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Saving and Investing. Chapter 8 & 9. Saving. 10% of paycheck each month is recommended Saving is a trade-off You trade spending now for the ability to spend in the future. Purpose of savings is to cover future expenses whether or not you can see them coming. Unexpected expenses
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Saving and Investing Chapter 8 & 9
Saving • 10% of paycheck each month is recommended • Saving is a trade-off • You trade spending now for the ability to spend in the future. • Purpose of savings is to cover future expenses whether or not you can see them coming. • Unexpected expenses • Car repairs, unemployment, illness, house repairs, etc. • Expected expenses • College, buying a house, retirement, etc.
Savings Vs. Investing • Savings= not spending money/keeping your money for another day • Investing= using your money to earn more money • Why invest? • Strengthen financial position over time • Provides a source of income in addition to paycheck
Investing • Investing is a way to earn income • Risk- A chance that an investment will decrease in value • All investments involve some form of risk • Return- Income you earn on an investment
Lower Risk Ways to Invest • Savings Account at a bank (earn interest) • Certificate of Deposit (CD) • Earns a fixed interest for a specific period of time • You cannot touch the money once you put it in a CD until the maturity date • Ranges from few days to several years • Savings Bond • Sold in amounts of $50- $10,000
Higher Risk Types of investments • Stocks • Bonds • Mutual Funds • Money Market Accounts • Real Estate • Collectables Your Turn: Why do you think these types of investments are more risky?
Diversification • Spreading your risk among many different types of investment. • Example- Investing in some blue chip stocks as well as some more risky stocks. Your Turn: Why would this be a smart way to invest?
Stocks • Partial ownership of a company • Companies sell stock to raise funds • Common way of investing • Investing Basics: Stocks • Click on photo for video (4:16 minutes)
NYSE (Auction Exchange) • The NYSE is primarily auction-based, which means specialists are physically present on the exchange's trading floors. • Each specialist "specializes" in a particular stock, buying and selling the stock in the auction. • The NYSE is the largest and most prestigious exchange.
Nasdaq (an Electronic Exchange) • The Nasdaq, is sometimes called "screen-based" because buyers and sellers are connected only by computers over a telecommunications network. • Market makers, also known as dealers, carry their own inventory of stock. They stand ready to buy and sell Nasdaq stocks, and they are required to post their bid and ask prices.
Blue Chip Stocks • Stock of a large, well-established and financially sound company that has operated for many years. • A blue-chip stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name.
Ticker Symbols • 1 to 5 letter symbols used to identify companies being traded • NYSE and AMEX: 3 letters or less • NASDAQ: 4 letters
Bull vs. Bear Market Click on photo for video (1:44 minutes)
The UPS and DOWNS of Stocks Capital Gains • Sell stock for morethan you paid for it. • Example…bought 100 shares of Apple @ $80 share (total investment of $8,000). Later sold 100 shares @ $200 share($12,000 gain). Capital Loss • Sell stock for lessthan you paid for it. • Example... You bought 100 shares of Apple @ $80 a share (total investment of $8,000). Later sold 100 shares @ $60 a share ($6,000). $2,000 loss.
Stock Information • Volume • Total shares of stock traded on the most recent trading day. • 52 week range • High-highest price for a stock during the yr. • Low-Lowest price for a stock during the yr.
Stock Information • Change • Dollar difference between the preceding days closing price and the most recent price. • Percent Change • % difference between the preceding days closing price and the current price. • Open • Price paid in a stock’s first transaction of the current trading day.
Mutual Funds • Pools the money of many investors and buys a large section of securities that meet the funds stated investment goal. • Allow investors to spread out their risk among many different companies
Mutual Funds • Example: Say you have $500 to invest but do not know which stock or bonds to buy, when to buy them, or when to sell them. • You can buy shares in a large, professionally managed group of investments called mutual funds.
