investing for the 21st century
TRANSCRIPT
BREAKAWAY FUNDING October 28, 2014 . Copyright © 2014 . All Rights Reserved
Zoe Sexton
Private Wealth Management, The Putney Group
Contact: [email protected]
(415) 460-1990 x210
Zoe Sexton
Private Wealth Management
The Putney Financial Group
1099 E Street
San Rafael, CA 94901
www.putneyfinancial.com
Investment BasicsA Guide to Your Investment Options
BREAKAWAY FUNDING October 28, 2014 . Copyright © 2014 . All Rights Reserved
Presentation Expectations
• Understand basic categories and investment types
• Inflation - the silent killer
• The power of compounding - when to start investing
• Relationship between risk and reward
• The strategy of dollar cost averaging
• Asset allocation
• Diversification and managing risk
• The function of a financial advisor
Investment Fundamentals
What Is Investing?
Speculating?
Investing--A carefully planned and prepared approach to managing and
accumulating money.
Saving?
Investment Fundamentals--
The Effect of InflationPurchasing Power of $200,000 at 3% Annual Inflation
$108,759
$59,142
Investment Fundamentals--
The Effect of CompoundingGrowth of Annual $5,000 Investments • $5,000 invested
annually at the end
of each year
• 6% annual growth
rate
• All earnings
reinvested
This is a hypothetical example
and is not intended to reflect
the actual performance of any
specific investment.
Investment fees and
expenses, and taxes are not
reflected. If they were, the
results would have been
lower.
$395,291
Investment Fundamentals--
Sooner Is Better Don’t put off investing
The sooner you start, the longer your investments have to grow
Playing “catch-up” later can be difficult and expensive
$3,000 annual investment at 6% annual growth, assuming reinvestment of all earnings and no tax
$679,500
This is a hypothetical example and is not intended to reflect the actual performance of any investment. Investment fees and expenses, and taxes are not reflected. If they were, the results would have been lower.
$254,400
$120,000
Investment Fundamentals--
Identifying Goals and Time HorizonsType of goals:
Retirement
Education
Special purchase
Financial security
Philanthropy
Legacy
Short-term goals vs. long-term
goals affect your liquidity needs
Investment Fundamentals--
Risk Tolerance
Ability of investment
plan to absorb loss
Personal tolerance for
risk
Aggressive
Moderate
Conservative
Investment Fundamentals--
Relationship Between Risk & Return
Risk
Po
ten
tia
l Ret
urn Options & futures
Corporate bondsGovernment bonds
CDsTreasury bills
Common stockPreferred stock
Investment Options--Cash
Low risk, short-term, relatively liquid
Po
ten
tia
l Ret
urn
Cash alternatives
Risk
Disadvantages
Relatively low returns
Inflation risk
Advantages
Predictable earnings
Highly liquid
Little risk to principal
Investment Options--Cash
Advantages
Predictable earnings
Highly liquid
Little risk to principal
Disadvantages
Relatively low returns
Inflation risk
Investment Options--Bonds
Po
ten
tia
l Ret
urn
Cash alternatives
Risk
Bonds
Types of bonds include:
U.S. government securities
Agency/GSE bonds
Municipal bonds
Corporate bonds
Investment Options--Bonds
Advantages
Steady and predictable
stream of income
Income typically higher
than cash alternatives
Relatively lower-risk
(compared to options
such as stock)
Low correlation to stock
market
Disadvantages
Risk of default
Value of bond will
fluctuate with interest
rates
Lower risk means
lower potential returns
(than stock, for
example)
Investment Options--Stocks
Po
ten
tia
l Ret
urn
Cash alternatives
Risk
Bonds
Stocks
Common vs. preferred
Categories: Small cap
Midcap
Large cap
Micro cap
Stock terminology: Growth stock
Value stock
Income stock
Blue chip stock
American Depositary Receipts (ADRs)
Investment Options--Stocks
Advantages
Historically, have
provided highest long-
term total returns
Ownership rights
Can provide income
through dividends as
well as capital
appreciation
Easy to buy and sell
Disadvantages
Poor company
performance affects
dividends / value of
shares
Subject to market
volatility
Greater risk to principal
May not be appropriate
for short term
Investment Options--Mutual Funds
Your money is pooled with that of other investors
