Bellwork: Rule of 72
description
Transcript of Bellwork: Rule of 72
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 1Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Bellwork:Rule of 72Allows a person to easily calculate when the
future value of an investment will double the principal amount
72 Interest Rate
Number of years needed to double the
principal investment
Doug invested $2,500 into a Certificate of Deposit earning a 6.5% interest rate. How long will it take Doug’s
investment to double?Jessica has a $2,200 balance on her credit card with an 18% interest rate. If Jessica chooses to not make any payments and does not receive late charges, how long will it take for her balance to double?
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 2Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Rule of 72
• It is an approximation• Albert Einstein is credited for figuring this
out; At 10% interest rate, money doubles every 7.2 years
• Can also be used to figure out what interest rate is needed to double your money.– 72/years=% interest needed to double
The Fundamentals
of InvestingAdvanced Level
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 4Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Investments
Financial Plan
Savings
Investments
Investments -assets purchased with the goal of
providing additional income
from the asset itself but with the
risk of loss
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 5Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
All Investments Have Some Risk
Return
Profit or income generated by saving and investing
Trade off
Higher returns
Higher risk (chance of loss)
Investment Risk
Possibility that an investment will fail to pay the expected return
Investments have the potential for higher returns
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 6Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Investments are Important to Building Net Worth
Savings Tools = Monetary Assets(liquid – quickly and easily
converted to cash)
Investment Tools = Investment Assets(may not be easily converted to cash or penalties charged to access the funds
early)Investments
are less liquid than
savings tools
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 7Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Investments Help Accomplish Long-Term Goals
Money invested is usually used to pay for long-term
goals
Buying a House Higher Education Retirement
It is recommended
that at least 10% of net income is
dedicated to savings and investments
each time income is received
Saving vs. Investing
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 9Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
What types of feelings result from saving and investing?
Saving vs. Investing
Saving Investing
Emergencies Long-term goals
More liquid Less liquid
Limited risk Higher risk
Lower returns (0-4%) Higher returns (8-12%)
Financial security Net worth
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 10Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Rate of Return
Total return on investment expressed as a percentage of the amount of money saved
Total Return
Amount of Money
Invested
Rate of Return
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 11Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
What 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?
$110 $2,200 .05 = 5%
Mandy’s rate of return on investment is 5%
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 12Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Bellwork• Read the article: Six feet under as a retirement
plan?• Write down two statements or statistics that
particularly caught your attention.• Elaborate on these statements – Americans are not saving for retirement because…– Americans are more likely to have established
savings if…– My thoughts on this are…
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 13Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Risk vs. Return Activity
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 14Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Inflation
InflationRise in the general level of prices
Inflation RiskThe danger that money won’t be worth as
much in the future as it is today
Strive to have the rate of return on
investment be higher than the rate of inflation
How does inflation relate to investing?
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 15Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Investments
• Title: Investing– Bond– Stock– Real Estate– Speculative Investment– Mutual Fund/Index Fund– Lending vs. Owning– Investment Philosophy – Portfolio Diversification– Brokerage Firms– Taxes
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 16Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Types of Investment Tools
Bond Stock Real Estate
Speculative Investments
Mutual Funds Index Funds
What do you already know about each investment tool?
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 17Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Investments
• http://www.learn360.com/ShowVideo.aspx?ID=930142
• What It Means to Buy a Company’s Stock
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 18Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Bond
Definition
• Form of lending to a company or the government
Description
• Organization pays interest to the lender (purchaser) until the maturity date is reached
Investment Risk
• Least amount (typically)
• Depends on the type of bond
Return
• Fixed interest rate
Maturity date – specified time in the future when the principal amount of the bond is repaid to the bondholder
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 19Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Stock
Stock Stockholder or shareholder
A share of ownership in a company
Owner of the stock
Usually a stockholder owns a very small part of a company
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 20Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Stock Returns - Dividends
Dividends
Share of profits
distributed in cash to
stockholders
Stockholder may or may not receive
dividends
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 21Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Stock Returns – Capital Gains
Market PriceCurrent price a buyer is
willing to pay
Stocks sells for a price higher than
what was paid
Capital gain – unearned income received from the sale of an asset above its
purchase price
Stock sells for a price lower than what was paid
Stockholder will lose money
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 22Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
How to read a stock quoteCurrent price and change for the day
(9:30-4 ET )Market
High and low stock prices for the last 52
weeksPrice of first trade of
the day
How many shares traded on last trading day / average trades
in last 30 daysTotal value of
companyPrice to Earnings Ratio: Good to
compare similar stock
DividendsEarnings per share# of shares held by investors and
company insiders
Risk in relation to market = +1 more risk
-1 less risk% of shares held by
institutional managers
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 23Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Real Estate
Potential for Returns
Capital gains (selling the
property for more than what was
paid)
Rent(charging others for
use of the property)
Ownership of residential or commercial property or land
Real estate can be time consuming but the potential for returns is high
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 24Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Speculative Investments
High risk investmentsHave the potential for significant fluctuations in
return over a short period of time
Futures Options Collectibles
Type of return depends on the investment
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 25Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Mutual Funds
What is Included
BondsStocksReal EstateSpeculative Investments
Type of Returns
Interest DividendsRentsCapital Gains
When a company combines the funds of many different investors and then invests that money in a diversified portfolio
of stocks and bonds
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 26Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Advantage Disadvantage
Mutual Funds
Reduces investment
risk
Fees may be high
Saves investors
time
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 27Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Ariana has $150 to InvestOption 1 - Stock
AB
C
DE
F
GAriana invests in one company’s
stock
Company C has had a bad year
and their market price drops significantly.
