Real Skills Real Experiences Real Life The NCCEE and the Financial Planning Associations of...
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Transcript of Real Skills Real Experiences Real Life The NCCEE and the Financial Planning Associations of...
Real Skills Real Experiences Real Life www.bestprep.org
The NCCEE and the Financial Planning Associations of Charlotte and Raleigh gratefully acknowledge BestPrep and The Foundation for Financial Planning for making the Financial Matters initiative available in North Carolina.
Investing Matters
Part 4 of 4In BestPrep’s Financial Matters Series
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Goals of today’s presentation
Ground yourself in the basicsUnderstand riskCreate a strategyGet Started
Investments are not FDIC insured, may lose value, are not a deposit, have no bank guarantee and are not insured by any government agency.
Investing in a mutual fund involves risks, including the possible loss of principal. The prospectus contains more complete information on the investment objectives, risks, charges and expenses
of the fund, which investors should read and consider carefully before investing.
What does investing mean to you?
Money earned by investing gives you:
• Freedom to make choices• Protection of your money’s
value• Financial security
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What is investing?
Putting your time or money into something with hopes of gettingsomething greaterin return
Invest to create value
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Who can invest?
True or False
Only adults can invest?
True, but
Students can open a custodial investment account with their
parents.
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Why should I invest?
Which answers are correct?To set money aside for financial
independence from workTo build savingsTo meet long term goalsTo beat inflation
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Investing BasicsSaving vs. Investing Save for short-term goals (< 5 years)
Saving is setting money aside Saving is low risk but earns a low return
Invest for long-term goals (>5 years) Investing is putting money into something with
the hope of getting something greater in return Investing is more risky than saving, but has the
potential for higher returns
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Investments types
Cash
Bonds
Stocks
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Cash Accounts
Accounts you can access quicklyBank accounts (checking & savings)CDs (Certificates of deposit)Money market accounts
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Bonds You lend money to the government or
a companyExamples may include schools or
municipalities
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StocksYou own shares of the company• Many investors buy companies they know
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How much risk should I take?
Ask yourself…What is your goal for
money you’ve invested?Can you sleep at night
knowing the money you’ve invested may decrease?
Are you a risk taker?Do you like to know
your money is remaining stable?
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Investment Risk
MUNICIPALBONDS
LARGE-CAPSTOCKS
INTERNATIONAL
STOCKS
CASH EQUIVALENTS
GOVERNMENTBONDS
CORPORATEBONDS
MID-CAPSTOCKS
SMALL-CAPSTOCKS
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Lower risk, lower potential return Higher risk, higher potential return
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Managing Risk - Diversification
SnowBlowers
LawnMowers Winter Spring Summer
Fall
Inflation Risk
Private Four-Year College Tuition1
1979-80$9,501
1989-90$14,997
1999-00$20,047
2008-09$24,649
Movie Ticket2
1980 $2.69
1990 $4.22
2000 $5.39
2009 $7.50
1 Source: The College Board, Trends in College Pricing2 Source: National Association of Theatre Owners
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How much and when should I invest?
Any amount counts
Just get started
Time is on your side. Take advantage of compounding.
“Time and tide wait for no man.” Mark Twain
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Time is on Your Side Compounding
The more time you have the more you can benefit from compound growth
Tim begins Sally waits until investing at age 15. she is age 25.
Both invest $500 per year. Who will have more?
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Time is on Your Side Compounding
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
15 25 35 45 55 65
Tim
Sally
Tim earned$145,168
Sally earned $77,381
Hypothetical Example:At age 15, Tim begins investing $500 per year. Sally waits
until age 25 to invest the same amount. Both earn 6%* annualized
return.
Age* 6% is not a guaranteed rate of return.
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Consider Your EmotionsEmotion is NOT a Strategy
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Strategy for Investing Mutual Funds
Pool ofProfessional
Management
Diversified PortfolioInvestment Objective
Stocks and/or Bonds, etc.
Capital
Gains
Divid
ends
Share in underlying Investment Results (Gains or Losses)
Strategy for InvestingDollar Cost Averaging
Hypothetical Example:
Year _$$_Price/share# of Shares1929 $100 $10 101930 $100 $4 251931 $100 $2 501932 $100 $1 1001933 $100 $2 501934 $100 $4 _25 $600 260
Total value of all the shares after year 6 = $1040
Results in 21.84% average annual return
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Strategy for InvestingDollar Cost Averaging Works if you are willing to continue during
bad markets. You need to keep investing when share prices are declining.
Dollar cost averaging does not guarantee a profit and does not prevent against a loss.
Lessens the emotional roller coaster of investing.
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What can I do now?
Identify goals Create a strategy Get started Diversify, diversify, diversify Use resources/Get advice
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Resources for You!
Keep one finger on the pulse of the market:• www.investopedia.com• www.mfea.com• http://finance.yahoo.com/• www.morningstar.com• http://money.cnn.com/data/dow30
Look into an investment account for long-term goals• www.sharebuilder.com• www.schwabmoneywise.com
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Thank You!
©2007 BestPrep
NCCEE gratefully acknowledges the Foundation for Financial Planning for providing financial support to fund this project. We also are indebted to the BestPrep for sharing materials with NCCEE and to the Financial Planning Associations of Raleigh and Charlotte for their help in recruiting volunteers for this program.