Investing 101Having Your Money Work For YOU

Saving vs. Investing

• List 2 ways you can save on one post-it and 2 ways you can invest on the other.

• Stick on board when finished

Learning Targets

• Calculate simple and compound interest, and rate of return

• Understand the factors to consider when evaluating an investment

Basic Principle of Investing

• Assets: Any item of economic value owned by an individual or corporation, which could be converted to cash.

Basic Principle of Investing

So investing means to…• Buy assets that appreciate in value.

Two most important factors for successful investing:

Time Knowledge $

Would you rather have a million dollars now or a penny doubled every day for thirty days?

Day 1: $.01Day 2: $.02Day 3: $.04Day 4: $.08Day 5: $.16Day 6: $.32Day 7: $.64Day 8: $1.28Day 9: $2.56Day 10: $5.12

Day 11: $10.24Day 12: $20.48Day 13: $40.96Day 14: $81.92Day 15: $163.84Day 16: $327.68Day 17: $655.36Day 18: $1,310.72Day 19: $2,621.44Day 20: $5,242.88

Day 21: $10,485.76Day 22: $20,971.52Day 23: $41,943.04Day 24: $83,386.08Day 25: $167,772.16Day 26: $335,544.32Day 27: $671,088.64

Day 28: $1,342,177.28Day 29: $2,684,354.56Day 30: $5,368,709.12

Simple vs Compound interest

Simple Interest means interest paid only on the original principle amount.

ttp://www.ingnz.com/WEB/webm.nsf/CompoundInterest?OpenForm

Example…

• You deposited $100 dollars into a bank account that pays 5% interest every year.

• = Principle x Rate x Time• You will have $105 after year one• $110 after year two• $115 after year three• $120 after year four

Compound Interest

• The interest earned not only on the original principal, but also on all interests earned previously

Example

• You deposited $100 dollars into a bank account that pays 5% interest compounded every year. How much will you have in four years?

http://www.econedlink.org/lessons/index.php?lid=603&type=educator

Rule of 72

• Divide 72 by the interest rate of a investment to find the amount of years it takes to double your money.

Example:• Savings Account is paying 5% interest• 72/5 = 14.4 years to double your money

Factors to consider when selecting an investment….

Basic Factor: Return

• The income produced by an investment• Income or loss / Initial investment = Return %• Example:

Bought stock at $10

Sold stock at $15

Return = 50%

Basic Factor: Return

Another Example:• Bought stock @ $75 per share• Sold stock @ $120 per share

What is the return?

Income or loss / Initial investment = Return %

Who wants to win some money?

Risk vs. Return

The greater the risk, the greater the return

Basic Characteristics

Volatility• The degree to which an investment’s

return or value may change.

Risk vs. Return

• How much risk should one take????• Factors

– Age– Income– Savings– Goals– Personal Tolerance

Basic Factor: Liquidity

Liquidity• The ease at which an investment can be

converted to cash.

Diversification

• Strategy of making a variety of investments in order to reduce your exposure to risk.

Don’t put all your eggs in one basket!

Review

• Compound interest is a powerful force• Major factors to consider when choosing

an invest include…– Return– Risk– Liquidity– Volatility – Diversification