lecture_4_2.ppt

Personal Financial Management Sources: http://www.faithlifefinancial.ca/en/resourcesGeneral/PersonalFinancialMgmtBrkfrth2009.ppt /2009/02/long-term-analysis.html /article/106685-yes-fund-managers-really-do-underperform /articleshowcms /wiki/Harry_Dent /finance-articles/why-do-we-need-to-invest-22498.html /why-invest-in-the-stock-market Why Do We Need to Invest? Inflation will eat up the money sitting in the banks We can no longer rely on the government, there are too much aged people to take care of. We can no longer rely on the pension funds. We can no longer rely on the assumption that the currency in which our wealth is denominated will stay stable. Why Do We Invest in Stock Market In long scale, our life is inluenced by stock markets Stock markets influence economy and in turn it fluences our job and income Part of our wealth is already indirectly invested in stock markets: life insurance, pension fund Direct investment in stock markets makes the influence extended to short term; sometimes we want to have control Comparision among investment avenues between 1925-2002 Rule 1: The Power of Time 假设无风险年利率是常数 r 现在本金 X0=X 一年以后 X1=X+Xr = X(1+r) 两年以后 X2=X1+X1r = X1(1+r)= X(1+r)2 N年以后XN=X(1+r)N 时间就是金钱: 如果年利率是7.18%, 10年以后本金翻倍: (1+7.18%)^10 = 2 Doubling time: Rule of 70 Your money will approximately DOUBLE at a point in time determined by dividing 70 by the percent interest you earn (not work well when interest is over 15%) Putting money to work Who Has More at 65? Investor “A” invests $1,000/year from age 40 to 50 and stops to let it grow or Investor “B” invests $1,000/year from age 50 to 65? Retirement savings 25% have died 19% have incomes less than $10,000 49% have incomes of $10,000 - $35,000 7% have incomes of over $35,000 Rule 2: Do Not Be Greedy If you are going to retire tomorrow it is too late to invest - think about how to save what you have; For the rest - do not be greedy, do not go into active trading, do not invest into