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Why Save & Why Save & Invest?Invest?

Key concepts to prepare for your Key concepts to prepare for your future!future!

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The best way to achieve financial success is to plan for The best way to achieve financial success is to plan for it. Do you want to someday…it. Do you want to someday…

Buy a car?Buy a car? Graduate from college?Graduate from college? Own your own home?Own your own home? Live comfortably in Live comfortably in

retirement?retirement?

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When should you start When should you start investing????investing????

The younger the better. This way you can The younger the better. This way you can take advantage of compound interest.take advantage of compound interest.

Think about using your birthday money Think about using your birthday money as a great starting amount!as a great starting amount!

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Compound Interest is…Compound Interest is…

The interest that you EARN on interest. WOW so your money is making money The interest that you EARN on interest. WOW so your money is making money and then that money makes even more for you- how cool is that???and then that money makes even more for you- how cool is that???

Example: I you have $100 and it earns 5% compounded yearly you’ll have $105 at Example: I you have $100 and it earns 5% compounded yearly you’ll have $105 at the end of one year. BUT at the end of the second year you’ll have $110.25. the end of one year. BUT at the end of the second year you’ll have $110.25.

You earned $5 on the initial $100 deposit plus an extra $.25 on the $5 in interest. You earned $5 on the initial $100 deposit plus an extra $.25 on the $5 in interest. Twenty-five cents may not sound like a lot, but it adds up over time. Even if you Twenty-five cents may not sound like a lot, but it adds up over time. Even if you NEVER add another dime to that account, in 10 years you’ll have over $162 NEVER add another dime to that account, in 10 years you’ll have over $162 through the power of compound interest and in 25 years you would have almost through the power of compound interest and in 25 years you would have almost $340!$340!

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Rule of 72…estimating how your Rule of 72…estimating how your investment will grow over timeinvestment will grow over time

The Rule of 72 can tell you approximately how long it The Rule of 72 can tell you approximately how long it will take for your investment to double in value.will take for your investment to double in value.

Simple the divide the number 72 by your investment’s Simple the divide the number 72 by your investment’s expected rate of return (ignoring the percent sign). expected rate of return (ignoring the percent sign). Assuming an expected rate of return of 9 percent, your Assuming an expected rate of return of 9 percent, your investment will double in value about every 8 years. investment will double in value about every 8 years. (72 divided by 9 equals 8).(72 divided by 9 equals 8).

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How much does that pizza slice every How much does that pizza slice every week really cost you????week really cost you????

If you spend $2 a week on slice of pizza and If you spend $2 a week on slice of pizza and you buy 1 slice each week until you are ready you buy 1 slice each week until you are ready to retire you will spend $5200 on to retire you will spend $5200 on pizzapizza. . HOWEVER…HOWEVER…

IF you give up that slice of pizza and invest the IF you give up that slice of pizza and invest the money instead earning 8% compounded money instead earning 8% compounded annually every year for 50 years, you’ll have annually every year for 50 years, you’ll have over $64,678.87!over $64,678.87!

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How can I Save & Invest?How can I Save & Invest?

Pay yourself first. Set up a budget and include yourself in the Pay yourself first. Set up a budget and include yourself in the things you have to pay…things you have to pay…

Example: Savings, Cell Phone, Car payment/gas, etc…Example: Savings, Cell Phone, Car payment/gas, etc… Don’t just take what you have left over, plan to your savings Don’t just take what you have left over, plan to your savings

as one of your expenses.as one of your expenses.

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Different Ways to Save & Different Ways to Save & Invest:Invest:

Savings AccountsSavings AccountsIf you save your money in a savings account, the bank or credit union If you save your money in a savings account, the bank or credit union will pay you interest, and you can easily get your money whenever you will pay you interest, and you can easily get your money whenever you want it. At most banks, your savings account will be insured by the want it. At most banks, your savings account will be insured by the Federal Deposit Insurance Corporation (FDIC).Federal Deposit Insurance Corporation (FDIC). Typically Savings Typically Savings Accounts do not offer a high interest rateAccounts do not offer a high interest rate..

