NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You
Unit 3 - Investing: Making Money Work for You
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You
Saving/Investing OptionsSavings AccountCertificate of Deposits (CD’s)StocksBondsMutual FundsRetirement Plans
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for YouSome background Info…
Money grows on the principle of interest
Compound interest- interest earned on both your principal (money you invested) and on the interest it earns
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You
Investing Weekly at 5% Interest
3-B
Amount SavedPer Week
Value After10 Years
$ 7.00
$ 14.00
$ 21.00
$ 28.00
$ 35.00
$ 4,720
$ 9,440$ 14,160$ 18,880$ 23,600
1
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for YouInvestment Tools
The basic tools for most investors includeStocksBondsMutual Funds
Together known as securities
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for YouA bit about Risk
Investments pay a percentage in interest as determined by a bank, stock market or federal reserve.
The greater the risk the greater the return(or the greater the risk the greater the fall )
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for YouStocks
Stock: a share of a companyWhen you buy a share you are actually
buying a small piece of the company
-Buy “certificates of stock” that change value over time
-Usually based on the well being of the company you invest in
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You
How do stocks pay?
Have money invested in stock itself and opportunity to collect dividends
Dividends: Money paid to share holders when company claims a profit
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You
A $1,000 investment a decade ago would today be worth:
Apple (AAPL) -- $32,280Southwestern Energy (SWN) -- $31,880Cliffs Natural Resources (CLF) -- $26,460Range Resources (RRC) -- $12,440
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You
BondsWhen you buy a bond you are essentially making a loan
of money to a company or government
Companies/Government issue bonds to raise money
Designed to pay a specified rate of interest at the end of a certain period of time
ex. 10 year $100 bond guaranteed to pay 6%/year
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for YouMutual Funds
Invests in a number of different tools
Could include investments in stocks, bonds, foreign stocks and othersChoose due to diversification: don’t have all your money invested in one place
Most retirement plans invest in mutual funds
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for YouRetirement Plans
Types of retirement plansIRA (personal retirement plan)401K (sponsored by company)Stock Ownership (in company employed)Profit Sharing Plan
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You
Investing Annually to Achieve a Goal
3-C
Value of $20 1 Year 2 Years 4 Years 6 Years
4%
5%
6%
8%
10%
$20.80
$21.00
$21.20
$21.60
$22.00
$21.63
$22.05
$22.47
$23.33
$24.20
$23.40
$24.31
$25.25
$27.21
$29.28
$25.31
$26.80
$28.37
$31.74
$35.43
54321
Building….
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You
Investing a $10,000 Lump Sum
3-E
11%
10%
9%
8%
7%
6%
5%
12%
InterestRate
5Years
20Years
15Years
10Years
$12,763
$17,623
$16,851
$16,105
$15,386
$14,693
$14,026
$13,382
$16,289
$31,058
$28,394
$25,937
$23,674
$21,589
$19,672
$17,908
$20,789
$54,736
$47,846
$41,772
$36,425
$31,722
$27,590
$23,966
$26,533
$96,463
$80,623
$67,275
$56,044
$46,610
$38,697
$32.071
1
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You
Rule of 72
3-H
72Interest Rate
= Years Needed toDouble Investment
72 Interest RateRequired=
Years Needed toDouble Investment
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You
Rule of 72: $10,000 Invested
3-I
6
12
18
24
Year 3% 6% 12%
INTEREST RATE
$20,000 $40,000 $160,000
$20,000
$40,000
$80,000
$20,000
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You
FinancialPlanningPyramid
PennyStock
Commo- dities
CollectiblesSpeculative Stock / Bonds /Mutual Funds
RealEstate
Blue-ChipCommonStock
GrowthMutual Funds
High-GradeConvertible
Bonds
High-GradePreferred
Stock
BalancedMutual Funds
High-GradeCorporate Bondsor Mutual Funds
High-GradeMunicipal Bondsor Mutual Funds
Money MarketAccounts
or Mutual Funds
Certificatesof Deposit
U.S. SavingsBonds
Insured Savings / Checking Accounts
TreasuryIssues
Highest RiskHighest Earnings
Lower Risk
Lower Earnings
3-J
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You
NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You
Interest Rate
3%
24 Yrs.
$800
4%
6%
8%
12%
6 Yrs. 9 Yrs. 12 Yrs. 18 Yrs.
$400
$400
$400
$200
$200
$200
$200
$200
The Impact of Higher Returns on Savings and Investments
Rule of 72: The approximate frequency with which $100 doubles at specific interest rates
3-K 21