unit 3 - investing: making money work for you

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 Options

Savings Account

Certificate of Deposits (CD’s)

Stocks

Bonds

Mutual Funds

Retirement Plans

NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You

Some 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 You

Investment Tools

The basic tools for most investors include

Stocks

Bonds

Mutual Funds

Together known as securities

NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You

A 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 You

StocksStock: a share of a company

When 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) -- $32,280

Southwestern Energy (SWN) -- $31,880

Cliffs Natural Resources (CLF) -- $26,460

Range Resources (RRC) -- $12,440

NEFE High School Financial Planning ProgramUnit Three – Investing: Making Money Work for You

Bonds

When 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 You

Mutual Funds

Invests in a number of different tools

Could include investments in stocks, bonds, foreign stocks and others

Choose 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 You

Retirement Plans

Types of retirement plans

IRA (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 to

Double Investment

72 Interest RateRequired

=Years Needed to

Double 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