Business 11th Edition by William Pride,Robert Hughes ,Jack Kapoor

Exercise 1

Investing in Your Financial Future
Nearly four in ten people in your age group (18 to 35) have already started investing for their future. What about you?
Although you may not think you have enough money to invest just now, you can start saving small amounts on a regular basis-weekly or monthly, or each time you get paid. Although it may feel like a stretch in the early months, once you get in the habit of "paying yourself first," soon you will have enough set aside to consider making some long-term investments.
Before you decide to put this step off, consider the cost of waiting. If you invest just $150 a month beginning at age 25, you can put away $1,800 a year. If the investments you choose earn a hefty 11 percent per year, for example, you'll have $ 1,047,294 by the time you're 65. If you wait a mere ten years, however, and begin at age 35, you will have only $358,236. That's almost $700,000 less you will have to live on when you tap your retirement account. To get a return of 11 percent, you will need to learn how to invest in stocks and mutual funds-investments that have the potential for larger returns and also carry more risk. Even if your investments earn just 5 percent per year, you will be thousands of dollars ahead if you start investing early.
Sure, the value of stocks and bonds can go down as well as up, especially during periods of financial crisis or economic uncertainty. That's why you have to take the long view when you' commit your funds. You've probably heard the advice, "Buy low, sell high." During an economic slowdown, when stock prices hover near historic lows, think about starting or adding to your investment nest egg. Even when the market is soaring, there are good investments to be had.
Where should you put your investment? John C. Bogle, founder of the Vanguard Investment Company, is generally bullish about the stock market and mutual funds invested in it. Bogle advises choosing a conservative portfolio that's both balanced and diversified. Increase your investment regularly, he says, and ignore day-to-day market fluctuations. Remember, you are in this for the long term. Consider how much risk you can handle, and choose investments accordingly. Do not put all your dollars in one investment basket, and do your homework before you make your first move.
The late Sir John Templeton, whom Money magazine called "arguably the greatest stock picker of the century," founded a fund called Templeton Growth that grew an average of more than 15 percent each year for almost half a century. His maxims for successful investing agree with Bogle's focus on the long term. "Invest," Templeton advised. "Don't trade or speculate." Keep in mind that when you buy shares in companies that continue to grow, you are investing in their ability to keep earning money in good times and bad. Frantically buying and selling shares at the first sign of a decline is more like gambling than investing.
Of course, before you invest money you plan to park for the next 20 years or so, make sure you've eliminated as much of your current debts as possible, such as credit cards or student loans. Allow yourself enough financial flexibility to start (or continue) contributing to a separate retirement fund, especially if your employer matches your contributions. Set aside cash for emergencies, as well as for near-term purchases like a home, a car down payment, or graduate school tuition if these are in your five-year plan.
Finally, remember Bogle's observation: "If you were to put your money away and not look at it for many years, until you were ready for retirement, when you finally looked at it, you would probably faint with amazement at how much money is in there." Start investing now, and you will thank yourself in 30 years. 14
For online quizzes and calculators to get you started, see http://www.finra.org/lnvestors/ToolsCalculators/index.htm.
Assume you can invest only half the amount suggested here, or about $75 a month. Use an online investment calculator to determine how much you can earn at 4 percent interest by age 65, if you start at age 25. Recalculate to see how much you would earn if you start at 35. What does the difference between the two results suggest about the value of long-term investing?