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INVESTING for your future

INVESTING for your future. Personal Finance – Unit 5. How Much $ will YOU need when you retire?. How will you get it?. Investing is like gambling…. But “EDUCATED”. Are You a Risk Taker?. Which best describes your feeling about investing? Better safe than sorry Moderation in all things

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INVESTING for your future

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  1. INVESTING for your future Personal Finance – Unit 5

  2. How Much $ will YOU need when you retire?

  3. How will you get it?

  4. Investing is like gambling… But “EDUCATED”

  5. Are You a Risk Taker? • Which best describes your feeling about investing? • Better safe than sorry • Moderation in all things • Nothing ventured, nothing gained

  6. Are You a Risk Taker? 2. Which is the most important to you as an investor? • You receive a steady income • You receive a steady income and growth • The price of your investments rises rapidly

  7. Are You a Risk Taker? 3. You won! Which prize would you pick? • $4,000 in cash • A 50% chance to win $10,000 • A 20% chance to win $100,000

  8. Are You a Risk Taker? 4. The stocks you own have dropped 20% since last quarter. The market experts are optimistic. What would you do? • Sell to avoid more loss • Keep stocks, wait for rebound • Buy more stocks b/c they’re cheaper now

  9. Are You a Risk Taker? 5. The stocks you own have gone up 20% since last quarter. You have no further information. What would you do? • Sell & take gains • Keep stocks, hope it goes up higher • Buy more stocks b/c they might go higher

  10. Are You a Risk Taker? 6. Would you borrow money to take advantage of a good investment opportunity? • Never • Maybe • Yes

  11. Are You a Risk Taker? 7. How would you characterize yourself? • I don’t like taking risks • I’m a moderate risk taker • I enjoy taking risks

  12. SCORE YOURSELF • 1 Points for all “As” • 2 Points for all “Bs” • 3 Points for all “Cs”

  13. Your Results: • 7-11: you’re a conservative investor who prefers to minimize financial risks • 12-16: You’re a moderate risk taker • 17-21: You’re comfortable taking risks in pursuit of greater returns

  14. INVESTING Let’s Get Started!

  15. Investing For Your Future • Starting to Invest • Reasons for Investing • How to Choose an Investment • Wise Investment Practices • Risk and Return • Types of Retirement Plans

  16. INVESTING IN YOUR FUTURE • Money left in savings/checking for you to use as needed • Should include an emergency fund (6-9 months of salary) Put-and-Take Account

  17. Financial emergencies can come in the form of a job loss, significant medical expenses, home or auto repairs or something you’ve never dreamed of. The last thing you want to do is be forced to rely on credit cards or a loan which could simply compound the problem. Why You NEED an EMERGENCY FUND

  18. INVESTING IN YOUR FUTURE • Investing on a regular and planned basis • Regularly set aside money each month for investing to meet long-term goals • Higher risk in the beginning, lowest risk near retirement • Retirement-planning Systematic Investing

  19. REASONS FOR INVESTING • Helps beat inflation • Increases wealth • Fun and challenging

  20. Choosing an Investment • Safety (minimal risk of loss) • High LIQUIDITY (getting your money quickly) • High dividends or interest • Growth in value that exceeds the inflation rate • Reasonable (low) purchase price (initial cost) • Tax benefits (saving or postponing tax liability)

  21. Wise Investment Practices • Define your financial goal • Go slowly • Follow through • Keep good records • Seek Good Investment Advice • Keep investment knowledge current • Know your limits – risk tolerance, how much you can afford to lose

  22. Wise Investment Practices • Stay within your “Circle of Competence”

  23. RISK AND RETURN • RISK is the chance that an investment’s value will decrease. • All investments have risk • GREATER RISK = GREATER POTENTIAL RETURNS • DIVERSIFICATION means spreading risk among many types of investment

  24. Types of Risk Interest-Rate Risk – The chance that the investment’s return will not keep pace with inflation Market Risk – caused by business declines, national/world events, interest rate fluctuations Political Risk – Gov. actions that may decrease the success of an investment Company/Industry Risk – actions that affect one company/industry

  25. What type of risk would it be? • The US government puts sanctions on China, causing the price of Chinese companies’ stock to decrease

  26. What type of risk would it be? • Your stock portfolio only saw returns of 1.5% last year, but your 60 Month Bank CD is earning 2% interest.