Fund invests dollars according to stated investment strategy
You own a portion of the securities held by the fund (instant diversification)
Investment Options - Mutual Funds
Bond fundsPo
ten
tia
l Ret
urn
Money market funds
Risk
Stock funds
Balanced funds
International funds
Investment Options—Mutual Funds
Advantages
Diversification
Professional
management
Small investment
amounts
Liquidity
Disadvantages
Value of shares can
fluctuate daily
Portion of fund dollars
may be tied up in cash
for liquidity needs
Potential tax inefficiency
Mutual fund fees and
expenses
Investment Options --
Exchange-Traded Funds (ETFs)
Most ETFs are based on an index
Passive management may lower fund costs
Can be traded throughout the day, bought on margin, and shorted, like stocks
May provide tax efficiencies
Other Investment Options
Real estate
Stock options
Futures and
commodities
Collectibles
Investment Methods--Dollar Cost Averaging
Invest same dollar amount at
regular intervals over time
You buy more shares when
price is low, fewer shares
when price is high
Average cost of shares will
be lower than average
market price per share
during your investment time
period
This is a hypothetical example and does not reflect the performance of any specific investment. Dollar cost averaging can’t guarantee you a profit or protect you against a loss if the market is declining.
Jan Feb Mar Apr May$0
$10$5
$20$25
$35
$15
$3010 shares
30 shares
15 shares
20 shares
12 shares
Five Hypothetical Investments
Average market price per share
($30 + $10 + $20 + $15 + $25) ÷ 5 = $20
Investor’s average cost per share
$1,500 invested ÷ 87 shares bought =
$17.24
Asset Allocation—Why?
Factors:
Diversification
Risk tolerance
Time frames
Personal financial
situation
Liquidity needs
Asset Allocation --
Sample Allocation Model
These asset allocation suggestions should be used as a guide only and are not intended as financial advice. They should not be
relied upon. Past performance is not a guarantee of future results.
A conservative asset
allocation model will
tend to focus on
preserving principal
Stocks25%
Bonds50%
Cash Alternatives
25%
Conservative
Asset Allocation --
Sample Allocation Model
These asset allocation suggestions should be used as a guide only and are not intended as financial advice. They should not be
relied upon. Past performance is not a guarantee of future results.
A moderate asset allocation model will tend to balance predictable income with potential growth
Stocks50%
Bonds40%
Cash Alternatives
10%
Moderate
Asset Allocation --
Sample Allocation Model
These asset allocation suggestions should be used as a guide only and are not intended as financial advice. They should not be
relied upon. Past performance is not a guarantee of future results.
An aggressive asset allocation model will tend to focus primarily on potential growth
Stocks75%
Bonds15%
Cash Alternatives
10%
Aggressive
Questions to ask a Financial Professional
Are you a fiduciary?
How are you compensated?
What credentials/licenses do you have?
How much experience does your firm have?
How frequently will we communicate?
How many new clients do you take on each year?
Role of a Financial Professional
Determine your investment goals, timelines, and risk tolerance
Evaluate markets and investments
Create an asset allocation model
Select specific investments
Manage, monitor, and modify your portfolio
Conclusion
I would welcome the opportunity to meet individually with each of
you to address any specific concerns or questions that you may
have.
Zoe SextonPutney Financial Group1099 E StreetSan Rafael, CA 94901415-460-1990 Ext [email protected]
Disclaimer
IMPORTANT DISCLOSURES The information presented here is not specific to any
individual's personal circumstances. It has been designed for informational purposes
only and does not constitute an offer to sell or a solicitation of an offer to buy any
security that may be referenced. We cannot assure the accuracy or completeness of
these materials. The information in these materials may change at any time and
without notice.
BREAKAWAY FUNDING October 28, 2014 . Copyright © 2014 . All Rights Reserved
Zoe Sexton - Questions