Ariana may lose her $150
investment
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 28Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Ariana Has $150 to InvestOption 2 – Mutual Fund
AB
C
DE
F
G
• Market price of companies C and F decreased
• Market price increased for all other companies
Ariana has reduced her
investment risk and may still earn
money
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 29Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Index Fund
Index Fund
• Type of mutual fund designed to reduce fees by investing in the stocks and bonds that make up the index
Index • Group of similar stocks and bonds
Example
• Standard and Poor’s 500
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 30Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Lending vs. Owning
Lending Bonds Interest
OwningStock
Real EstateSpeculative investments
DividendsRents
Capital Gains
When investing, consumers either lend money to the company/organization or they own the asset
Examples Returns
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 31Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Knowledge of the General Risk Level Helps Manage Risk
Interest Dividends Rents Capital Gains
Lending Owning
BondsMutual
FundIndex Fund
StockMutual
FundIndex Fund
Real EstateMutual
Fund
StockMutual
FundIndex Fund
Type of return
Type of Investment
Increased potential for high returnsIncreased investment risk
Decreased inflation risk
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 32Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Characteristics of Investment Tools
Speculative
Stock and Real Estate
Mutual Funds and Index
Funds
Bonds
Order cards from lowest to highest
Investment Risk
Order cards from lowest to highest
Potential Returns
Order cards from lowest to highest
Inflation Risk
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 33Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Everyone has a tolerance level for the amount of risk they are willing to take on
Generally divided into three categories: conservative, moderate, aggressive
Time may influence investment philosophy
Investment Philosophy
If someone was an aggressive investor, what types of investment tools would they primarily have in their portfolio?
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 34Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Portfolio Diversification
Portfolio diversification – reduces risk by spreading money among a wide array of investments
Goal: create a collection of investments that will provide an acceptable return with an acceptable exposure to risk
Reduces investment risk
Investing in a mutual fund is an automatic
form of portfolio
diversification
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 35Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Stock Exchange
Stock exchange provides an
organized, central service to buy and
sell all stocks, bonds and other investments that
are traded
Worldwide, there are many different
stock exchanges
A limited number of people are
allowed to buy and sell directly from each stock
exchange
Investments are purchased from a stock exchange(except for real estate and some speculative investments)
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 36Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Brokerage Firms
Full-service
Offer investment transactions and a financial advisor
Financial advisor – trained professional
that helps make investing decisions
Discount
Only completes orders to buy and sell investments
Advice is not offered
Brokerage firms facilitate the buying and selling of investments on the stock exchange
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 37Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Discount Brokerage Firm Fees
Service fee Maintenance fee
Inactivity feeFees specific
to an investment
Will usually charge a fee for completing a buy/sell transaction
Additional fees may include:
Total fees are often lower, but
an individual must have the knowledge and time to monitor
their investments
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 38Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Full-Service Brokerage Firm Fees
Financial advisors are compensated for the time and knowledge
they provide investors.
Most charge fees using one of these
methods.
% of the Investment
Value
% of the Amount Invested
Hourly Rate & Flat Fee
In addition to fees, financial advisors may
earn commissions paid by the company.
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 39Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Choosing a Brokerage Firm
Questions to ask:
How are the firm’s financial advisors compensated?
How long has the firm been in business?
Does the firm have a history of positive reviews and success?
How does the firm rank in comparison to other brokerage firms?
Important to research the financial advisor and firm he/she works for
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 40Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Tax-Advantaged Investments
Government encourages people to invest in certain types of investments
Tax-advantaged investments
reduce, defer or adjust the current year tax liability
Most common:• Retirement• Education
Savings and investments are a form of
unearned income and
therefore subject to income tax
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 41Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
When are taxes for tax-advantaged investments usually paid?
