savings and investing how to make your money grow…
TRANSCRIPT
Savings and Investing
How to make your money grow….
Savings and Investing
• Saving means putting money aside for future use
• Investing is using savings to earn extra income
• It is a good idea to combine both savings and investing in a financial plan
Why People Save
• Many reasons including:• emergency needs• short- and long-term goals (bike, TV,
car, home)• security and future needs (retirement)
Financial Goals
• Savings plan ensures that a certain amount of money is put aside on a regular basis to reach a financial goal
• Pay Yourself First• Decision on how much money and
when to put away money for future use depends on your goals
• (short term or long)
Selecting a Savings Plan
• Benefits of Savings Plans• Interest (rate of return or yield –
expressed as a %)• Safety and insured against loss • Liquidity
Saving Terms
Safety :Canadian Deposit Insurance Corporation (CDIC) protects depositor’s funds in banks up to a max. of $100 000
Liquidity: the ability to convert an asset or investment into cash quickly and easily
Interest: paid to the account holder for the use of the money. Interest is also paid by the person borrowing the money
Rate of return is interest expressed as a percent of theoriginal investment. It is also called yield.
($1000 x .05 = $50) or ($earned/$ invested *100)
The 4 Types of Savings Plans
• Saving Account (regular bank account)• Bank’s take deposits and lend out as loans
• GIC (Guaranteed Investment Certificate an example of a term deposit)• Savings plans in which a fixed sum of money is
deposited over a specific length to time
• Guaranteed fixed rate of interest
Types of Savings Plans
• RRSP (Registered Retirement Savings Plan)• Not an investment but a tax shelter
• Government does not count your money you put into RRSP as income on your taxes that year you contribute and you don’t pay taxes on your RRSP money until you withdraw it out
• RESP (Registered Education Savings Plan)• long term savings plan to help finance a child’s
education• Money can only be used for school
Difference between Saving & Investing
• Liquidity• Degree of risk• Rate of return• Stability of return• Protection against economic
changes
Six Types of Investments
1. Bondsa. -“IOU” (a promise) to repay borrowed money on a
certain future date along with interest2.CSB (Canada Savings Bond)
a. loan made by an individual to the government of Canada
3.Stocks a.When an individual buys stocks, they become part
owner or a shareholder in the company
Types of Investments
4. Mutual funds a. a.pooled money that is invested in stocksb. Allows small investors to take advantage of professional management and
diversification
5.Real Estate (i.e. Land, house etc)a. Besides buying a home as a form of investment in real estate,
some people buy income property (apartment, cottage)
6. Collectiblesa. items of personal interest to a collector
b. may increase in value over time due to the scarcity of the item or the demand in the market (Classic cars, art)
Risk vs. Reward
Make Your Money Work 4 You
● Remember : Simple interest and Compound interest
Compound Investment Video
(Remember this from simple and compound lesson???)
Power of 72
• Divide 72 by the interest rate to find out how many years you need for your money to double
$5000 in account earning 6% =
72/6 = 12 years to double money
Business Investments
3 Main Reasons Why Businesses Invest• Businesses can invest excess cash
(usually at a low risk but highly liquid) until it is needed.
• Excess cash can be invested to generate income.
• Business can invest strategically by purchasing another business.
“savings without a plan means slowly
losing money”
• 1. List one short-term goal and explain a savings or investing strategy to help you reach that goal.
• 2. List one long-term goal and explain a savings or investing strategy to help you reach that goal.
• 3. Explain the difference in risk to saving versus investing. Does savings or investing have the higher rate of return?
• 4. Discuss your reaction to this statement: Even though you have long-term goals, it is still important to have short-term savings.