UNIT 5: SAVING & INVESTING

1. Unit Objectives/Learning Goals: Managing Finances and Budgeting: Develop and evaluate a spending/savings plan. Saving and Investing: Evaluate savings and investment options to meet short- and long-term goals. CCRS – Math (24-27)Solve multistep arithmetic problems that involve planning or converting units of measure Manipulate data from tables and graphs Compute straightforward probabilities for common situations (28-32) Interpret and use information from figures, tables, and graphs UNIT 5: SAVING & INVESTING Exploring Business Introduction to Saving & Investing: Starting a Savings Program

2. Savings Plan: putting money aside in a systematic way to help reach a financial goal. • Savings plans are used to buy the goods and services we need and want. • Also used for future expenses and emergencies. Why Have a Savings Plan?

3. Investing: using your savings to earn more money. • In order to invest your money, you must have money set aside in order to do so. • CAUTION: Investments are not guaranteed to make $$$$$ (NOT FDIC INSURED) Using Savings for Investing

4. Interest: money you receive for letting others use your money. • Savings put to work to earn interest is a form of investment. • See The Cost of Waiting Handout Making Savings Work for You!

6. Simple Interest: computed only on the amount saved. • Example: David saves $50 a month. In a year his savings will be $600. He earns 10% annual interest. • After year 1, he will have made $60. - - for doing nothing! Earning Interest

7. Compound Interest: computed on the amount saved plus the interest previously entered. • Interest can be compounded daily, monthly, quarterly, semiannually, or annually Which Grows faster the savings rate or the investing rate? Earning Interest

8. When deciding how to invest your savings, three main factors should be considered. • Safety • Rate of Return (Yield) • Liquidity Selecting an Investment

9. Safety: assurance that the money you have invested will be returned to you. • How safe are the following? • Savings Account at Local Bank • Purchasing a House • Investing in a Stock Selecting a Savings Plan

10. Rate of Return (Yield): the percentage of interest that will be added to your savings over a period of time. • How much will you “get back” in return for the invested amount of money. • Usually higher rates of return and greater risks of loss go together. Selecting a Savings Plan

11. Liquidity: the ease with which an investment can be changed into cash without losing any of its value. • When an investment can be turned into money quickly, it is said to be a liquid investment. • Compare $5,000 in a savings account in a bank to a piece of land that you bought for $5,000. • Which is more of a liquid investment? Selecting a Savings Plan

12. The Rule of 72 gives you the answer to the question of how long it will take to double your money at various rates of return. The Rule of 72

13. Worksheet • Saving! Every penny counts! • Determine some goals for yourself! • Your Bank Has Failed • www.cbsnews.com/stories/2009/03/06/60minutes/main4848047.shtml Savings/Investing Activity

14. EXPLORING BUSINESS Unit 5, Part 2: Stock as an Investment with your Savings!

15. Pull Out Life Maps… What happens as your plans get further away… • Your need for savings will increase as your goals become more expensive. • Investing at a young age can lead to better security and economic independence later in life. Review: Investments

16. Why Invest in Stocks? • Become part owner in a corporation! • Earn a high rate of return. • Rate of Return: Over the past 100 years, American Stocks have had an annual return of 9.7% • Over past 20 years, American Stocks have had an annual return of 13%! Investing in Stocks

17. Ownership of Stocks • Ownership in a corporation is shown in printed form, called a stock certificate. Investing in Stocks

18. Market Value: the price at which a share of stock can be bought and sold for in the market. • What affects price of stock? • How is the business doing? Financial reports, business releases. • State of Economy. (Which phase of business cycle?) • Political Developments Investing in Stocks

19. 2005 = Pepsi $31.94 • Buy Pepsi today at $62.58 Buy 100 shares. $6,258. • Imagine 2 years from now…(April 2015) • Pepsi’s stock price on April 2015 is now $101.94!! • You sell your 100 shares now valued at $10,194! • You have essentially earned $4000! (Amount Buy – Amount Sold) How Do I Make $$$ In The Stock Market?

20. Buy Pepsi today at $62.58. Buy 100 shares. $6,258. • Imagine 2 years from now…(April 2015) • Pepsi’s stock price on April 2015 is now $31.94!! • You sell your 100 shares now valued at $3,194! • You have essentially lost $3,000! (Amount Buy – Amount Sold) How Do I Lose $$$ In The Stock Market?

21. There is no secret or special formula. • It requires: hard work and research. • Four-Step Process for Deciding on Stocks • Observe and Analyze Economic and Social Trends • Determine Industries that will be affected • Identify Companies in those industries • Decide whether to buy, sell or hold the stock of those companies. Selecting Stock Investments

22. Your need for savings will increase as your goals become more expensive. • Investing at a young age can lead to better security and economic independence later in life. Review: Investments

23. NYSE: New York Stock Exchange • AMEX: American Stock Exchange • Nasdaq: National Association of Securities Dealers Automated Quotations Where are Stocks Sold?

