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CHAPTER 10 Basics of Saving and Investing

CHAPTER 10 Basics of Saving and Investing. 10-1 Reasons for Saving and Investing 10-2 Principles of Saving and Investing 10-3 Strategies for Saving and Investing. 10-1 Reasons for Saving and Investing. Learning Objectives

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CHAPTER 10 Basics of Saving and Investing

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  1. CHAPTER 10Basics of Saving and Investing 10-1 Reasons for Saving and Investing 10-2 Principles of Saving and Investing 10-3 Strategies for Saving and Investing

  2. 10-1 Reasons for Saving and Investing Learning Objectives 10-1.1 Explain how saving and investing are related and how saving leads to investing and wealth. 10-1.2 Describe how saving and investing help you achieve personal goals. 10-1.3 Explain how investing prepares you for retirement and beyond. Slide 2

  3. How Are Saving and Investing Related? • Savings • Money set aside for the future • Investing • A strategy to earn more on your money than the rate of inflation • Savings Provide Security • Emergency fund: Money set aside for unplanned expenses Slide 3

  4. How Are Saving and Investing Related?(continued) • Savings Provide Security(continued) • Contingencies: Unplanned or possible events • Liquidity: A measure of how quickly an asset can be turned into cash • Investments Provide Wealth • Wealth: The accumulation of assets over your lifetime Slide 4

  5. How Can You Benefit from Saving and Investing? • Meet Personal Goals • Build Financial Security • Financial security: The ability to meet current and future needs while living comfortably Slide 5

  6. Personal and Financial Goals Slide 6

  7. How Does Investing Prepare You for Retirement and Beyond? • Retirement Planning • Retirement: A period of time, usually in later years, when you are not working and need to meet expenses through other income sources Slide 7

  8. Investment Growth Over Time Slide 8

  9. How Does Investing Prepare You for Retirement and Beyond?(continued) • Estate Planning • Estate: All that a person owns (assets), minus debts owed, at the time of that person’s death • Foundation: A fund or an organization established and maintained for the purpose of supporting an institution or a cause Slide 9

  10. 10-2 Principles of Saving and Investing Learning Objectives 10-2.1 Discuss the concept of risk versus return. 10-2.2 List and explain the types of risk that are faced by individual investors. 10-2.3 Describe the tax advantages available with certain types of investments. Slide 10

  11. How Is Risk Related to Return? • Growth of Principal • Return on investment (ROI) • A performance measure used to evaluate the efficiency of an investment Slide 11

  12. Return on Investment (ROI) Slide 12

  13. What Types of Risk Do Investors Face? • Investment risk • The potential for change in the value of an investment • Inflation risk • The chance that the rate of inflation will rise faster than your investment rate of return • Bond: A debt instrument that is issued by a corporation or government Slide 13

  14. What Types of Risk Do Investors Face? (continued) • Industry risk • The chance that factors affecting an industry as a whole will affect the value of an investment • Political risk • The chance that actions taken by the government will affect the value of an investment Slide 14

  15. What Types of Risk Do Investors Face? (continued) • Market and Nonmarket Risk • Market risk: The chance that changes in the business cycle will affect the value of an investment • Nonmarket risk: The chance that events unrelated to market trends will affect the value of an investment Slide 15

  16. What Types of Risk Do Investors Face? (continued) • Company Risk • Stock: Ownership interest in a publicly held company • Company risk: The chance that activities or events that affect a company will change the value of an investment in that company • Investment Risk Versus Gambling Slide 16

  17. What Are Tax Advantages of Investing? • Tax deferral • A postponement of taxes to be paid • Tax Exemption • Tax-exempt: An investment that is not subject to taxation Slide 17

  18. Investment Comparison Based on Tax Rates Slide 18

  19. 10-3 Strategies for Saving and Investing Learning Objectives 10-3.1 Explain the concept of systematic saving and investing. 10-3.2 Describe how you can lower investment risk through diversifying and building an investment portfolio. 10-3.3 Explain how you can maximize investment return by understanding the financial marketplace and the economy. Slide 19

  20. What Are Systematic Saving and Investing Strategies? • Systematic saving • A strategy that involves regularly setting aside cash that can be used to achieve goals • Systematic investing • A strategy that involves a planned approach to making investments on a regular basis • Long-Term Focus Slide 20

  21. What Are Systematic Saving and Investing Strategies? (continued) • Investment tracking • A technique for making investment choices by following the prices of stocks and other investments over time • Market timing • Buying and selling stocks based on what the market is expected to do Slide 21

  22. Stock Trend Line Slide 22

  23. What Are Systematic Saving and Investing Strategies? (continued) • Dollar-cost averaging • Investing the same amount of money on a regular basis regardless of market conditions Slide 23

  24. How Can You Reduce Investment Risk? • Diversify • Diversification: Holding a variety of investments for the purpose of reducing overall risk • Build a Portfolio • Portfolio: A collection of investments Slide 24

  25. A Diversified Portfolio Slide 25

  26. How Can You Maximize Investment Return? • Financial market • Any place where investments are bought and sold • Bull market • A prolonged period of rising stock prices and general feeling of investor optimism • Bear market • A period of steadily decreasing stock prices and investor pessimism Slide 26

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