Can you use an example to explain how time value of money can be appli

QUESTION

Can you use an example to explain how time value of money can be applied to your personal money management? Compare the difference between bonds and common stocks. If your investment portfolio only includes bonds and stocks, what percentage of your investment will be bonds and what percentage of yo¦
Theory Of Time Value of Money: a dollar can be invested and earn interest over time, giving it potential earning power. Also, money is subject to inflation, eating away at the spending power of the currency over time, making it worth less in the future. Finally, there is always the risk of not actually receiving the dollar in the future “ if you hold the dollar now, there is no risk of this happening. Getting an accurate estimate of this last risk isnt easy and, therefore, its harder to use in a precise manner. Illustration And Example:Time value of money and Personal money management The time value of money is a simple principal to understand: basically it states that any amount of money is worth more today than the same amount of money in the future due to its earning potential. This means that if you have $100 to invest today, its worth more than $100 a year from now, because it could be gaining value through investments for a year. Lets assume you average 9% on your investments Your $100 today will be worth $109 in a year, whereas getting $100 a year from now is only worth about $91, due to the value of money lost in the year. Personal Money Management: Basically what it states is that when Saver B starts investing earlier on in life, the time value of his money allows for gaining potential so much greater that even though Saver A invested more than 4 times the amount of Saver B, Saver B has gained more than $400k more than Saver A by retirement. Moral of the story¦

-> If you start investing now, youll have much more than if you wait till you make more money, even if you invested more in the years to come. Understanding an Individual Common Stock: The purchase of common stock represents ownership in a company. People

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