investing matters final_notes
DESCRIPTION
Now is the time to start investing again. Now is the time to understand how to invest.TRANSCRIPT
“Investing Matters”
Ground yourself in the basicsUnderstand riskCreate a strategyHow to get started
Presentation given by ______________Securities available through ______________Investments are not FDIC insured, may lose value, are not a deposit, have no bank guarantee and are not insured by any government agency.
Goals of today’s presentation
What does investing mean to you?
Money earned by investing gives you: Freedom to make choices Protection of your money’s value Peace of mind
What is investing?
Putting your time or money into something with hopes of gettingsomething greaterin return
Invest to create value
Who can invest?
True or False
Only adults can invest?
True, but
Students can have their parent/guardian open a custodial
account for them.
Why invest?
Which answers are correct? To set money aside for financial
independence from work To fill your piggy bank To grow your money To beat inflation
Investing BasicsSaving vs. Investing Save for short-term goals (< 5 years)
Saving is setting money aside Saving is low risk but earns a low return
Invest for long-term goals (>5 years) Investing is putting money into something with the hope
of getting something greater in return Investing is more risky than saving, but has the potential
for higher returns
Investments types
Cash
Bonds
Stocks
Cash Accounts
Accounts you can access quickly Bank accounts (checking & savings) CDs (Certificates of deposit) Money market accounts
Bonds
You lend money to the government or a company Examples may include schools or
municipalities
Stocks
You own shares of the company Many investors buy companies they
know
How much risk should I take? Find out what your risk
tolerance is:
What are the goals for the money that is being invested?
What is your timeframe? How much money do you
have? Can you sleep at night
knowing you can lose money or would you like for your investment to remain stable?
Investment Risk
Lower risk, lower potential return Higher risk, higher potential return
CASH EQUIVALENTS
GOVERNMENTBONDS
MUNICIPALBONDS
CORPORATEBONDS
MID-CAPSTOCKS
LARGE-CAPSTOCKS
SMALL-CAPSTOCKS
INTERNATIONALSTOCKS
Managing Risk- Diversification
Winter Spring Summer Fall
Snow
Blowers
Lawn
Mowers
Inflation Risk
Private Four-Year College Tuition1
1987-88 $10,455
1992-93 $15,027
1997-98 $19,360
2002-03 $24,867
2007-08 $32,307
Movie Ticket2
1975$2.00
1980$2.75
1985$3.55
1990$5.00
1995 $6.00
2000$7.00
2006$8.50
1 Source: The College Board, Trends in College Pricing
2 Source: Motion Picture Association of America
How much and when should I invest?
Any amount counts.
Just get started.
Time is on your side. Take advantage of compounding growth.
“Time and tide wait for no man.” Mark Twain
Time is on Your Side Compounding Growth
The more time you have the more you can benefit from compound growth
Tim begins Sally waits until investing at age 15. she is age 25.Both invest $500 per year. What is the
difference?
Time is on Your Side Compounding Growth
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
15 25 35 45 55 65
Tim
Sally
Tim earned$145,168
Sally earned $77,381
At age 15, Tim begins investing $500 per year. Sally waits until age 25 to invest the same amount. Both earn 6% annualized return.
Age6% is not a guaranteed rate of return.
Rule of 72 and Rate of ReturnThe “Rule of 72” is a simplified way to determine how long an investment will take to double, given an annual rate of return.
“It is the greatest mathematical discovery of all time.” Albert Einstein
Remember that risk and return go hand-in-hand. Higher returns usually mean greater risk. Lower returns generally promise greater safety.
Consider Your EmotionsEmotion is NOT a Strategy
Strategy for InvestingMutual Funds
Pool ofProfessiona
l
Management
Diversified PortfolioInv. Objective
Stocks &/or Bonds, etc.
Capital
Gains
Divid
ends
Share in underlying Investment Results (Gains or Losses)
Strategy for InvestingDollar Cost Averaging
Year $$ Price/share # of Shares
29 $100 $10 10
30 $100 $4 25
31 $100 $2 50
32 $100 $1 100
33 $100 $250
34 $100 $425
$600 260
Total value of all the shares after year 6 = $1040
Results in 21.84% average annual return
Strategy for InvestingDollar Cost Averaging
Works if you are willing to continue during bad markets. You need to keep investing when share prices are declining.
Dollar cost averaging does not guarantee a profit and does not prevent against a loss.
Lessens the emotional roller coaster of investing.
What can I do now?
Identify goalsCreate a strategyGet startedDiversify, diversify, diversifyUse resources/Get advice
Resources for You!
Keep one finger on the pulse of the market: www.investopedia.com www.mfea.com http://finance.yahoo.com/ www.morningstar.com http://money.cnn.com/data/dow30
Look into an investment account for long-term goals www.sharebuilder.com www.schwabmoneywise.com
Remember…
The choices we make with our
money can change the world.
Thank you
BestPrep gratefully acknowledges the Foundation for Financial Planning for providing financial support to fund this project. We also are indebted to the “Investing Matters” committee for their help in creating and piloting this presentation.
Committee membersRon Chu, Ameriprise FinancialJohn Comer, Comer ConsultingCathy Ehrlich, Lake Junior High SchoolAndy Fishman, Affiance Financial, LLCJohn HelgersonJenna Holm, Accredited Investors Inc.Shawn Jacobson, Legacy FinancialBob Kaitz, BestPrepSteve Lear, Affiance Financial, LLCKara Mueller, St. Louis Park High SchoolJoan Rossi, Rossi Financial ManagementJanet Stanzak, Financial Empowerment LLCBonnie Vagasky, BestPrep