Literacy Institute for Financial Enrichment

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The Reid Temple AME Youth Investment Club
and The Literacy Institute for Financial
Enrichment In conjunction with the Reid Temple
Faith and Finance Ministry Present an
INTRODUCTION TO INVESTMENTS What you Need to
Know, but were Afraid to Ask
Literacy Institute for Financial Enrichment
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Session Goals

• Introduce Stewardship Concepts
• God gives us the power to get wealth (for a
  purpose)
• Review attitudes about God and Money (God 1st)
• Manage money in a way that honors God
• Introduce basic investment concepts
• Introduce stocks and bonds
• Introduce asset allocation versus diversification
• Have fun with investment-related activities and
  games to reduce fear and anxiety about
  investments

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Scriptural References Proverbs 35-6 Trust in
the Lord with all thine heart, and lean not unto
thine own understanding. In all thy ways
acknowledge him, and he shall direct thy
paths. Proverbs 39-10 Honor the Lord with thy
substance, and with the first fruits of all thine
increase. So shall thy barns be filled with
plenty, and thy presses shall burst out with new
wine. Psalms 37 3-5 Trust in the Lord, and do
good so shalt thou dwell in the land, and verily
thou shalt be fed. Delight thyself also in the
Lord, and he shall give thee the desires of thine
heart. Commit thy way unto the Lord trust also
in him, and he shall bring it to pass. Luke
1610-12 He that is faithful in that which is
least is faithful also in much and he that is
unjust in the least is unjust also in much. If
therefore, ye have not been faithful in the
unrighteous money, who will commit to your trust
the true riches? And if you have not been
faithful in that which is another mans who
shall give you that which is your own? Proverbs
66-8 Go to the ant, thou sluggard consider her
ways, and be wise. Which having no guide,
overseer or ruler. Provideth her food in the
summer, and gathereth her food in the
harvest. Deuteronomy 8 1-20 18 But thou shall
remember the Lord thy God for it is he who
giveth thee power to get wealth, that he may
establish his covenant which he swore unto thy
fathers, as it is this day.
Literacy Institute for Financial Enrichment
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Key Investment Concepts

• Compound Interest
• Time Value of Money
• Rule of 72
• Asset classes (stocks, bonds and cash)

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The Power of Compounding Compound Interest
(Example 1)

• 100 (principal) deposited in bank earning 10
  interest per year (compounded annually)
• Money is not withdrawn for 5 years
• First years balance 110.00 (100 x 10 return)
  
• Second years balance 121.00 (110 x 10 return)
• Third years balance 133.10 (121 x 10
  return)
• Fourth years balance 146.41 (133.10 x 10
  return)
• Fifth years balance 161.05 (146.41 x 10
  return)

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Asset Classes

• Asset class (definition)
• Cash
• Stocks
• Bonds

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Cash

• Readily accessible or liquid funds
• Includes passbook accounts (checking and savings
  accounts)
• Money market funds (some may lose value)
• Low market risk
• Potential lower returns than stocks and bonds
• Returns may not outpace inflation
• May be federally insured

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Stocks

• What is a stock
• Why companies issue stock
• History of stock markets
• Kinds of stocks
• Reading a stock table
• Stock table activity

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What is a stock?

• Investment instrument that represents ownership
  or equity in a domestic (U.S.) or foreign company
• Method for companies to raise money to grow or
  expand
• Investment instrument through which shareholders
  (stock owners) can vote on company policies and
  other matters
• Investment instrument that can carry a higher
  level of risk than some other asset classes
• Investment instrument that historically has
  outpaced inflation
• Market capitalization (share price x numbers of
  shares)

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Bonds

• What is a bond?
• Why do companies issue bonds?
• Kinds of bonds

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What is a bond?

• Loan or debt to a corporation or government
  entity
• Carries a defined rate of return (generally for a
  specified period of time (ie. 10 year bond, 30
  year bond)
• Has interest rate risk
• Has higher inflation rate risk than stocks
• May lose or gain money from the initial
  investment amount
• May change in market value due to changes in
  interest rate or the financial stability of the
  issuer (based on credit ratings)
• Size of worldwide stock market 45 trillion
  dollars (equals 45,000,000,000,000)

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Asset Allocation vs Diversification

• Asset allocation investing in more than one
  asset class (cash, stocks, and bonds). Putting
  your eggs in more than one basket.
• Asset allocation lessens impact if one asset
  class is not doing as well as another
• Asset allocation allocating money among
  different asset classes that meet investment
  goals, risk tolerance and time horizon
• Diversification investing in more than one item
  within an asset class (ie. Large cap, foreign,
  and mid cap stocks or municipal, corporate and
  agency bonds).
• Monitor investments and reallocate over time as
  needed.
• Asset allocation and diversification do not
  ensure a profit or guarantee against a loss.

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Risk versus Return
Stocks, Bonds and Bills 1926 2005
14
Small-Company Stocks
12
10
Large-Company Stocks
8
Intermediate-Term Government Bonds
Return
6
Long-Term Government Bonds
4
Treasury Bills
2
0
0
5
10
15
20
25
30
35
Risk
Risk is measured by standard deviation. Return is
measured by compound annual return.
This art is for illustrative purposes only and
not indicative of any investment. An investment
cannot be made directly in an index. Past p
performance is no guarantee of future results.
March 1, 2006. Not intended as investment
advice. Please consult your own financial and tax
professionals for specific advice.
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• Disclaimers
• None of this information is intended as
  investment advice. Please consult your own
  financial and tax professionals for specific
  advice.
• Standard deviation measures the fluctuation of
  returns around the arithmetic average return of
  investment. The higher the standard deviation,
  the greater the variability (and thus risk) of
  the investment returns.
• Diversification does not ensure a profit or
  guarantee against a loss.
• High-yield (below investment grade) bonds are not
  suitable for all investors. When appropriate,
  these bonds should only comprise a modest portion
  of your portfolio.
• Investing in small-cap stocks generally involves
  greater risks and, therefore, may not be
  appropriate for every investor.
• U.S. government bonds and Treasury bills are
  guaranteed by the U.S. government and, if held to
  maturity, offer a fixed rate of return and
  guaranteed principal value. U.S. government bonds
  are issued and guaranteed as to the timely
  payment of principal and interest by the federal
  government. Treasury bills are certificates
  reflecting short-term (less than one year)
  obligations of the U.S. government.
• Please note that international investing involves
  special risks, including currency fluctuations,
  different financial accounting standards, and
  possible political and economic volatility.
• High-yield (below investment grade) bonds are not
  suitable for all investors. When appropriate,
  these bonds should only comprise a modest portion
  of your portfolio.

Literacy Institute for Financial Enrichment