Life Skills Development/Unit Four/Savings and Investments
- 1 UNIT 3: Savings and Investment.
- 2 Introduction
- 3 Reflection
- 4 Assignment
- 5 Self Assessment
- 6 Assignment
- 7 Self Assessment
- 8 Self Assessment
- 9 Assignment
UNIT 3: Savings and Investment.
Money without financial intelligence is money soon gone. Savings empowers you to have certain plans and choices. This unit encourages the learner to develop financial intelligence and acquire knowledge and behaviours relevant to saving and investing to achieve their short-term and long-term goals.
Bonds :The loaning of money to a company or a government unit.
Collectables :Items that are not antique but expected to appreciate in value.
Corporate Bond :Long-term debt securities of various types issued by private companies to raise capital.
Investments :An asset or an item that is purchased with the hope, that it will generate income.
Municipal Bonds :Bonds issued by government authority to raise capital to help with financial needs and projects.
Savings :Generally means putting money aside for a short term goal that you hope to achieve.
Stock Markets :A way for companies to raise money from those with cash to invest.
Real Estate :This encompasses land along with anything permanently affixed to the land, such as buildings.
What is saving?
"MAKING MONEY IS EASY.KEEPING IT IS THE HARD PART"
Saving generally means putting money aside for a short term goal that you hope to reach within five years. You save for a dowm payment of a house or car that you hope to buy in a few years, security is a form of an emergency cash fund. Saving refers to preserving money for future use-typically by putting it on deposit. This is distinct from investment where there is an element of risk. Personal disposable income minus personal consumption expenditure is defined in economics as personal savings. In other words the excess money which is known as surplus that is not consumed immediately by goods and services is what you save.
|Saving the Act||Savings the Product|
|Refers to an increase in one’s assets, Refers to an increase in net worth||Refers to one part of one’s savings accounts, Or it refers to all of one’s assets|
|An activity occurring over time, a flow variable||Something that exists at any one time, a stock variable.|
What is Investment?
"YOU WILL NEVER BE TRULY POWERFUL IN LIFE UNTIL YOU ARE POWERFUL WITH YOUR OWN MONEY.IT'S ALL ABOUT RISK."
An investment is all about risk: It can be an asset or item that is purchased with the hope that it will generate income usually called Portfolio Income. It is advisable for you to diversify your money, that is instead of putting your money in one stock, it is perferably wise to invest in a bunch of companies. Diversification is key when investing; you never want all your money riding on one or two stocks; if they do badly, you will be in big trouble.
In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price; these include the purchase of bonds, stocks or real estate property.
Numeracy Skills Calculate the actual cost of 20units whose bid price is $14.00 and offer is $16.00 per unit. What is the difference in the prices which is known as capital gain/loss
A share in a company listed on the stock market cost $40.00.In five years it appreciates to$65.99,by what percent the stock appreciate? I bought 20 of those share initially at $49.99 and I want to sell at the new price. How much profit would I make?
The Different Types of Investments
Cash Investments: are generally the best investments for short-term holding periods. It is mostly invested because it's liquid and secure and can be retrieved at anytime. Some of the cash investments that can be found are Banks/Savings Accounts, Money-Market Mutual Funds, Certificates of Deposits and Treasury Bills. Sometimes cash investments are used for long-term goals such as fixed annuities and cash value of life insurance.
Bonds: loaning a company, government or municipality a sum of money in return for income is known as investing in a bond. Municipal Bonds are issued by state and local government agencies. Corporate Bonds are issued by corporations to fund their financial needs, but it does not dilute company ownership.
Stocks: this is when corporations divide their ownership interest into segments or shares of stock.
(for ten Years) @ 3% per annum S.I.=(P*R*)/100 S.I.=$600 10 yrs=$2600
(for ten years) @ $20 at yr.1 and $40 at yr. 10 per unit share yr.1=100 shares @ $20 = $2000.00 yr. 10= 100 shares @ $40= $4000.00.
Higher Risk Investments
The decision about which institution you choose to invest in will be influenced by growth or capital appreciation as well as the profit known as capital gain. The following are examples of high risk investments: 1) Stocks 2) Corporate and municipal bonds 3) Mutual funds 4) Real estates 5) Collectables 6) Future contracts
Higher risk investment choices include:
- Corporate and municipal bonds
- High-quality corporate stock with a history of steady earnings
- Telephone, gas or electrical utility stocks
- Mutual funds that focus on current income
Higher risk investment choices for capital growth include:
- Common stocks in growth oriented companies
- New or small companies that have good future potential
- Mutual funds that focus on capital growth
- Real estate in growth areas
Stocks: When you own shares of stock you become part owner of a company. If the company does well, the value of your stock should go up over time. If the company does not do well, the value of your investment will decrease. Companies distribute a portion of their profits to shareholders as dividends.