  27. What type of risk would it be? • NEW YORK (CNNMoney) -- As it attempts to revive a once-great luxury brand, Ford's is renaming its Lincoln division as the Lincoln Motor Co., the automaker said Monday (12/3/2012)

  28. What type of risk would it be? • “Americans unexpectedly pared spending in October as superstorm Sandy depressed wages, showing the world’s largest economy is cooling as lawmakers seek ways to avoid the so-called fiscal cliff. “ (BusinessWeek, 11/30/12)

  29. So you want to invest? But what can you INVEST in?

  30. Savings and Investing Pyramid Greater the risk, greater the POTENTIAL returns

  31. If you don’t know much about investing on your own, you may want to have a retirement plan through your employer or financial advisor… Up NEXT: TYPES OF RETIREMENT PLANS!

  32. TYPES OF RETIREMENT PLANS • Government Sponsored • Personal Plans • Annuities • Employer Sponsored

  33. Government Sponsored • People contribute while they are working and get a portion of it back when they reach age 65 SOCIAL SECURITY How it works:

  34. PERSONAL PLANS

  35. ANNUITIES • An insurance product that pays out income, and can be used as part of a retirement strategy • A popular choice for investors who want to receive a steady stream of income in retirement • You make an investment in the annuity, and it then makes payments to you on a future date or series of dates

  36. EMPLOYER-SPONSORED PLANS

  37. DEFINED BENEFITS PLAN • Company retirement plans in which a retired employee receives a specific amount based on salary history and years of service, and in which the employer bears the investment risk. The employee, the employer, or both may make contributions.

  38. DEFINED BENEFITS PLAN PENSIONS • Workers pay a percentage of their salary towards the pension each paycheck. • This is typically three to five percent per paycheck. • In turn, the company the employee works for will help the employee financehis retirement. • The government guarantees pension benefits to a certain extent

  39. DEFINED CONTRIBUTIONS PLAN • The employer and/or employee make contributions, and the final benefits depend on how much was in the account and the rate earned by the account's investments. The federal government does not guarantee a participant's benefits; instead, the plan is "participant-directed", meaning that the employee makes the investment decisions based on the employer's options.

  40. DEFINED CONTRIBUTIONS PLANS • Most common type of employer-sponsored plan • Used with for-profit companies • Allows employees to save pre-tax dollars • Some companies MATCH employee contributions • MAX contribution <50 is $15,500/year Traditional 401(k)

  41. DEFINED CONTRIBUTION PLANS • Similar to 401(k), but used for non-profit organizations • Usually not matched by employer Traditional 403(b)

  42. DEFINED CONTRIBUTION PLANS • An employer alone makes contributions based on an employee's current-year compensation. • Contributions are discretionary and may vary year-to-year, may also include stock options PROFIT SHARING PLAN

  43. DEFINED CONTRIBUTION PLANS • A type of profit sharing plan, where contributions are made in the form of company stock. STOCK BONUS PLAN

  44. Thinking Economically about Researching Stocks • 2,800 firms are listed on the NYSE (thousands more on the AMEX, and NASDAQ) • Out of all this companies, how does one pick the stocks most likely to increase in price? Recognize that you cannot know it all Select a few companies to research, then follow their progress closely Find a few good places to get stock information.

  45. SOURCES OF FINANCIAL INFO. • Financial pages of local newspapers • The Wall Street Journal • Barron’s NEWSPAPERS

  46. SOURCES OF FINANCIAL INFO. • Companies that provide extensive financial data to investors • Moody’s Investor Services (www.moodys.com) • Standard and Poor’s Reports (www.standardandpoors.com) • Motley Fool (www.fool.com) • Forbes (www.forbes.com) • Yahoo Finance (www.yahoo.com) INVESTOR SERVICES

  47. SOURCES OF FINANCIAL INFO. • BusinessWeek, Forbes, Money, Fortune, Kiplinger’s Personal Finance, The Economist FINANCIAL MAGAZINES

  48. Sources of Financial Info.

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