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Personal Finance

Personal Finance. Introduction to Investment Options. Savings vs. Investing. Savings = socking away money Investing = using your savings to earn more money. Investment Goals. GROWTH. INCOME. Investment Types. Securities Stocks a Mutual Fund ETFs Bonds “Other” Investments

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Personal Finance

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  1. Personal Finance Introduction to Investment Options

  2. Savings vs. Investing • Savings = socking away money • Investing = using your savings to earn more money

  3. Investment Goals GROWTH INCOME

  4. Investment Types • Securities • Stocks a • Mutual Fund • ETFs • Bonds • “Other” Investments • Real Estate • Commodities • Collectibles

  5. Stock • Represents ownership in a company • Companies sell stock to raise funds • Common way of investing

  6. How stocks can make you $$$ Capital Gains Dividends Company pays out some of its earnings to shareholders. P&G stock pays a $1.76 dividend…for every share of P&G you own, they send you $1.76 a year (paid in 4 quarterly installments). Yield = 2.80% • Sell stock for more than you paid for it. • Example…bought 100 shares of Apple @ $80 share (total investment of $8,000). Later sold 100 shares @ $200 share. • Can also have Capital Loss

  7. Advanced Stock Plays “Shorting” A Stock Call/Put Options Right to buy or sell a stock or security at a future date at a given price. Put Option = Right to Sell Call Option = Right to Buy Call Options – think price will go up Put Options – think price will go down • A bet that the price of a given stock will go down • You “sell” the security held by someone else and replace it at a later date • Hope that stock price decreases • High Risk – Unlimited Losses

  8. Bonds • Companies and governments can raise money by issuing bonds • Bonds represent DEBT of the company/government • If you invest in a bond, you are making a loan • Bonds pay interest  • Bonds can also increase or decrease in value

  9. Mutual Funds • Invest in a variety of different companies • Allow investors to spread out their risk among many different companies

  10. Mutual Fund ExampleReynolds Blue Chip Growth Fund

  11. Real Estate • Includes land and buildings • Both personal and commercial • Different reasons for investing in real estate • Residence • Rental Income • Appreciation

  12. Commodities • Tangible items • Farm crops, livestock, gold/silver, currency • Investors purchase commodity contracts hoping the market price for commodity goes higher in near future • Very risky

  13. Commodities, Continued • Traded on the Chicago Mercantile Exchange • Corn Example • http://www.cmegroup.com/trading/commodities/grain-and-oilseed/corn_quotes_globex.html • Tutorial • http://progressive.powerstream.net/008/00102/edu/vignettes/corn/index.html

  14. Collectibles • Examples • Coins, stamps, comic books, art, sports cards and other rare items • Risky and possible liquidity issues

  15. Evaluating savings & investments • 4 Factors • Risk • Return • Liquidity • Taxes

  16. Risk • The chance that you may lose some or all of your money

  17. Return • Percentage of money earned on your savings or investments over the course of a year • Higher yields and greater risk of loss generally go hand-in-hand • Higher yields mean investors believe the situation involves a higher degree of risk

  18. Risk Pyramid

  19. Liquidity • A measure of how quickly an investment can be changed into cash WITHOUT losing its value • Easy to convert into cash = “liquid” • Hard to convert into cash = “illiquid” • Example: Mars Rock vs. Baseball Card vs. Savings Account

  20. Taxes • Taxes reduce rate of return  • Many returns on savings and investments are taxed • At different rates and at different times • Depends on type of investment and type of account you have it in

  21. Activity – Follow the Herd? • There are 5 investment markers located throughout the room • I will read 5 situations • For each situations choose an investment by walking over to the marker

  22. Situation #1 • You have $5,000 to invest. No other information is available.

  23. Situation #2 • You have $4,000 that you will need six months from now to pay for college tuition.

  24. Situation #3 • You inherited $10,000 from your great-aunt; she has suggested that you save it for use in your old age (aka retirement).

  25. Situation #4 • You have just started your first job and can now save $50 a month towards your retirement.

  26. Situation #5 • A new baby arrives, and you plan to save $100 a month for the child’s college education.

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