Finance - long run for kids

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Finance - long run for kids

  1. 1. Bellringer You don’t have to write this down: 1. How old will you be in 2061? 2. Do you think $13/hour is a lot of money? 3. Get out your notes
  2. 2. 10 richest people in the World Forbes (2012) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Carlos Slim Helú $69 B Bill Gates Warren Buffett Bernard Arnault Amancio Ortega Larry Ellison 2, 3, 6 Eike Batista Stefan Persson Li Ka-shing Karl Albrecht 8 1 4 5 9 7 10
  3. 3. Credit Cards • Loan from the bank • High interest rates • Keep control • Bankruptcy • Video clip
  4. 4. Chances are…. Only 3% of the US earns over $250,000/year You will work You will have a limited supply of wealth You will need to think about your income and make good choices You need a budget You need to think about investing
  5. 5. Do you want to be? • Rich & Retired Social Security
  6. 6. Specifics about investing • Opportunity cost of investing? • Things to consider: – Liquidity – Risk – Diversify
  7. 7. Liquidity • “How easy is it to turn this investment into cash”?
  8. 8. Cash under mattress • • • • Bad idea, why? No return, risky 100% liquid Inflation, you will lose the inflation rate
  9. 9. Savings Account • Low interest rate • No risk in USA • Today: 1%, yuck! Money Market Acct 3-3.5 %
  10. 10. Pension Plan • Employee plan • Usually union or large firm • For example: 10% from State employees, 80% of salary when you retire, after 30+ years • Not liquid at all • Low risk, long term
  11. 11. Bonds • Issued by government or large corporation • Low risk, low return • Must wait for maturity • Can be traded (liquidity!!) • WW1 & WW2 War Bonds
  12. 12. Mutual Funds • Managed stocks • Lower risk, lower control • Some sort of theme • Saves you time
  13. 13. Traditional IRA • Individual Retirement Account • You have to set it up • You can deposit up to $5000 per year • (into mutual funds, stocks or bonds) • Tax loopholes (breaks) • Can’t touch until 60 • Not liquid At 10% interest, a $5000 IRA becomes $226,000 over 40 years! $10,000 is over $400,000!
  14. 14. Roth IRA • Individual Retirement Account • You have to set it up • You can deposit up to $5000 per year • (into mutual funds, stocks or bonds) • No tax break, but tax free when you retire • Can’t touch until 60 • Not liquid At 10% interest, a $5000 IRA becomes $226,000 over 40 years! $10,000 is over $400,000!
  15. 15. 401 K Plan • Set up by employer • Payroll deduction • Invested into stock market • Lowers tax incidence • Tax break for employee • Employee match • Not liquid
  16. 16. Investment calculator
  17. 17. Real Estate • • • • Risky, high capital Relatively liquid Speculation Average real estate in Tucson in 1970 $23,000 • Average real estate in Tucson in 2008 $161,000!!!
  18. 18. International Markets • Invest in foreign markets • Invest in currency • Can be very risky • George Soros
  19. 19. List by liquidity • • • • • • • • • Traditional IRA Roth IRA 401 K Real Estate Stocks Mutual Funds Int’l currency Pension plan bonds
  20. 20. List by risk • • • • • • • • • Traditional IRA Roth IRA 401 K Real Estate Stocks Mutual Funds Int’l currency Pension plan bonds
  21. 21. Finance Closure on your BR 401K plan 2 2 Trad. IRA 1 2 Roth IRA

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