A Penny Doubled

1. A Penny Doubled

2. Saving versus Investing

3. Principal versus Returns • Principal is the money you put into savings or an investment. Principal comes from money you have set aside when you first start saving and investing. • Returns are what you earn on the principal.

4. Common Types of Returns • Interest. Interest is the amount a bank, credit union, corporation or government agrees to pay you for the use of your money. This is expressed as a percentage. • Dividends. Dividends are a portion of a corporation’s profits given back to shareholders. Dividends can be cash or more shares. • Increased share value. This is the amount you earn because the market value of your share is greater now than what you paid for it. Increases in share value increase your portfolio value, but only create income or cash if you sell them. This is called a capital gain. You can also lose money because the value of your investments is less than what you invested in them. This is called a capital loss.

5. Definition of Risk • Risk is certainty or any chance for loss.

6. Saving versus Investing Vehicles

7. Account Insurance Coverage • FDIC for banks and NCUA for credit unions covers each customer (member) up to $250,000 per account (and per type of account). • Explain that principal is at risk in investments. Explain that some investments like U.S. Savings Bond (an example of a Treasury Security) carry almost no risk, but the return is also low. • Explain SIPC (Securities Investor Protection Corporation) insurance: if you invest through a brokerage and it fails AND it is insured by SIPC if the brokerage is a member you may be able to recover some of your losses. Visual Aid 7.7

8. Opportunity Passport™ Matched Savings Returns • Is earning $1 for every $1 you save a good deal? • It is the best deal you are likely to ever get for money you save. • When you earn $1 for every $1 you save, you are earning 100% returns. • Money in a savings account earns about 1% right now. • Between 1883 and 2008, stocks returns averaged 7.6%. Visual Aid 7.8

9. Wealth and Net Worth • Wealth is measured by someone’s net worth. • Net worth is just the value of all of the assets minus the value of all of the liabilities. • Net worth is what you own minus what you owe. • Net worth is what you would have left if you were to sell all of your assets and pay off all of your debts. Visual Aid 7.9

10. Fatima’s Net Worth Visual Aid 7.10

11. How Does Saving and Investing Affect Net Worth? • Financial assets generally contribute positively to your net worth because there is no liability. • Unsecured debt on the other hand, reduces your net worth because there is generally no asset that goes with it. Visual Aid 7.11

12. Investing in Yourself, Your Own Business and Your Community Visual Aid 7.12

13. Keys to Saving and Investing • What are you saving or investing for and how much do you need? This is your goal. • When do you need that money? This is the time frame. • How much risk can you take? This is your risk tolerance. Visual Aid 7.13

14. Opportunity Passport™ Matched Savings and Investing You can use the Opportunity Passport™ Matched Savings to invest your savings into: • Certificates of Deposits • Stocks • Bonds • Shares of a mutual or exchange traded fund You cannot use the Opportunity Passport™ Matched Savings for: • Administrative Costs Visual Aid 7.14

15. Risk/return Tradeoff Graph Visual Aid 7.15

16. Mitigating Risk Visual Aid 7.16

17. Different Kinds of Risk Visual Aid 7.17

18. Different Kinds of Risk Visual Aid 7.18

19. Investing $25,000 Visual Aid 7.19

20. Asset Classes . • Cash—Things that have a low chance of principal risk: savings deposits, certificates of deposit, treasury bills, money market deposit accounts, and money market mutual funds • Stocks—shares of ownership in corporation, mutual funds or ETFs • Bonds—lending money to corporations or government for the promise of full repayment and interest in the future Visual Aid 7.20

21. Jasmine’s Current Asset Allocation Visual Aid 7.21

22. One Option for Jasmine Visual Aid 7.22

23. Diversification • Diversification is about making sure your money is invested in more than one place within a particular asset class. • For example, you may have money in a savings account for short-term goals, money in a money market deposit account for emergencies and money in a checking account for paying your bills. • This is diversification of your cash. Visual Aid 7.23

24. Time Value of Money • If I bought something in 2006 for $10, that same item today would take $11.41. • If something cost $100 in 1994, that same item today would cost around $145. • Alternatively, something that costs $100 would have likely cost about $68 in 1994. Visual Aid 7.24

25. Inflation • Inflation is the gradual increase in the cost of everything. • In the U.S., the inflation rate on average is 3% a year. The result of inflation is that each year, one dollar buys less than it did the year before. • With inflation, it takes more money to buy the same item each year. • Inflation is measured by the Consumer Price Index (CPI) and the Producer Price Index (PPI). • The PPI measures changes in wholesale prices—this is what businesses sell goods and services to one another for. Generally, this will increase in front of the CPI. The CPI measures the average change in price of a bunch of consumer goods. Visual Aid 7.25

26. The Rule of 72 • You can figure out how long it will take your money to double at any given rate of return. • Divide 72 by the rate of return. This tells you how many years it would take any amount of money to double at that rate of return. • For example, at 10%, your money would double in 7.2 years. • This means that it would take 7.2 years for: • $1 to become $2 • $100 to become $200 • $1,000 to become $2,000 if earning a 10% return. Visual Aid 7.26

27. Unbiased Saving and Investing Information • Generally, if the organization or person providing the information does not gain from steering you in a particular direction—toward a specific product or service—it is unbiased. • With investing, there are many people and businesses trying to sell many things. They all have something to gain from selling you specific products or services, some of which may be in your best interest, some which may not be. • It is always best to learn more about saving and investing from unbiased sources first. Visual Aid 7.27

28. Talking Stick Questions • As a result of this training, what is one money management related thing you are going to start? • As a result of this training, what is one money management related thing you are going to continue doing? • As a result of this training, what is one money management related thing you are going to stop? Closing Visual Aid 1

29. Web of Connectivity Questions • What is the most important thing you have learned? • What asset is it most important for you to build? What step will you take tomorrow to start building this asset? • What is something—information, skill, resource or tool—that you will be able to use starting tomorrow? • How has your social capital been strengthened or built through your experience? Closing Visual Aid 2

30. Post-dated Letter to Yourself: Questions to guide your letter • What progress have you made toward your short and long terms goals? • Have you built any assets? Which ones? • Have you built your social capital? How? • How have you overcome obstacles? • How have you used the knowledge and skills gained through your participation in Keys to Your Financial Future to become more financially capable? Closing Visual Aid 3