Insured Bank Money MarketsInsured Bank Money MarketsThese accounts tend to offer higher interest rates than savings accounts and often These accounts tend to offer higher interest rates than savings accounts and often give you check-writing privileges. Like savings account, many money market give you check-writing privileges. Like savings account, many money market accounts will be insured by the FDIC. Note that bank money market accounts are accounts will be insured by the FDIC. Note that bank money market accounts are not the same as money market mutual funds, which are not insured by the FDICnot the same as money market mutual funds, which are not insured by the FDIC

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Certificates of DepositCertificates of DepositYou can earn an even higher interest if you put your money in a You can earn an even higher interest if you put your money in a certificate of deposit, or CD, which is also protected by the FDIC. certificate of deposit, or CD, which is also protected by the FDIC. When you buy a CD, you promise that you're going to keep your When you buy a CD, you promise that you're going to keep your money in the bank for a certain amount of time. If you withdraw money in the bank for a certain amount of time. If you withdraw too early you will be financially penalized.too early you will be financially penalized.

StocksStocksHave you ever thought that you'd like to own part of a famous restaurant, Have you ever thought that you'd like to own part of a famous restaurant, or the company that makes the shoes on your feet? That's what happens or the company that makes the shoes on your feet? That's what happens when you buy stock in a company-you become one of the owners. Your when you buy stock in a company-you become one of the owners. Your share of the company depends on how many shares of the company's share of the company depends on how many shares of the company's stock you own.stock you own.

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Government Bonds Government Bonds 

In general, fixed-income securities are classified In general, fixed-income securities are classified according to the length of time before maturity. according to the length of time before maturity. These are the three main categories: These are the three main categories: 

Bills - Bills - debt securities maturing in less than one debt securities maturing in less than one year. year. Notes -Notes - debt securities maturing in one to 10  debt securities maturing in one to 10 years. years. Bonds -Bonds - debt securities maturing in more than  debt securities maturing in more than 10 years. 10 years. 

Debt issued by Uncle Sam is regarded as Debt issued by Uncle Sam is regarded as extremely safe, as is the debt of any stable extremely safe, as is the debt of any stable country. The debt of many developing countries, country. The debt of many developing countries, however, does carry substantial risk. Like however, does carry substantial risk. Like companies, countries can companies, countries can default on payments.  on payments. 

Municipal Bonds: Known as "munis", are the next progression in terms of risk.

Cities don't go bankrupt that often, but it can happen.

The major advantage is that the returns are free from federal tax. Some municipal bonds completely tax free.

Because of these tax savings, the yield on a muni is usually lower than that of a taxable bond. Depending on your personal situation, a muni can be a great investment on an after-tax basis. 

BONDS

CORPORATECORPORATE BONDSBONDS

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CORPORATE BONDS: A company can issue bonds just as it can issue stock. Large corporations have a lot of flexibility as to how much debt they can issue: the limit is whatever the market will bear. Generally, a short-term corporate bond is less than five years; intermediate is five to 12 years, and long term is over 12 years. These bonds help a company grow and they promise to pay you interest and to return your money on a date in the future.

Corporate bonds are characterized by higher yields because there is a higher risk of a company defaulting than a government. The upside is that they can also be the most rewarding fixed-income investments because of the risk the investor must take on. The company's credit quality is very important: the higher the quality, the lower the interest rate the investor receives.

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Mutual Funds.Mutual Funds.Stocks and bonds can be purchased Stocks and bonds can be purchased individually, or you can buy them individually, or you can buy them by buying shares of a mutual fund. by buying shares of a mutual fund. A mutual fund is a pool of money A mutual fund is a pool of money run by a professional or group of run by a professional or group of professionals who have experience professionals who have experience in picking investmentsin picking investments. .

After researching many companies, After researching many companies, these professionals select the these professionals select the stocks or bonds of companies and stocks or bonds of companies and put them into a fund. Investors can put them into a fund. Investors can buy shares of the fund, and their buy shares of the fund, and their shares rise or fall in value as the shares rise or fall in value as the values of the stocks and bonds in values of the stocks and bonds in the fund rise and fall.the fund rise and fall.

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Risk & ReturnRisk & Return Every saving or investing product has its Every saving or investing product has its

advantages and disadvantages. advantages and disadvantages. Differences include how fast you can get Differences include how fast you can get your money when you need it, how fast your money when you need it, how fast your money will grow, and how safe your your money will grow, and how safe your money will be.money will be.

