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and benefits of investing is key to your financial literacy. This lesson does not teach investment strategies. The objectives are to introduce you to investment terms and concepts and common types of investments . If you want to learn more about investment strategies, there are many excellent books and online resources.
Fin Lit Trivia Fin Lit Trivia Fin Lit
I. Investing Building Wealth. This chapter continues with Unit Two’s theme of building wealth. At the start of this course, you learned that whether your life’s goal is to be moderately financially successful or wildly wealthy, it is not enough to just earn an income. A portion of your income must be used to build wealth through investing . What is investing and how does one go about doing it? How do investments build wealth? Let’s explore investing to learn why it is the key to building wealth and financial security.
Really. Bad. Move.
Ron Wayne, one of the founders of Apple Computer, sold his 10% share in the company for $800 in 1976. Today his shares would be worth $35 billion.
Set Financial Goals. Once you’ve accomplished the universally essential goal of setting aside 3–6 months in living expenses, identify your personal short term and long term financial goals . Short term goals might be something like saving enough for Spring Break in Cancun, a down payment on a car, deluxe flat screen, or holiday gifts for your family and friends — things you want to accomplish in one to five years. For most short term goals, a compounding savings account is adequate. Long term goals are things you want to accomplish in more than five years or so. A common long term financial goal is a comfortable well-funded retirement. Others may be a down payment to buy a home, college savings for your kids, a vacation home, or having enough money to start your own business. Many people simply have general wealth-building goals . For example, they want to have a net worth of $250,000 by the time they are 35 years old, and $500,000 by the time they are 40. Long term financial goals are pursued through investing , which means acquiring assets which will potentially provide a profitable return over time . Getting Started Investing. Hopefully, by the time you begin investing, you will already be participating in a retirement fund or contributing to an IRA on a regular basis. Retirement funds and IRAs are off limits for most things until you reach the age of 59 ½ . If you want to build wealth outside of your retirement fund or IRA for other long term goals, you will need to open a brokerage account . These can be opened with any investment brokerage firm such as Charles Schwab, T. Rowe Price, Vanguard, or Ameritrade. Most can be opened online with a Social Security number and minimum deposit of anywhere between $1000 and $3000. Terms and Concepts. Here are a few important terms and concepts that apply to investing. As a financially literate person you should be aware of and understand these: ROI. This stands for Return on Investment . The obvious goal of investing is to grow your money beyond that of your original investment. But keep in mind investments grow at different rates. ROI is a way to measure how well an investment is growing over time. ROI is calculated as a percentage of the original investment. For example, if an investment that originally cost $1000 is later sold for $1100, the return on that investment — the ROI — was 10%. Investors use ROI to compare the performance or potential performance of different types of investments. PRODUCT PREVIEW
THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY 199
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