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Money Smarts Challenge Investing
Money Smarts ChallengeInvesting
Financial wellbeing is about what you do with your pot of money, not the size of it. It’s about making sure that you can cover day-to-day expenses, plan for the future, and cope with the unexpected, enabling you to do the most with what you have!
Welcome
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Earnings and Income
Credit and Debt
Financial Decision Making
Risk and Protection
Investing
£
£
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Spending and Saving
Pillars ofFinancialWellbeing
• People choose to invest their money for the chance to gain a greater return on it. Investments have the potential for higher returns than a savings account.
• However, it’s important to remember that investing always involves risk - you are not guaranteed a return and it’s possible to lose some or all of the money you invest.
• It’s a long-term option – you may not be able to access your money for a set period of time and it may take longer than it would to take money out of a savings account.
What is investing?In its simplest form, investing is about trying to grow the value of money.
Understanding Investing
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• Each person will have a different “appetite” for risk. This means that some people are comfortable taking a bigger risk for potentially bigger rewards, while some others will only want to take small amount of risk, and know this means their reward will likely be smaller.
• Many people choose to invest via a financial institution. Before investing any money, it is recommended to speak to a Financial Advisor to work out their individual appetite for risk. They will use your age, family circumstances, and future plans to work out if your risk appetite is low, moderate or high.
Understanding Risk
What is Risk?In its simplest form, risk is the possibility of something bad happening.
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Low risk
High risk Equities
Commodities
Property
Mutual Funds
Bonds
Cash
Such as gold, oil, or Bitcoin
Shares in companies traded in regulated
stock markets
Investment fund that pools money from many
investors to purchase securities such as stocks,
bonds or property
Money in bank accounts
Commercial and residential buildings
Government, corporate etc.
There are lots of different ways to invest your money, depending on your risk appetite. The Investment Risk Hierarchy shows the correlation between risk and expected rates of investment return.
Highestpotential
return
Investment Risk hierarchy
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When it comes to investing, there is a simple way to determine how long an investment will take to double given a fixed annual rate of interest.
The Rule of 72
Compound InterestRule of 72
It works as follows: Take the number 72 and divide by the rate of investment return. In the example here, we have used '4' or 4%. So, at 4% return per year, it would take 18 year for the amount of money invested to double.
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What are Stocks or Shares?Stocks and shares are words used interchangeably to mean you have a slice of ownership of a particular company. You can buy and sell them on the stock market and over time the price can rise and fall.
Can you think of some companies that sell shares?
Stocks and Shares
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What are Stocks or Shares?Stocks and shares are words used interchangeably to mean you have a slice of ownership of a particular company. You can buy and sell them on the stock market and over time the price can rise and fall.
Can you think of some companies that sell shares?
Stocks and Shares
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The news and what is publicly being said about a company can have a huge impact on their stock price. If a company is getting positive news coverage it will often cause a share price to rise, however negative news coverage such as a bad earnings report, can cause share prices to fall.
Case Study: Facebook & Cambridge Analytica Following the Cambridge Analytica data scandal in 2018, Facebook shares dropped in value by 19%. This was a huge loss for anyone who held significant investment in the company, previously thought to be a relatively “low risk” investment.
How news can impact on Share Prices
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Considering investment risk and diversification, why is it important to not put all your eggs in one basket?
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Group Work
In small groups, consider the following (each group can present back to the class):
£ £££
What commodities can expect the highest rate of return?
Suppose you put money in the bank for two years and the bank agrees to add 15 per cent per year to your account. Will the bank add more money to your account in the second year than it did the first year, or will it add the same amount of money both years?
A. More the second yearB. More the first yearC. The same both years
Imagine a world where you could earn 100% interest per day. On January 1st, if you put 1 pence on deposit in a bank or credit union paying 100% per day, how much would your money be worth at the end of January? Would it be:A. Less than £30B. Somewhere between £30-£1,000C. More than £1,000
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Sample Questions
If you have any queries on the Bank of Ireland Money Smarts programme, please contact [email protected]
Thank you!
These materials are for educational purposes only.