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Savings Accounts, Insured Money Market Accounts, & Savings Accounts, Insured Money Market Accounts, & CDsCDs

Tends to be very safe.Tends to be very safe. Federally insured.Federally insured. Can easily access your money.Can easily access your money. Because of the low risk and the availability your money earns a Because of the low risk and the availability your money earns a

lower interest rate and has a lower return.lower interest rate and has a lower return.

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STOCKSSTOCKS Highest average rate of Highest average rate of

return.return.

NO guarantee of profits.NO guarantee of profits.

If the company doesn’t do If the company doesn’t do well you could LOSE all well you could LOSE all your money.your money.

You Can Make Money from You Can Make Money from Stocks Two Ways:Stocks Two Ways:

1. Company does well and 1. Company does well and other investors want to buy other investors want to buy stock and the price goes up. stock and the price goes up. You bought it at $10 it now You bought it at $10 it now sells for $12. The $2 gain is sells for $12. The $2 gain is called a Capital Gain of called a Capital Gain of Appreciation.Appreciation.

2. If the company makes a profit 2. If the company makes a profit it could pay a dividend to it could pay a dividend to stockholders. Sometimes stockholders. Sometimes instead of paying a dividend instead of paying a dividend the company keeps the the company keeps the money and uses it to expandmoney and uses it to expand

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Stocks continued…Stocks continued…

Buying stock in a brand new company is risky because if it Buying stock in a brand new company is risky because if it goes out of business you lose everything.goes out of business you lose everything.

The key to buying stock is learning as much as you can The key to buying stock is learning as much as you can about the company to determine if it will be successfulabout the company to determine if it will be successful..

The greater the return the greater the risk. If you are too safe The greater the return the greater the risk. If you are too safe you may not earn much, if you are too risky you could lose you may not earn much, if you are too risky you could lose everything.everything.

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DIVERSIFYDIVERSIFY investments! investments!

To decrease your risk in investments To decrease your risk in investments you need to DIVERSIFY those you need to DIVERSIFY those investments.investments.

It's common sense: don't put all your It's common sense: don't put all your eggs in one basket. If you buy a eggs in one basket. If you buy a mixture of different types of stocks, mixture of different types of stocks, bonds, or mutual funds, your savings bonds, or mutual funds, your savings will not be wiped out if one of your will not be wiped out if one of your investments fails. investments fails.

Diversification helps you to protect Diversification helps you to protect your savings. If you had just one your savings. If you had just one investment and it went down in value, investment and it went down in value, then you would lose money. But if then you would lose money. But if you had ten different investments and you had ten different investments and one went down in value, you could one went down in value, you could still come out ahead. still come out ahead.

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Steps to Achieving Financial Steps to Achieving Financial SecuritySecurity

CREDIT CARDSCREDIT CARDS Manage your credit Manage your credit

cards- don’t charge cards- don’t charge items if you can’t afford items if you can’t afford to pay them off quickly.to pay them off quickly.

Always know how much Always know how much interest your credit card interest your credit card is charging you. Pay off is charging you. Pay off the ones with the highest the ones with the highest interest rate first.interest rate first.

Always pay more than Always pay more than the minimum balance.the minimum balance.

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Steps to Steps to AchievingAchieving Financial Security Financial Security

Make a plan. Set financial goals. Make a plan. Set financial goals. Be realistic. Be realistic.

Keep Trade-Offs and Opportunity Keep Trade-Offs and Opportunity Cost in mind. This means that Cost in mind. This means that you are going to have to consider you are going to have to consider giving up some things in order to giving up some things in order to have something else later on.have something else later on.

Save & Invest for the long term. Save & Invest for the long term. Investing is not for the faint of Investing is not for the faint of heart. You have to ride out the heart. You have to ride out the ups and downs of the market. ups and downs of the market. Those who are the most Those who are the most successful are the ones that “buy successful are the ones that “buy and hold”.and hold”.

Investigate before you invest. Do Investigate before you invest. Do your homework and use a variety your homework and use a variety of sources to check out a of sources to check out a company.company.

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TheThe time is now! time is now!

START SAVING AND INVESTING NOW. START SAVING AND INVESTING NOW. DO NOT WAIT. THE SOONER YOU START THE DO NOT WAIT. THE SOONER YOU START THE

MORE MONEY YOU WILL HAVE WHEN YOU MORE MONEY YOU WILL HAVE WHEN YOU RETIRERETIRE..