Introduction to Investing Lecture Notes High School

Introduction to Investing Complete in red ink. Infographic - A Simple Introduction to Investing Investing is a powerful tool you can use to build your wealth in the long run. So, how does it work? Read through this infographic and then answer the questions to find out! 1. Your friend says, “I have some extra money, but I’m not sure if I should save or invest it.” What key questions would you ask your friend to help them figure out what to do? I would ask if he wants the highest return rates possible. interested in setting money aside to take advantage of compound interest and letting it grow over time. What is the advantage of investing early for retirement? the more money you will end up with to an exponential degree and the less capital you'll need to put into your savings. 2. If investing can bring higher returns, why should you put money in a savings account at all? If you are saving up for a short-term goal and will need to withdraw the funds in the near future, you're probably better off parking the money in a savings account. 3. What 3 tips would you give someone who is about to invest their money for the first time? Establish a Plan, Understand Risk and Be Tax Efficient from the Start. Video - Compound Interest Explained In the previous resource, you learned that compound interest is one of the key factors that can help your money grow. Let’s take a deeper look at how compound interest works in this video. Then, answer the questions. 4. Why do you earn more money using compound interest than you would using simple interest? you will earn returns on the money you invest and on returns at the end of every compounding period. 5. Does compound interest have more of an impact for short-term investments or long-term investments? Why? Compound interest is essential when it comes to investing for a long-term goal. because it accumulates interest from prior interest. The longer the term, the more you earn interest through compound interest. ANALYZE: Investing for Retirement Retiring on Social Security income alone is extremely difficult, which is why it is vital that people invest for their own retirement. Analyze the three graphs provided in order to learn more about investing for retirement. Graph I - Growth of Retirement Accounts 6. Which investor had the highest balance when they turned 65 in this example? Chris had the highest balance when turning 65 years. This is because he had been saving $5,000 p.a for 40 years totaling $ 200,000. 7. How are the actions of the three investors similar? How are they different? a. Similar: They all invested $5000 dollars annually between a given time period. b. Different: Chris invested early at 25, susan invested annually between 25 and 35, and bill invested between 35 and 65 and paid annually. 8. Susan invested $50,000 and Bill invested $150,000. Why did Susan have a higher balance at the age of 65? Susan has a higher balance at the age 65 compared to Bill because she saved more money before investing. 9. What important piece of information is missing from this graph? no 10. Using the data above, summarize an argument for why you should start investing when you are young. investing young means that you'll have more money saved in the future Graph II - How Much Millennials, Gen X, and Boomers Have Saved for Retirement 11. What percentage of millennials have $100,000 or more invested for retirement? 11% 12. How does the fraction of millennials with at least $100,000 in retirement compare to the portion of millennials who have no retirement savings? There is more millennials who don’t have retirement savings 13. Summarize how the amount invested for retirement compares across the three age groups. Millennials are least likely to have retirement savings. Boomers and seniors have saved more. 14. Explain why the percentage of people with $300,000 or more increases so substantially across the age groups. Others had a better understanding and saved up 15. 72% of millennials have between $0 and $9,999 invested for their retirement so far. Why is this a potential problem? They have saved less money or nothing at all Graph III - How Much You Need to Save Per Month to Have $1 Million at Retirement 16. If you begin investing at age 25 instead of age 20, how much more do you need to invest per month to have $1M at retirement? You would need to save up $ 1440 more to invest per month to have $ 1 million . 17. Why might some 20-year-olds have difficulty investing $360 per month for retirement? They might be in college so they do not have income, they work in a low paying job, they may work part time, they may be working to decrease college loan deby 18. If you begin investing at age 45 instead of age 40, how much more do you need to invest per month to have $1M at retirement? Why is this amount so much greater than the difference between 20 and 25? $718 this is a greater difference than age 20-25 because you are older and close to retirement so you need to spend more. 19. If you wait until you’re 45 to begin investing, how much money will you need to invest, just for retirement, per year? Why might this be difficult? At least $2153 This might be difficult because of living expenses, you may have kids in high school or college that will cost a lot of money 20. Using the data in graphs II and III, how much will most millennials need to begin investing, per month, in order to have $1M in retirement? Explain your answer. $500-$600 inorder to reach 1 million in retirement because overtime they will eventually reach 1 million and if they want to add more they can. 21. Now that you’ve analyzed these three graphs, list at least 4 things you have learned about investing for retirement. The more money you invest when you're younger the more you gain by retirement. invest early the younger you start investing the less you will pay per month