In this presentation, we will talk about how time value of money is such an important concept when you think about saving for the future, whether it is 1 year or 30 years down the road.
This chart shows how any one investment vehicle (bonds in this case) can fluctuate greatly over time, which shows that the more diversification your portfolio consists of, the better off you will be in the long run.This graph clearly shows that any one investment vehicle, such as bonds, can fluctuate over the years, which is diversification is so critical in a financial portfolio to help lower risk.
Key Concepts of Saving and Investing How to Save for Your Future
Key Concepts of Saving & Investing Key #1: Pay yourself first Key #2: Set goals that will inspire success Key #3: Don’t take unnecessary risks Key #4: Put time to work for you Key #5: Diversify…Diversify…Diversify
Key Concepts of Saving & Investing Key #1: Pay yourself firstMake investing a habit. $5,000 $5,000 $5,000 Initial balance Interest per year 2.16% 8% 10% Deposit per month $0 $380 $279 Number of years 20 20 20 Future Value $7,699 $250,000 $250,000
Key Concepts of Saving & Investing Key #2: Set goals that will inspire success
Setting SMART Financial Goals Specific Time Limit Relevant Measurable Attainable Short-Term Goals = Within one year Medium-Term Goals = Within next 2-5 years Long-Term Goals = More than 5 years from now
Key Concepts of Saving & Investing Saving and investing choices for different types of goals: Short-term goals Certificates of Deposit Money Market Funds Medium-term goals Longer-term Certificates of Deposit Targeted Bonds
Key Concepts of Saving & Investing Key #3: Don’t take unnecessary risks Risk – the chance you take that all or part of the money put into an investment can be lost
Key Concepts of Saving & Investing How much risk is right?
The bigger the risk is, the bigger the potential payoff
The bigger the potential payoff, the bigger the risk
Key Concepts of Saving & Investing Key #4: Put time to work for you Compound interest – the interest earned on principal plus previously accrued interest Time Value of Money – consumers generally prefer a dollar today more than a dollar in the future. If we have to wait, they have to pay us. RULE OF 72: 72 = Number of years for money Interest Rate to double in value Example: 72/6 = 12 years
Long-Run Cumulative Wealth Diversification Is Key
Key Concepts of Saving & Investing Key #5: Diversify…Diversify…Diversify “Never put all your eggs in one basket…”