24. Buying Stock = “Trade” when the best bid meets the lowest offer to sell. • Stock prices are determined by supply and demand. NYSE, AMEX, Nasdaq

25. Compare a Stock Exchange to Ebay… • Ebay and Stock Exchanges = Auction sites • Seller puts an item up for sale, and several people compete to buy the same item. Stock Exchanges- STOCK Brokers

26. Go Public: the process a company takes to offer shares of stock to the public for the first time. • Initial Public Offering (IPO): the first sale of a corporation’s public shares. “Going Public”

27. Businesses offer stock for many reasons, that include: • Raise Capital • Expand Operations/Create Jobs • Fund Research and Development of Products • Pay Off Debt • Provide Employees with Benefits • Develop Marketing Strategies • Generate Additional Revenue Why “Go Public”

28. In selecting a specific stock to buy, you should learn something about the business record of the corporation. • There is no secret or special formula. • It requires: hard work and research. • The opportunity to earn a high rate of return attracts people to invest in stocks. Selecting Stocks

29. READ OUTLOUD in your Groups (rows). Each person reads a Paragraph. • As a group, complete the questions on page 20 STOCK OWNERSHIP- TOAD!

30. When considering stocks, ask the following questions: • Has the company been profitable over a period of years? • Does the company have growth potential in coming years? • How does the company compare with others in its industry? Selecting Stocks

31. Revenue: The dollar amount of sales during a specific period, including discounts and returned merchandise. • When evaluating stocks, revenue growth serves as an indication of a company's health. Identifying Important Figures in Selecting Stock

32. YOUR TURN, SELECTING STOCKS • Pg 22 in PACKET finance.yahoo.com • Pick 2 competing companies from 3 industries… • Coke, Pepsi - Beverages • Microsoft, apple – Computers • Mcdonaldsvs Burger King – Fast Food READY TO INVEST?

34. Time to INVEST your money. You choose 3 of your six companies to invest in…plus one more for fun.. • INVESTOPEDIA.com • Follow instructions on page 23-26 Your turn, INVESTOPEDIA

35. Investopedia Review • Check Pg 22 • So how do we compare stocks to determine better buy? • Pepsi – PEP (66) Coke- 63 • Saving and Stock review.notebook • Jim Cramer- Mad Money 8:40-12:00 Review Investments

36. P/E Ratio: Price (market value) per Share/Earnings per Share • it shows how much investors are willing to pay per dollar of earnings. It shows value. • In general, a high P/E means high projected earnings in the future. However, the P/E ratio actually doesn't tell us a whole lot by itself. It's usually only useful to compare the P/E ratios of companies in the same industry Identifying Important Figures in Selecting Stock

37. 52 Week Range: The highest and lowest price at which a stock was sold in the past year (52 weeks). High Low Current Coke 61 43 57 Pepsi 67 47 66 Identifying Important Figures in Selecting Stock

38. Earnings per Share: • = Net Income – Dividends / Average Outstanding Shares • EPS indicates the profitability of a company. Identifying Important Figures in Selecting Stock

39. What are the three ways to determine if now is the time to purchase a stock • P/E Ratio • 52-Week High Low • EPS Investing in Stocks

40. Calculating P/E Ratios • AAPL • Your turn page 36 • When done, you can buy and sell stocks in your investopedia account Unit 5: Investments

41. http://simulator.investopedia.com/Ranking/default.aspx#axzz1eLlhDyq4http://simulator.investopedia.com/Ranking/default.aspx#axzz1eLlhDyq4 How to Reduce your Volatility? Bonds EXPLORING BUSINESS Unit 5: Investments Investing in Bonds

42. BOND: a certificate promising to pay a specific amount of money at a stated interest rate on a specific maturity (due) date. • A bond is basically a fancy IOU. • Bonds Explained What is a Bond?

43. Organizations such as the federal government, corporations, churches, and schools issue bonds to raise money. • When these organizations issue bonds, they are borrowing money from the people who purchase the bonds. Investing in Bonds

44. Government Bond: bonds issued by government to fund public services. • Considered very safe. The risk of the government not returning your money is very low. Rate of return is lower. • Corporate Bond: a bond sold by a corporation. • Depends on company, but the risk is higher than government bonds, therefore having an overall higher rate of return. Types of Bonds

45. Why would the government need to borrow money? • Defense • Buildings • Employees • To fund any and all public services. Government Bonds

46. All government bonds use the money to fund public services. • Different types of bonds are for different uses • Savings Bonds: issued by federal government for national services. • Municipal Bonds: issued by state and local governments for state and local services. “Muni’s” Different Types of Government Bonds

47. Municipal Bonds • Usually sold in amounts of $1,000. • Considered very safe investments. • Money borrowed is for local or state projects. • Road Construction, Schools, Hospitals, etc. Government Bonds

48. United States Savings Bonds • Series EE Bonds ($50 - $10,000): bought at half its face value. • A $50 bond costs $25. The bond will earn interest for a specific period of time. Government Bonds

49. Savings Bonds: Example

50. Interest Earned: difference between the purchase price and redemption value. • Interest earned is determined by the length of time the bond is held. • Savings bonds are purchased at banks, through payroll, and over the Internet • You can “cash” your savings bonds at anytime, but the longer you hold the bond, the more interest you will make. Series EE Savings Bonds