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Becoming A Millionaire:: Saving and Investing

The document provides information on how to become a millionaire through saving and investing regularly over long periods of time. It recommends starting a savings plan as early as possible, even saving small amounts regularly which can add up significantly over time. The document outlines different investment options from low to high risk, including savings accounts, CDs, bonds, stocks, and mutual funds. It emphasizes the importance of diversifying investments and gives tips for getting started with financial planning.

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Bhushan Malik
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36 views

Becoming A Millionaire:: Saving and Investing

The document provides information on how to become a millionaire through saving and investing regularly over long periods of time. It recommends starting a savings plan as early as possible, even saving small amounts regularly which can add up significantly over time. The document outlines different investment options from low to high risk, including savings accounts, CDs, bonds, stocks, and mutual funds. It emphasizes the importance of diversifying investments and gives tips for getting started with financial planning.

Uploaded by

Bhushan Malik
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Becoming a Millionaire:

Saving and Investing


Starting a Savings Plan

“Getting rich is not a


function of investing a
lot of money; it is a
result of investing
regularly for long
periods of time.”

Source:Garman & Forgue (2003), Personal Finance Seventh Edition. Houghton Mifflin pg. 18
Start As Soon As Possible …
Annual
Interest Age Investment Started
Rate
20 30 40 50

3% $185,440 $129,924 $72,919 $37,198

6% $425,487 $222,870 $109,729 $46,552

10% $1,437,810 $542,049 $196,694 $63,545

… And Become A Millionaire!


Assuming: $2000 annual contribution accumulated to age 65;
used Future Value of Annuity Formula to compute
Time IS On Your Side!

The miracle of compound interest:


Interest earning interest

Example: $100 @ 5% = $105

With compound interest, in Time 2:


$105 @ 5% = $110.25
Find Money to Save

WATCH THE DAILY LEAKS!!

Save $5 a day (lunch, soda,


snacks, etc)
5 X 7 = $35 a week
35 X 4 = $140 a month
140 X 12= $1680 a year!!!
A LITTLE ADDS UP!!!
Save Regularly!

• Do it now
• Pay yourself first
• Use simple and creative ways to save
• Make saving a part of every spending
decision
• Use a goal statement to plan
Your Major Savings Goals

• Down payment on a house


• Down payment on a car
• Education
• Travel
Types of Investments

• Savings/Share Accounts
• Low interest earning account
• Low risk
• Easily accessible
• First step in investing
• Helps develop pattern of investing

• Online Savings/Share Accounts


Types of Investments
• Money Market Deposit Accounts
• Higher interest rate than savings
• Easily accessible, but limited transactions
• Low risk
• Generally require a minimum balance
• Banks and credit unions offer
• Interest is taxable

• Money Market Funds


• Offered by brokerages & mutual fund families
• Not FDIC insured
• Easily accessible
Types of Investments

• Certificates of Deposit
• Higher interest than savings accounts
• Must leave money in for fixed time
• The longer you leave it in the higher the
interest rate
• Available at banks and credit unions and
insured
• Interest is taxable
Types of Investments
• Bonds
• Loan to a corporation or government
• Earns higher interest than CDs but return
may be lower than for stocks
• Government bonds less risky than corporate
bonds
• Can buy from employers, banks, and brokerages
• The minimum may be more than you have
• Returns are taxable
• Can buy U.S. savings bonds online –
www.treasurydirect.gov
Types of Investments

• Corporate bonds
• Investment grade bonds vs. “junk” bonds
• Range in maturity dates
• Government bonds
• Treasury bills (t-bills): 4, 13, and 26 week maturity
• Treasury notes: 2 to 10 years maturity
• Treasury bonds: 30 year maturity
• Municipal bonds and other bonds
Types of Investments
• Stocks
• Buying a part of a publicly traded company
• As profits increase value of stock increases
• Highest potential rate of return
• Highest risk
• No limit on how long you have to invest or how
much you could lose
• Pay taxes on dividends and gains from
appreciation
• Available from stock brokers and online
brokerages
Types of Investments
• Mutual Funds
• Investment companies pool money from lots of
individuals to invest in stocks and bonds
• Easy way to invest in a variety of stocks and
bonds -- diversify
• Depending on the type of fund, risk and rate of
return vary
• Can begin investing with relatively small amounts
• Can purchase from mutual fund companies,
brokerages, and online
Criteria for Selecting
Savings/Investment Products

• Yield
• Safety
• Liquidity
• Risk Tolerance
• Time Horizon
Average Annual Investment
Return
1926-2005*
• Savings Accounts 2%
• Certificates of Deposit (1 yr) 4.5%
• Long - Term Bonds 5.92%
• Large Cap Stocks 10.36%
• Mutual Funds 9.14%
• Small Cap Stocks 12.64%
• Inflation 2.69%
Time It Takes
to Double Money

The “Rule of 72”


Formula Example
72 = time 72 = 7.2 years
rate 10%

72 = yield 72 = 7.2%
years 10
Time It Takes
to Double Money

• Savings Account earning 2%


• 72/2% = 36 years
• Certificate of Deposit earning 4%
• 72/4% = 18 years
• Government Bonds earning 5.3%
• 72/5.3% = 13.38 years
Time It Takes
to Double Money

• Common Stock earning 11.2%


• 72/11.2% = 6.43 years

• Mutual Funds earning 9.14%


• 72/9.14% = 7.88 years
Personal Retirement
Plans
• Individual Retirement Account (IRA)
– An IRA is not a type of investment. It’s a part
of the tax code to encourage saving.
– You make annual contributions that are tax
deductible.
– You set up the account and decide where to
invest the money.
– The maximum contribution if you’re younger
than 50 is $5,000 (or your earnings – whichever
is less) in 2008.
– You have until April 15, 2009 to make your
contributions for the 2008 tax year.
Roth IRA

• You set up the account and decide where


to invest the money.
• The maximum contribution for anyone
younger than 50 is $5,000 (or your
earnings – whichever is less) in 2008.
• You have until April 15, 2009 to make your
contributions for the 2008 tax year.
Roth IRA
• A non-deductible IRA but the funds in
the account grow tax-free.
• Plus you can withdraw funds (after
five years) tax-free and penalty-free
for other reasons – first-time
homebuyer expenses or educational
expenses
Diversify

• Have a variety of investments, not just one


type
• Stock
• Bond
• Mutual fund
• CD
Getting Started

• Go to a financial institution
• Go online
• Use a financial planner, a full service
broker or a discount broker
• Join an investment club
For individual help contact:

The Peer Financial Counseling Program


(insert web address, phone number, and e-mail)
Special Thanks to...

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