Companies issue two types of stock, common and preferred. Common stock is the basic form of ownership in a company. People who hold common stock have a claim on the assets of a firm after those of preferred stockholders and bondholders.
Preferred stock is ownership in a company which has a claim on the assets and earnings of a firm before those of common stockholders but after bondholders. The safety of the principal of preferred stock is greater than that of common stock.
Selecting individual stocks requires time, effort and knowledge. The objective of buying stocks is to choose those that will increase in value over time. The friendly advice, “Buy low and sell high” is easier said than done. Selecting stocks is both an art and a science.
Bonds: When you own a bond you have loaned money to a company or a governmental unit. In return, the borrower promises to repay the amount borrowed plus interest. Corporate bonds are issued by publicly owned companies, while municipal bonds are issued by state or local governments.
The price of a bond will fluctuate as interest rates go up or down. If you hold the bond to maturity you will receive an amount stated on the bond known as the face value. For example, if you buy five corporate bonds at $1,000 each and the bonds mature in 20 years, even if the value of the bond changes over the period of time you hold it, the bonds will be worth a total of $5,000 at the time of maturity. In addition, the borrower may promise to pay you an interest payment twice a year for 20 years. The declared interest of the bond is called the coupon rate.
The risk in purchasing corporate bonds is that the corporation may not be able to pay interest or return your principal at maturity.
Mutual Funds: A mutual fund invests the pooled money of its shareholders in various types of investments. The fund manager buys and sells securities for the fund’s shareholders. Mutual funds are not risk free. Their values rise and fall along with the securities in the fund.
IMPORTANT FACTORS THAT YOU MUST CONSIDERED WHEN INVESTING
1) Risk Tolerance: Can you live with the risk that your investments will decline in value, even temporarily.
2) Time Horizon and Goals: when will you need your money?
3) Knowledge: Your investing knowledge should influence your choice.
Once you have your investment portfolio in place it should evolve simultaneously with your life.
What is a Financial Institution
An agent that provides financial services for its participants/clients is known as a financial institution. They facilitate the flow of money through the economy. Some financial institutions are Banks, Credit Unions, Online Banks, Stock Brokerages and Asset Management Firms.
Roles of Financial Institution
1) They provide services as intermediaries of the capital and debt markets.
2) They are responsible for those in need of funds by transferring them from investors to companies.
- A budget showing how you intend to cut back on expenditure.
- List the ways in which you save and waste money each month.
- Participate in a project where research and “invest” in a particular stock, observing it to see whether or not you can make a wise decision.
In this unit you learned about putting money aside is simply not enough but placing your savings in banks or credit unions is wiser and more secure. You now understand that investing requires taking risk using your finance on items in hope for future growth and earnings.
Checklists of Performance Tasks
|#||RUBRIC of performance criteria||V. Well Done||Well Done||OK||Not ok - Will redo by|
|1|| I reflected on my saving habits, including
a)As a child b)As a young borrower/lender c)As a procrastinator or not in starting saving d)My investing profile e)My inclination to take risks
|2|| After reviewing my budget, I started what areas I will reduce/amend/eliminate to increase my savings total and by how much per category
a)Differentiating between my wants and needs b)Cease spur of the moment shopping on my wants c)Tracking my spending
|3|| I wrote the difference between capital gain and loss
a) I identified what is a bid price and an offer price
|4|| I calculated the capital gain /loss of 20 unit with a bid price of $14.and an offer of $16.per unit.
Price 20 x 16=$320 Bid Price 20 x 14=$280 Offer Price-Bid Price= Capital Gain Capital Gain is $40.00
|5|| I calculated the percentage% that some stock appreciated
a)$66. - $40.= $26.00 $26.00/ 40 X 100 = 65% b)$50.00 X 20 = $1000.00 $66.00 X 20 = $1320.00 Profit = $320.00
|6|| I reflected on and wrote about the difference between savings and investment in terms of
a)Investing in stock from mutual and other funds to meet long term goals b)Willingness to take risks over time.
|7|| I explained the advantages and disadvantages of saving and borrowing money from different financial institutions
a) banks b) mutual funds c) credit unions d) sou sou
|8|| I reflected on the factors to consider when investing in the stock market
a)common stock b)preferred stock c)corporate bonds d)municipal bonds
|9|| I considered which were higher risk investments
a)my risk tolerance b)my time limits and goals c)my knowledge about investments
|10|| I explained why share prices rise and fall, including
a)perceived prospects for profit of the company b)analysts' recommendations of company as a sound investment c)company's own news releases about expected prices and profits d)general economic growth e)lower unemployment f)inflation
|11||I researched and reflected on which local financial institutions are best suited to assist me and noted the information in my portfolio|
|12|| I developed a questionnaire to help me know the best stock to invest in, within my budget, including
a)cost of stock b)interest/ dividend rate c)investment types d)Length of investment, for returns e)projected income based on investment amount