Saving and Investing

1
Saving and Investing

• Making Money Work for You!

2
What is the difference?

• Saving safe, accessible usually only earns a
  small amount of interest good for short-term
  goals
• Investing risky higher rate of return good for
  long-term goals

3
Advantages of Saving

• See Pg. 29 of your Financial Planning Book

4
Time Value of Money

• Refers to the relationship among time, money and
  rate of interest
• Compounding Interest
• Pretend you are saving 10 at 4 interest for 3
  years.
• Year 1 Year 2 Year 3
• 10 x 1.04 10.40 x 1.04 10.82 x 1.04
• 10.40 10.82 11.25
• See Pg. 31 of your financial planning book

5
Time Value of Money

• The Rule of 72
• See how long it takes to double your money by
  dividing with 72
• 72 / interest rate of years needed
• 72 / of years interest needed
• See Pg. 32 of your financial planning book

6
The Rule of Investing

• Lower Risk Lower Return
• Higher Risk Higher Return
• (see pg. 33 in your Financial Planning Book)

7
Types of Investments

• Money Market a type of savings account offered
  by banks
• Limits the number of times you can withdraw money
• Usually require a higher minimum balance
• Pays a higher rate of interest than savings
  accounts

8
Types of Investments

• Savings Bond formal agreement where the
• borrower uses your money for a set period
• of time and you will be paid a set amount of
• interest in return
• Higher interest than savings
• Can be held for a period of up to 30 years
• Must pay a penalty if money is removed before the
  end of the term
• Often government-issued

9
Types of Investments

• CD (Certificate of Deposit) Bank
• version of a Savings Bond
• Can be set for a period starting as low as 3
  months
• Usually pay a slightly higher rate of interest
  than savings bonds
• The longer the term, the higher the rate!

10
Types of Investments

• Mutual Fund an investment in a
• collection of stocks and/or bonds
• Money is spread out, so there is less risk than
  investing in individual stock
• Can be sold/cashed in at any time
• (see pg. 39 of your financial planning book)

11
Types of Investments

• Stock owning share in a company
• One of the riskiest investments, but over time
  can yield the highest return
• Can be sold/cashed in at any time