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Introduction to Investing Take Charge of Your Finances Family Economics and Financial Education
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© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 1Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1Risk vs. Reward
ActivityWinnings Chart
Number of Guesses 6 5 4 3 2 1
Number of Candies Won 0 1 2 5 10 15
Activity
Number on Die 1 2 3 4 5 6 Number
Rolled
Number of
Guesses
Candies Won
Round 1
Round 2
Round 3
Round 4
Round 5
Total
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 2Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1
Group Questions1. How did the number of candies won relate
to the number of guesses made?2. Who had the largest return? Did you have
a strategy for play?3. Did anyone have a strategy for activity
play? If so, did the strategy work?4. Did anyone choose only one number every
time? If so, how many candies did you win?
5. Did anyone choose five numbers every time? If so, how many candies did you win?
6. If you had to give up candies every time you chose a number would you have played differently?
Discuss and then answer on
the back of activity sheet.
Please use complete
sentences.
Introduction to Investing
Take Charge of Your FinancesFamily Economics and Financial
Education
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 4Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1Saving and
InvestingOnce an appropriate amount
of liquid assets are reached
Refocus goals from savings to investing
Remember: The purpose
of savings is
to develop financial security.
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 5Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1
What is Investing?• The purchase of assets with
the goal of increasing future income
Characteristic: • Focuses on wealth
accumulation
Investing is appropriate for long-term goals.
What are examples of long-term goals that
can be accomplish
ed by investing?
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 6Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1
Rate of ReturnInvestments usually earn
higher rates of return than savings tools
• Rate of Return–The total return on an
investment expressed as a percentage of the amount of money invested
Total
Return
Amount of
Money
Invested
Rate of Return
Remember: Return is the profit or income generated by savings
and investing.
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 7Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1What is Mandy’s
Rate of Return?Mandy saved $2,200 in a
money market deposit account. After one year, she
has a return of $110. What is Mandy’s rate of return?
$ $
Mandy’s rate of return on investment is %
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 8Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1What is Derek’s
Rate of Return?Derek invested $900. When he withdrew his money from the investment, he had a total of
$1,050. What is Derek’s rate of return?
$ $
Derek’s rate of return on investment is %
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 9Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1
RiskPOTENTIA
L RETURN
RISK
Risk• The uncertainty regarding the outcome
of a situation or eventInvestment Risk• The possibility that an investment will
fail to pay the expected return or fail to pay a return at all
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 10Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1
Investment Risk• Risk is a trade-off for the
potential to receive high returns• All investments carry some
level of risk
Financial Risk PyramidIllustrates the trade-offs between risk
and return for a number of saving and investing tools
What is the risk level of
savings tools?
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 11Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1Financial Risk
Pyramid
Wealth Accumulation- Investments
Financial Security- Savings Tools
SpeculationIncreasing
potential for higher returnsIncreasing risk
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 12Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1
InflationInflation
The rise in the general level of prices
Inflation RiskThe danger that money won’t be worth
as much in the future as it is today
Inflation risk should not be a concern with savings since the
goal of savings is to provide current financial security
The rate of return on an investment should be
higher than the rate of inflation.
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 13Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1Investment
PhilosophyEach individual has a tolerance level for the
amount of risk they are willing to take on
Investment PhilosophyAn individual’s general
approach to investment risk
The greater the risk a person is willing to
make on an investment, the greater
the potential return will
be.
Generally divided into three categories: conservative, moderate, and aggressive
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 14Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1Discussion
Questions1. When playing Risk vs.
Reward, what do you believe your investment philosophy was?
2. Did your investment philosophy change throughout the activity?
3. Do you think your investment philosophy during the activity is or will be the same in real life?
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 15Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1Portfolio
DiversificationPortfolio Diversification-
reduces risk by spreading investment money among a
wide array of investment toolsCreates a collection of
investments that will provide an acceptable
return with an acceptable exposure to risk
Assists with investment risk reduction
Referred to as “Building a Portfolio.”
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 16Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1Types of
Investment ToolsStocks Bonds
Mutual Funds
Index Funds
Real Estate
Speculative
Investments
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 17Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1
Stocks• Stock–A share of ownership in a
company• Stockholder or shareholder–Owner of the stock
Usually a stockholder owns a very small part
of a company.
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 18Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1
Return on Stocks• The share of profits distributed in
cash to stockholders• Stockholder may or may not
receive dividends- depends on company profit
Dividends
• The current price that a buyer is willing to pay for stock
• If stock is sold for a market price higher than what was paid, stockholder will receive a return
• If stock is sold for a market price lower than what was paid, stockholder will lose money
Market Price
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 19Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1
Bonds• A form of lending to a company or
the government (city, state, or federal)
• The company or government pays annual interest to the investor until the maturity date is reached– The specified time in the future when
the principal (or initial investment) amount of the bond is repaid to the bondholder
Bonds are less risky
than stocks but do not have the
potential to earn as
much as a stock.
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 20Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1
Mutual Funds• Mutual fund- Created when a
company combines the funds of many different investors and then invests that money in a diversified portfolio of stocks and bonds
Always research the fees
charged by a mutual
fund.
Reduces investment risk
by helping people diversify their portfolio
Fees can be high
Saves investors time
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 21Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1
Index Fund• Index fund– A mutual fund that was designed to
reduce fees by investing in the stocks and bonds that make up an index
• Index- a group of similar stocks and bonds– Examples- Standard and Poor 500,
Wilshire 5000• Offer high diversification with low fees
What is the difference between a
mutual fund and an
index fund?
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 22Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1
Real Estate• Includes any residential or
commercial property or land as well as the rights accompanying that land
• A family home is not considered an investment asset
• Can be risky and more time consuming but has potential for large returns
Examples of real estate
investments include
rental units and
commercial property.
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 23Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1Speculative
Investments• Have the potential for
significant fluctuations in return over a short period of time–Examples- future, options,
commercial paper, collectibles
• Recommended for people with an aggressive investment philosophy and a high level of financial security
© Family Economics & Financial Education – June 2010 – Investing Unit – Introduction to Investing – Slide 24Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.12.1.G1
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