investing savings and investing. why invest? hedge against inflation rise in a general level of...

InvestingSavings and Investing

Why Invest?

• Hedge against inflation• Rise in a general level of prices

• Investing to increase wealth• Invest to save for long term goals• Investing is fun and challenging

The Rule of 72

• Technique used for estimating the number of years required to double one’s investment at a given rate of return• Divide 72 by the rate of return expressed

as a percentage

• To estimate the rate of return required to double your money in a specific time period, divide 72 by the number of years

Risk

• Risk is the chance that an investment’s value with decrease• All investment carries risk

• Risk takers – those willing to accept more risk in the hopes of getting a greater return

• Risk averse – less willing to accept risk• Who tends to make more money in the

long term?

Types of Risk

• Diversification – spreading the risk among many types of investment

• Short term risk is lower than long term risk• Can you predict the future?

• Interest rate risk – return on investment will not keep pace with inflation

More Kinds of Risk

• Political risk – government actions that impact business conditions (regulations, tariffs, etc)

• Market risk – caused by business declines or interest rate fluctuations

• Nonmarket risk – risk unrelated to market trends (unpredictable)

• Company or industry risk – events that effect only one company or industry

Criteria For Choosing an Investment

• Degree of safety• Degree of liquidity• Expected dividends or interest• Expected growth• Reasonable purchase price and fees• Tax benefits

Investment Strategies

• Define your financial goals• Go slowly• Follow through – implement your plan• Keep good records• Seek good advice• Stay current and informed• Know your risk profile and comfort

zone

Sources of Investment Information

• Newspapers• Investor Services and Newsletters• Financial Magazines• Online financial or news sites• Brokers

• Full service brokers provide clients with analysis and opinions based on their knowledge and industry information

• Discount brokers buy and sell securities for clients at a reduced price

Additional Sources of Financial Info

• Financial advisors or certified financial planners• Usually receives a fee for service

• Annual reports or 10-Ks are a summary of a corporation’s financial results for the year

• Online investor education • Motley Fool (www.fool.com)• Teen investor (www.teeninvestor.com)