Introduction to Investing Take Charge of Your

Transcript:Introduction to Investing Take Charge of Your:
Introduction to Investing Take Charge of Your Finances Family Economics and Financial Education Saving vs. Investing Savings is for short-term goals and emergencies Investing is for long-term goals, such as college or retirement. Remember: The purpose of savings is to develop financial security. You should have 3 – 6 months of salary in savings BEFORE you start investing. What is Investing? The purchase of assets with the goal of increasing future income Focuses on wealth accumulation Appropriate for long-term goals What are examples of long-term goals that can be accomplished by investing? Rate of Return Return is money that you earn from your investment. The Rate of Return is the total return on an investment expressed as a percentage of the amount of money invested. Investments usually earn higher rates of return than savings tools. What is Mandy’s Rate of Return? Mandy saved $2,200 in a money market deposit account. After one year, she has a return of $110. What is Mandy’s rate of return? Mandy’s rate of return on investment is 5% What is Derek’s Rate of Return? Derek invested $900. When he withdrew his money from the investment, he had a total of $1,050. What is Derek’s rate of return? Derek’s rate of return on investment is 16.7% Risk POTENTIAL RETURN RISK Risk The uncertainty regarding the outcome of a situation or event Investment Risk The possibility that an investment will fail to pay the expected return or fail to pay a return at all Financial Risk Pyramid Speculation Increasing potential for higher returns Increasing risk Inflation Inflation The rise in the general level of prices Inflation Risk The danger that money won’t be worth as much in the future as it is today Inflation risk should not be a concern with savings since the goal of savings is to provide current financial security The rate of return on an investment should be higher than the rate of inflation. Investment Philosophy Each individual has a tolerance level for the amount of risk they are willing to take on Investment Philosophy An individual’s general approach to investment risk The greater the risk a person is willing to make on an investment, the greater the potential return will be. Generally divided into three categories: conservative, moderate, and aggressive Types of Investment Tools Stocks Stock A share of ownership in a company Stockholder or shareholder Owner of the stock Usually a