Unit 1 Lesson One: Who are investors?

Lesson One: Who are investors?

​Finance, Accounting, Investing

​Finance - Broad term that describes activites associated with banking, debt, credit, markets, funds, and investments.

​

​Accounting - The process of planning, recording, analyzing, and interpreting financial information

​

​Investing - The act of allocating resources, usually money, with the expectation of generating profit

​During this unit we will cover topics from all three, but it will be through investing.

​

​So...let's find out if YOU are an investor

Poll

I’ll give you $100 today or a new Mercedes next year? Which one will you take?

• The Car

• The Cash

• Why are you even looking at other options, you'd be crazy not to take the car!

Poll

I'll give you $100 today or $100 next year. Which one will you take? Think about it...

• The cash today

• The same cash next year

• Of course you wouldn't wait! What's the point? You wouldn't get anything in return for waiting.

​Your answers to these questions indicate whether they are more likely to be an investor or a spender:

​A person choosing to take the cash rather than waiting on a car is a spender.

​

And we all inherently understand that there is no point in waiting to take $100 if there is no return. An investor understands the future is worth somewhere between $100 and a new car.

Open Ended

How much could the future be worth for a bit of sacrifice today? For example, waiting to see a new release movie until it is released on Netflix can save money.

What are some examples of when the sacrifice is worth?

Poll

How much cash would you be willing to give up today

in return for a promise to receive $500 five years from now?

• $50

• $100

• $300

• $450

• $499

Open Ended

What does the number you picked indicate about you? Are you cautious? Optimistic? Something else?

Where do you put your money?

​When you are trying to build wealth you must ask yourself two questions:

​

1)Am I able to save each year?

​

2)When I save, where do I put the money?

Compound Interest Calculator | Investor.gov

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Multiple Choice

Using a the compound interest calculator at Invesor.gov, deteremine how much money you would have in the following scenario:

At 18 you have no initial investment, but decide to contribute $200 each month until you retire (47 years). You will put your money into an Index Fund that will earn an interest rate of 10% (no variance for now) and the money will compound monthly. Calculate how much you will have at the end.

• $2.5 Million

• $1.5 Million

• $3.2 Billion

• $112,800

Multiple Choice

Let's say you put the money into a savings account instead. These accounts earn roughly .5% each year. You're still contributing $200/mo for 47 years. Calculate how much you will have at the end.

• $127,126

• $112,115

• $1 Million

• $275,126

​What matters with investments?

​1) Rate - As you can see there is a HUGE difference when you have a .5% rate vs. a 10% rate.

​

​2) Time - for money to compound you need a lot of time (we'll explain compound interest in the next slide)

​Compound vs. Simple Interest

​Simple Interest means you earn money ONLY on your original investment. If you invest $1,000 at 10%:

​

Year 1 Interest = $100

​Year 2 Interest = $100

​

​Compound interest means you earn interest on the original investment & the interest you've already earned.

​If you invest $1,000 at 10%:

​

Year 1 Interest = $100

​Year 2 Interest = $110

​Calculating Returns

​Try one on your own...

​Answer

Multiple Choice

Which definition describes investing

• The act of allocating resources, usually, money with the expectation of generating profit

• The broad term that describes activities associated with banking, debt, credit, markets, and investments

• The process of planning, recording, analyzing, and interpreting financial information

Multiple Select

Simple interest earns money on...

• Orginial Investment

• Interest

Multiple Select

Compound interest earns money on...

• Orginial Investment

• Interest