Chapter 10 Basics of Saving and Investing How
Chapter 10 Basics of Saving and Investing
How Is Risk Related to Return? • The higher the risk, the greater your possible return. • Risk-free investments are guaranteed by the government—U. S. savings bonds, Treasury bills. • Return on Investment (ROI) is the amount that savings or investments grow expressed as a percentage. 10 -2 Principles of Saving and Investing Slide 2
Return on Investment Example 1: Bought an investment for $500; received dividends of $18 for the year Return: $18 Rate of return: $18 ÷ $500 = 3. 6% (annual rate of return) Example 2: Bought an investment for $500 on March 1; sold it on October 1 for $525. Return: $25 Rate of return: $25 ÷ $500 = 5% Note: The 5% return was received after only 7 months. The annual return would be higher. Calculate the annual ROI as follows: 0. 05 ÷ 7 months × 12 months = 8. 6% (annual rate of return) 10 -2 Principles of Saving and Investing Slide 3
What Types of Risk Do Investors Face? Investment risk is the potential for change in the value of an investment. • Inflation risk • Industry risk • Political risk • Stock risk 10 -2 Principles of Saving and Investing Slide 4
What Are Tax Advantages of Investing? • Tax deferral is a postponement of taxes to be paid. o Taxes on gains are not paid until the money is withdrawn. • Tax exemption means savings and investments are not taxed. o Example: Series EE and Series I savings bonds are tax-free if used for education. 10 -2 Principles of Saving and Investing Slide 5
Building Communications Skills Good News Messages • Use a direct approach. • Place the answer or main point of the message early in the message. • Include details in later paragraphs. • Be clear, leaving no doubt about the answer or point to be shared. • Be complete and concise. 10 -2 Principles of Saving and Investing Slide 6
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