Foundation Concepts:

1. Savings is essential to promote financial stability and planning.  The concept of “Pay Yourself First” emphasizes the need to make savings a priority in every household budget.  It is only through savings that households will be able to respond to and weather bad turns of luck such as job loss, illness and divorce. It is also the only way the will be able to acquire assets such as home ownership, small business ownership, education for their children and a secure retirement for themselves.
    
2. Savings needs to start immediately.  The time value of money dictates that the earlier in life a person begins a practice of systematic savings, the more money they will have.  Even if they start to save larger amounts later in life, they will be hard pressed to make up for the value added by compounding smaller amounts over so many years.
    
   
3. Due to the low interest rates paid in savings accounts, other investment products need to be found to help offset increases in the cost of living over time.  Money Market accounts and CDs are bank products that are safe, but illustrating the “risk/return” tradeoff, pay low rates of interest.
    
4. Historically, the stock market has out performed every other type of investment vehicle, but is subject to swings in market value.  Mutual funds share some of the benefits of the long term profitability of stock, while mitigating some of the risk through portfolio diversification.
   
   
5. Once you have determined your appetite for risk, you will allocated the amount of money you want to save each week to several different products.  Over time, some will make more money than others, that is why it is necessary to occasionally “re-balance” your portfolio – that is  - make sure that your preferred distribution of investments stays the same. 
   
   
6. Savvy investors do not stop investing in the market during a downturn. While the value of shares may be higher when the market is hot, the cost of buying shares is high.  The benefit of a downturn, for long range investors, is that they are able to buy a greater number of shares with their investment dollars each week so that when the market goes back up, they will have increased their portfolio significantly.  This approach is called Income Cost Averaging.
   
   
7. Unfortunately, if the market takes a downturn immediately before you need to withdraw your funds, the downturn will be damaging to you.  That is why, the closer you get to needing to draw your funds down (i.e. retirement) the more conservative you should become with your investing.  For example you may move more of your funds into bonds than stocks.  

Discussion Questions:

What types of savings or investment products were discussed:

• Savings accounts
• Certificates of Deposit
• Money Market Accounts
• Stocks
• Mutual Funds
• 401(k) accounts

What are some of the advantages and disadvantages of each?

Why is it not sufficient to invest in a basic savings account paying a sure 1% per year?  What kind of impact does inflation have on long term savings?  What steps can be taken to overcome that impact? 

The stock market tends to go up and down in value.  What do you think is the best strategy with the stock market goes down – why?  What do you think is the best strategy when it goes back up – why?

What factors do you think would have an impact on how much risk you would be willing to take in the stock markets?  Age?  Income?  Other investments?