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Where should I invest?

Where should I invest? . SSEPF1 The student will apply rational decision making to personal spending and saving choices. a. Explain that people respond to positive and negative incentives in predictable ways. b. Use a rational decision making model to select one option over another.

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Where should I invest?

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  1. Where should I invest? SSEPF1 The student will apply rational decision making to personal spending and saving choices. a. Explain that people respond to positive and negative incentives in predictable ways. b. Use a rational decision making model to select one option over another. c. Create a savings or financial investment plan for a future goal.

  2. Where can I invest? • Stocks • Real Estate • Mutual Funds • Insured Certificates of Deposit • Insured Savings Accounts • U.S. Savings Bonds

  3. Why should I invest? • Rates of return are sometimes higher than regular savings • Saving/investing for future allows you to expand your overall fortune

  4. What do I mean…fortune? • Simple Interest – interest is earned on initial investment only • Compound Interest – interest is earned on initial investment AND interest already earned

  5. Example of Compound Interest ($100) • Simple • $100 investment • Interest on initial investment 10% = $10 • Total = $110 • Next round • Interest on initial investment 10% = $10 • Total = $120 • Compound • $100 investment • Interest on initial 10% = $10 • Total = $110 • Next Round • Interest on total 10% = $11 • Total = $121

  6. Leave it for 5 years…or 10 • Simple • Year 1 = $110 • 2 = $120 • 3 = $130 • 4 = $140 • 5 = $150 • 10 = $200 • Compound • Year 1 = $110 • 2 = $121(110 + 11) • 3 = $133 (121 + 12) • 4 = $ 146 (133 + 13) • 5 = $ 160 (146 + 14) • 10 = $ 256

  7. Things to remember • With CD’s – long-term = high initial investment and higher interest; short-term = low initial investment and low interest • Bonds – similar to CD’s • Stocks – depending upon type, price could be low or high. The “safer” the option, the less likely you are to earn quick money. • The longer your investment stays invested, the more likely it is to earn money. • S&P 500 returns – 2010 14.32 – 2009 27.112008 - 37.22

  8. For your activity • Financial Risk – risk of losing the money (1 – repays easy 2 - repays with difficulty 3 – cannot repay) • Market Risk – prices will change (1 – will not earn a lot 2 – earns a little 3 – earns a lot) • Liquidity Risk – Ability to turn investment into cash (1 – easy to make into cash 2 – somewhat difficult to turn into cash 3 – very hard to turn into cash) • Inflation Risk – Risk that investment will have LOWER return than inflation (1 – no worry about inflation 2 – a little worry about inflation 3 – inflation is probably higher than your earnings)

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