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