Money is invested and taxes are paid
Money grows untaxed with help
from compounding interest
Money is withdrawn
Money is invested
Money grows untaxed with help
from compounding interest
Money is withdrawn and taxes are paid
OR
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 42Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Investing for Retirement
Choose an investment
Usually mutual funds
Contribute money
Typically tax-advantaged
When possible, use an employer-sponsored planEmployer may match funds (up to a certain limit)
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 43Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Retirement Accounts
Employer Sponsored
• Similar plans• 401(k)• 403 (b) (tax-
exempt organizations)
Personal Retirement
• Traditional IRA (taxes when money withdrawn)
• Roth IRA (taxes paid when money deposited)
The trade-off to tax
advantages is most
accounts have
penalties if money is
withdrawn early
There are many other types of plans available
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 44Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Summary
Investments are important to
building net worth
A trade-off to higher returns is
lower liquidity and higher risk
Investments are ideal for the long-
term
Take advantage of portfolio
diversification
Discuss your goals with a financial
advisor
Use tax-advantaged investments &
employer-sponsored plan
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 45Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Risk Tolerance
1. In General, how would your best friend describe you as a risk taker?
a) A real gamblerb) Willing to take risks after completing
adequate researchc) Cautiousd) A real risk avoider
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 46Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Risk Tolerance2. You are on a TV game show
and can choose one of the following. Which would you take?
a) $1,000 cashb) A 50% chance at winning
$5,000c) A 25% chance at winning
$10,000d) A 5% chance at winning
$100,000
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 47Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Risk Tolerance3. You have just finished savings for a
“once-in-a-lifetime” vacation. Three weeks before you plan to leave, you lose your job. You would:
a) Cancel the vacationb) Take a much more modest vacationc) Go as scheduled, reasoning that
you need the time to prepare for a job search
d) Extend your vacation, because this might be your last chance to go first-class
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 48Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Risk Tolerance4. If you unexpectedly received
$20,000 to invest, what would you do?
a) Deposit it in a bank account, money market account, or an insured CD
b) Invest it in safe high quality bonds or bond mutual funds
c) Invest it in stocks or stock mutual funds
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 49Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Risk Tolerance5. In terms of experience, how
comfortable are you investing in stocks or stock mutual funds?
a) Not at all comfortableb) Somewhat comfortablec) Very comfortable
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 50Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Risk Tolerance6. When you think of the word “risk”
which of the following words comes to mind first?
a) Lossb) Uncertaintyc) Opportunityd) Thrill
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 51Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Risk Tolerance7. Some experts are predicting prices of assets
such as gold, jewels, collectibles, and real estate (hard assets) to increase in value; bond prices may fall, however experts tend to agree that government bonds are relatively safe. Most of your investment assets are in high interest government bonds. What would you do?
a) Hold the bondsb) Sell the bonds, put half the proceeds into
money market accounts, and the other half into hard assets
c) Sell the bonds and put the total proceeds into hard assets
d) Sell the bonds, put all the money into hard assets, and borrow additional money to buy more
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 52Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Risk Tolerance8. Given the best and worst case
returns of the four investment choices below, which would you prefer?
a) $200 gain best case; $0 gain/loss worst case
b) $800 gain best case; $200 loss worst case
c) $2,600 gain best case; $800 loss worst case
d) $4,800 gain best case, $2,400 loss worst case
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 53Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Risk Tolerance9. In addition to whatever you own,
you have been given $1,000. You are now asked to choose between:
a) A sure gain of $500b) A 50% chance to gain $1,000
and a 50% chance to gain nothing
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 54Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Risk Tolerance10.In addition to whatever you own,
you have been given $2,000. You are now asked to choose between:
a) A sure loss of $500b) A 50% chance to lose $1,000
and a 50% chance to lose nothing
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 55Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Risk Tolerance11.Suppose a relative left you an
inheritance of $100,000, stipulating in the will that you invest ALL the money in ONE of the following choices. Which one would you select?
a) A savings account or money market mutual fund
b) A mutual fund that owns stocks and bonds
c) A portfolio of 15 common stocks
d) Commodities like gold, silver, and oil
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 56Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Risk Tolerance12.If you had to invest $20,000, which
of the following investment choices would you find most appealing?
a) 60% in low-risk investments 30% in medium-risk investments 10% in high-risk investments
b) 30% in low-risk investments 40% in medium-risk investments 30% in high-risk investments
c) 10% in low-risk investments 40% in medium-risk investments 50% in high-risk investments
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 57Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Risk Tolerance13.Your trusted friend and neighbor, an
experienced geologist, is putting together a group of investors to fund an exploratory gold mining venture. The venture could pay back 50 to 100 times the investment if successful. If the mine is a bust, the entire investment is worthless. Your friend estimates the chance of success is only 20%. If you had the money, how much would you invest.
a) Nothingb) One month’s salaryc) Three month’s salaryd) Six month’s salary
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 58Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
Scoring1. A:4, B:3, C:2, D:12. A:1, B:2, C:3, D:43. A:1, B:2, C:3, D:44. A:1, B:2, C:35. A:1, B:2, C:36. A:1, B:2, C:3, D:47. A:1, B:2, C:3, D:48. A:1, B:2, C:3, D:49. A:1, B:310.A:1, B:311.A:1, B:2, C:3, D:412.A:1, B:2, C:313.A:1, B:2, C:3, D:4
2.4.4.G1
© Take Charge Today – August 2013 – The Fundamentals of Investing– Slide 59Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona
How does your risk tolerance compare to others?
• 0-18 Low risk tolerance• 19-22 Below-average tolerance
for risk• 23-28 Average/moderate
tolerance for risk• 29-32 Above average tolerance
for risk• 33-47 High tolerance for risk