Sense SM3-2-Are You a Risk-Taker? Students talk with an adult about investment experiences In the instructors manual and on the website, a variety of optional activities are outlined to supplement learning. No all teachers will have time to have you complete in class. In the instructors manual and on the website, a variety of optional activities are outlined to supplement learning. No all teachers will have time to have you complete in class.

20. Taking It Home Students take home a newsletter (on CD) to read Idaho’s Two Cent Tips, email lhansen@uidaho.edu Students will ask their parents what they've learned about investing There are suggestions for “Taking It Home” and involving parents with the process.There are suggestions for “Taking It Home” and involving parents with the process.

21. http://hsfpp.nefe.org/home/ Reminder- no www in the website address Street Sweeper Gamehttp://hsfpp.nefe.org/home/ Reminder- no www in the website address Street Sweeper Game

22. Websites U.S Securities Exchange Commission http://www.sec.gov/investor/teachers.shtml The new website is in the process of being developed and websites are not up yet. I’ve added some sites to the PowerPoint that were included on the old website. A section for Students and Teachers. The interactive quiz is fun. Deals with investing.The new website is in the process of being developed and websites are not up yet. I’ve added some sites to the PowerPoint that were included on the old website. A section for Students and Teachers. The interactive quiz is fun. Deals with investing.

23. Teacher and student information sections Interactive quiz CalculatorsTeacher and student information sections Interactive quiz Calculators

24. Series EE BondsSeries I Bonds

25. Another popular financial teaching tool is the Stock Market Game.Another popular financial teaching tool is the Stock Market Game.

26. Time Value website ties to the millionaire theme so popular now. There is a millionaire calculator but it takes into account taxes. You might want to use the monthly savings calculator.Time Value website ties to the millionaire theme so popular now. There is a millionaire calculator but it takes into account taxes. You might want to use the monthly savings calculator.

27. If we have a starting balance of 0 Invest at 7% for 50 year and our goal is $1,000,000 We will have to save $183.55 a month At 2.3% for 50 years $889.52 a month Average return for last 20 years- Jan 1, 1990 to Dec 31, 2009 has been 10.16% (http://www.moneychimp.com/features/market_cagr.htm) ----calculated using the online calculator at this website (5-17-10) Average return for the last 10 years (Jan 1, 1999 to Dec 31, 2009) 3.02% The most significant pattern is this: Over the very long run, the stock market has had an inflation-adjusted annualized return rate of between six and seven percent. 2009 27.11 2008 -37.22 2007 5.46 2006 15.74 2005 4.79 2004 10.82 2003 28.72 2002 -22.27 2001 -11.98 2000 -9.11 1999 21.11 1998 28.73 1997 33.67 1996 23.06 1995 38.02 1994 1.19 1993 10.17 1992 7.60 1991 30.95 1990 -3.42 If we have a starting balance of 0 Invest at 7% for 50 year and our goal is $1,000,000 We will have to save $183.55 a month At 2.3% for 50 years $889.52 a month Average return for last 20 years- Jan 1, 1990 to Dec 31, 2009 has been 10.16% (http://www.moneychimp.com/features/market_cagr.htm) ----calculated using the online calculator at this website (5-17-10) Average return for the last 10 years (Jan 1, 1999 to Dec 31, 2009) 3.02% The most significant pattern is this: Over the very long run, the stock market has had an inflation-adjusted annualized return rate of between six and seven percent. 2009 27.11 2008 -37.22 2007 5.46 2006 15.74 2005 4.79 2004 10.82 2003 28.72 2002 -22.27 2001 -11.98 2000 -9.11 1999 21.11 1998 28.73 1997 33.67 1996 23.06 1995 38.02 1994 1.19 1993 10.17 1992 7.60 1991 30.95 1990 -3.42

28. But if you have a 10% return, 50 years and a goal of $1,000,000 you only need to save $57.72. The stock market has averaged 10.2% over the last 20 yearsBut if you have a 10% return, 50 years and a goal of $1,000,000 you only need to save $57.72. The stock market has averaged 10.2% over the last 20 years

29. Assessment 3-1: My Investing Plan Create a personal savings and investing plan Student's are asked in the final activity of unit 3 to synthesize what they learned in Unit 3 and to create a personal saving and investing plan. The required criteria is on page 40 of the student manual. Use the decision-making process to select at least two investing products for your investment plan Outline your investment strategy- amount of invest, how often and when to invest Predict the potential value of your investments three years from now Classify investments as income or growth investments Describe your potential risks and reward of the chosen investments Balance the diversity of investments Explain how your investing plan aligns with your intermediate and long term financial goalsStudent's are asked in the final activity of unit 3 to synthesize what they learned in Unit 3 and to create a personal saving and investing plan. The required criteria is on page 40 of the student manual. Use the decision-making process to select at least two investing products for your investment plan Outline your investment strategy- amount of invest, how often and when to invest Predict the potential value of your investments three years from now Classify investments as income or growth investments Describe your potential risks and reward of the chosen investments Balance the diversity of investments Explain how your investing plan aligns with your intermediate and long term financial goals

30. UI Extension- Ada, Canyon, Owyhee Real life simulation Explore career opportunities Make lifestyle and budget choices Welcome to the Real World is an active, hands-on, real life simulation that gives young people the opportunity to explore career opportunities and make lifestyle and budget choices similar to those adults face on a daily basis. Participants assume that they have completed a basic educational requirement for a job and are single, 25 years of age, and independent with no financial support from family or others. After investigating and selecting potential careers, participants receive a monthly salary for their chosen career. They then proceed though the Real World Activity, deducting taxes, determining a savings amount, and spending their monthly “salary” on the necessary or luxury items that reflect the career or lifestyle they have chosen.Welcome to the Real World is an active, hands-on, real life simulation that gives young people the opportunity to explore career opportunities and make lifestyle and budget choices similar to those adults face on a daily basis. Participants assume that they have completed a basic educational requirement for a job and are single, 25 years of age, and independent with no financial support from family or others. After investigating and selecting potential careers, participants receive a monthly salary for their chosen career. They then proceed though the Real World Activity, deducting taxes, determining a savings amount, and spending their monthly “salary” on the necessary or luxury items that reflect the career or lifestyle they have chosen.

31. Questions QuestionsQuestions