Investing: Making Money Work for You

1. Unit 3 - Investing: Making Money Work for You

2. Money has the amazing ability to make more money.

3. What is savings?

4. SAVING Amountof money that is set aside to be used for a future purpose Help meet short-term goals Safe in a savings account Earn small amount of interest Easy to get to

5. What is investing?

6. INVESTING Putting money to use in a venture that offers the possibility of growing in value as interest, income, or increased value Help meet long-term goals No guarantee the money will grow Money will rise and fall over time Can earn a lot more money in the long run

7. What is P Y F?

8. Pay Yourself First

9. Financial Advisors say “Students should not be able to graduate high school if they do not understand the chart “The Advantage of Starting Early”

10. YOU Invest $2000 a year from age 18-27 (10 years) Earn 7% interest Total Investment is $20,000 Earnings at age 65 is $361,418 SISTER Invest $2000 a year from age 31-65 (35 years) Earn 7% interest Total Investment is $70,000 Earnings at age 65 is $276,474 What Does It Mean? HOW???? Difference is $84,944

11. What is time value of money?

12. Time Value of Money Relationship between Time Money Rate of Interest

13. Time Value of Money – relationship between Time – the sooner you invest and longer you invest will normally give higher results Money – the more money you invest, the more money you are likely to earn Rate of Interest – the higher the rate, the more money you are likely to have in the future Keys To INVESTING

14. What is the formula for simple interest?

15. I = PRTI = interestP = principalR = rate in %T = time (in years)

16. I = $3000 x 5% x 2 I = $ Simple Interest I = $3000 x 5% x 2 I = $300 I = $3000 x 5% x 2 I = $300 $3000 became $3300

17. MATHTIMEBottom of page 3

18. 1. $250 x 6% x 3 years = $45 Total Value of Money $295 2. $3000 x 12% x 60 months = $1800Total Value of Money $4800 3. $3500 x 7% x 2½ = $612.50 Total Value of Money $4112.50 Simple Interest

19. What is compound interest?(back to page 1)

20. COMPOUND INTEREST Earning Interest on Interest Invest EARLY!

21. A = P (1 + i) n A = Amount in the account (growth) P = Principal (amount invested) i = Interest Rate n = Number of years compounded Compound Interest Formula

22. MATHTIME AGAINBottom of page 3

23. You invest $3000 at 12% interest for 5 years. Calculate the Compound Interest. 403.20 3360.00 3763.20 4214.78 451.58 3763.20 3763.20 4214.78 505.77 4214.78 4720.55 4720.55 566.47 4720.55 5287.02 2287.02 COMPLETE!!!

24. The most important thing is to get into the saving and investing habit NOW.

25. What is the Rule of 72?

26. Rule of 72 Ability to see how long it will take to doubleyour money simply by dividing 72by the interest rate or the numberyears when money is needed. 3-H

27. 72 Years Needed to Double Investment = Interest Rate 72 = Interest Rate Required Years Needed to Double Investment Rule of 72 3-H

28. The Impact of Higher Returns on Savings and Investments Rule of 72: The approximate frequency with which $100 doubles at specific interest rates Interest Rate 6 Yrs. 9 Yrs. 12 Yrs. 18 Yrs. 24 Yrs. 3% $200 4% $200 6% $200 $400 8% $200 $400 12% $200 $400 $800 3-K 1 2

29. HOW LONG WILL IT TAKE??? How many years to double $500 at an interest rate of 10%? 72/10 = 7.2 years What interest rate is necessary to double $1500 in 5 years? 72/5 = 14.4 %

30. The risk/reward trade-off is the principle that an investment must offer higher potential returns to compensate for the increased potential unpredictability. The greater the risk you take with your money, the higher the potential returns on your investment. The lower the amount of risk you take, the lower the potential returns will likely be. Risky Business

31. What is the rate of return?

32. the total percentage return on an investment Rate of Return

33. What are dividends?

34. Share of the profits you receive as a stockholder Dividends

35. What is a capital gain and capital loss?

36. Capital Gain Money gainedfrom an investment Capital Loss Money lost from an investment Capital Gain/Loss

37. What is a savings account?

38. often the first banking product people use; earn small amount of interest; guaranteed by the federal government to be protected Savings Account

39. What is a Certificate of Deposit (CD)?

40. money loaned to a financial institution for a set period of time; the longer the term, the higher the rate of return Certificatesof Deposits

41. What is a Money Market Deposit Account?

42. work like checking accounts but with limited withdrawals each month; higher interest rate than saving account, but lower than CDs; usually require a high minimum balance Money Market Deposit Account

43. What is a Money Market Mutual Fund?

44. similar to a Money Market Account but is offered by mutual fund companies; designed to be a stable way to save your money and earn potential income; although normally safe there is no guarantee the fund will gain money and can possible lose some or all of the initial investment Money Market Mutual Fund

45. Bonds are loaning money.

46. What is a US Savings Bond?

47. money loaned to the federal government that offers a fixed rate of interest over a fixed period of time; minors can purchase this type of bond. US Savings Bond

48. What is a Government Bond (Treasury Bond)?

49. issued by a nationalgovernment; with a promise to pay periodic interest payments until the bond matures. Government Bond

50. What is a Corporate Bond?