Financial Stewardship Basics

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Financial Stewardship for Young People - Learning the Basics was designed and presented to college age audiences, primarily in church affiliated settings. It does exactly what the title suggests. It presents basic investment terminology and concepts, including the required balancing of risk and reward, the time value of money and the benefit of a life time of disciplined savings and prudent investment. It does not suggest or advocate specific investments or advice.

Transcript of Financial Stewardship Basics

  • 1. Financial Stewardship BasicsMastering the Fundamentalshttp://cfoamerica.biz/ 2011 by CFO America, LLC

2. The Classic Investment Trade-Off:Successful investing requires you to match your uniqueneeds with the characteristics of the investments you select!Market Value Determinants: RiskLiquidityYield 3. How much would you pay today for an investment that will return $1,000 in oneyear, assuming that a 5% return is appropriate for the level of risk involved?Present Value = Future Value X (1 / (1+Interest Rate)^ # Periods)= 1,000 X (1 / (1+ .05) ^ 1)= 1,000 X .95238= 952.38 4. How much would you pay today for an investment that will return $1,000 in two years, assuming that a 5% return is appropriate for the level of risk involved?Present Value = Future Value X (1 / (1+Interest Rate)^ # Periods)= 1,000 X 1 / (1+ .05) ^ 2= 1,000 X .90703= 907.03 5. How much would you pay today for an investment that will return $1,000 in one year, assuming that a 7% return is appropriate for the level of risk involved?Present Value = Future Value X (1 / (1+Interest Rate)^ # Periods)= 1,000 X 1 / (1+ .07) ^ 1= 1,000 X .93458= 934.58 6. How much would you pay today for an investment that will return$1,000 in ten years, assuming that a 7% return is appropriate for the level of risk involved?Present Value = Future Value X (1 / (1+Interest Rate)^ # Periods)= 1,000 X 1 / (1+ .07) ^ 10= 1,000 X .50835= 508.35 7. Market InterestRatesMarketValues 8. How much would you accumulate by investing $20 per week for forty years, assuming an annual return of 5%?Future Value =Payment X ( (1+Interest Rate)^ # Periods) -1) / Interest rate = 20 X ((1+ .05 / 52)^(52 * 40)-1) / (.05 / 52) = 20 X ((1.00096154)^2080 -1) / .00096154 = 132,745 9. Question: What happens to our $132,745 nest egg ifwe cut the annual return by 50%? Answer: It drops to $71,453, a decrease of 46%Question: What happens to our $132,745 nest egg ifwe cut the weekly investment by 50%? Answer: It drops to $66,372, a decrease of 50% 10. Question: What happens to our $132,745 nest egg ifwe cut the number of years by 50%? Answer: It drops to $35,713, a decrease of 73%Question: Whats the moral to this story?Answer: Time is your greatest asset 11. FinancialProsperityFinancialRuin 12. Some common investments are:Debt instruments: bonds (also notes, debentures, etc.), asset ormortgage backed securities, CDs, mortgagesEquity investments: common stock, preferred stock, options,warrantsOther: mutual funds, put & call options, futures, real estate, limitedpartnerships 13. Other important investment terms:401(k) plansDiversificationDow Jones Industrial Average (DJIA)HedgeLeverageMarginPublic versus privateS & P 500 IndexTax exempt bonds 14. Investment Dos & DontsNo substitute for a disciplined, long-term, diversified investment program doyour homeworkKnow your risk tolerance and stay below it -- never make an investment thatcauses you to loose sleepNever allow yourself to be pressured to invest in someone elses good dealor to take undue risks to catch up to their successBe careful when making an investment you dont understand, or thatspromoted primarily as a tax advantageNever invest in anything that offers a guarantee or sounds too good to be trueNever invest in anything you learn about from an unsolicited telephone call beware of the three-call scamWhen pressured to make an immediate yes or no decision, always say no