Date post: | 20-Jan-2016 |
Category: |
Documents |
Upload: | bernard-long |
View: | 217 times |
Download: | 0 times |
Standard 16- Saving and Investing16) Explain how saving and investing contribute to financial well-being, building wealth, and helping meet personal financial goals. Compare and contrast saving and investment strategies, such as savings accounts, certificates of deposit, stocks, bonds, mutual funds, employer sponsored savings plans, physical assets, and commodities.. Design a diversified saving and investment plan that includes strategies compatible with personal goals. Include time value of money and compound interest calculations in analysis. (TN CCSS Reading 4, 5; TN CCSS Writing 4, TN CCSS Mathematics F-IF)
The Magic of Compounding Interest
Albert Einstein once noted that the most powerful force in the universe was the principle of compounding
The numbers…..Interest Rate Monthly Deposit # of Years Balance Interest
Earned
8% $250.00 5 $18,864.14 $3,614.14
8% $250.00 10 $46,596.33 $16,346.33
8% $250.00 15 $87,913.02 $42,663.02
8% $250.00 20 $149,468.51 $89,218.51
8% $250.00 25 $241,176.69 $165,926.69
8% $250.00 30 $377,807.73 $287,557.73
8% $250.00 35 $581,366.90 $476,116.90
8% $250.00 40 $884,638.65 $764,388.65
8% $250.00 45 $1,336,466.77 $1,201,216.77
STOCKS
Before We Talk About Stocks…. Let’s talk about the difference between a
company and a brand. You invest in companies that OWN brands You invest in companies that are publically
traded Let’s examine some brands and get our
students busy at the keyboard researching those brands and companies! Alphabet Soup
Alphabet Soup!
Stocks
Stock is partial ownership in a company.
Common stockPreferred stock
Making money with stocks….
Price is determined by the simple principle of supply and demand!
Buy Low – Sell High
Sell High – Buy Low
BONDS
Bonds
Bonds are loans. Debt financing vs. the equity financing you
get from issuing stock. Bonds are not typically traded daily.
There are over 3 million domestic bond options! Government Municipal Corporate
Bond Terminology
Par Value = Face Value Accrued Interest – the interest that has
accumulated sine the principal investment, or since the previous interest payment. If a bond is resold (secondary market) it
can be: At a discount = < par At a premium = > par This fluctuates based on interest rates and
time until maturity
Bond – making money
There are two ways to increase your investment:
Interest PaymentsIncrease in the resale price of the bond
Characteristics of Bonds
Length of Term Longer term bonds are riskier therefore they usually
have a higher interest rate British government has a bond that never matures –
called a perpetuity – pays interest forever but the principal is never repaid
Credit Risk Probability that the borrower will fail to pay some
interest or principal – failure to pay is called “default” Tax Treatment
The interest on most bonds is taxable income – most municipal bonds (issued by state and local government) are not federally taxed so you would expect a lower interest rate.
Things That Affect Bond Prices
Economic Crisis Natural & Unnatural Disasters Peace & Prosperity Interest Rates
Rates increase = bond price decrease Rates decrease = bond price increase
MUTUAL FUNDS
Mutual Funds
A company that pools money from many investors to purchase some combination of stocks, bonds, real estate and other securities.
Mutual funds exemplify the adage “Don’t put all of your eggs in one basket.”
Diversification
Can my money earn money when I diversify my portfolio?
Risk vs. Reward
The greater the risk, the greater the potential for reward.
The greater the risk, the greater the potential for disaster.
Types of Mutual Funds
Mutual funds come with varying levels of risk and different philosophies
Examples: Some funds invest in only blue chip stocks Some funds invest in only start-up
businesses Some funds invest in only bonds Some funds invest in green companies
Types of Mutual Funds (cont.)
Mutual funds are also called open-end funds. This means that the fund will usually sell as many shares as investors want to buy.
Closed-end funds, like mutual funds, are collections of securities managed by a professional investment advisor. But unlike mutual funds, there are a fixed number of shares available and these shares are traded on the stock exchange.
Exchange-traded funds, are also like mutual funds in that they are collections of securities managed by a professional advisor, and like closed-end funds are traded on the stock exchange.
What Animal Are You?
Are you a bull?
Are you a bear?
Are you a chicken?
Are you a pig?