saving and investing to build wealth
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Saving and Investing to Build Wealth. Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403b’s IRA’s Investing Options. Building wealth is like building a brick wall. Set realistic goals. Work to accomplish each step- - PowerPoint PPT PresentationTRANSCRIPT
Saving and Investing to Build Wealth
• Steps to Financial Freedom• Savings Plan and Methods• Power of Compound Interest• Saving for Retirement• 401ks, 403b’s• IRA’s• Investing Options
Building wealth is like building a brick wall.
• Set realistic goals.• Work to accomplish each
step-• Prior to moving to the next
step.
One brick on top of the other;Make sure the wall is solid;Add another brick.
Dream Your Goals
• “A goal without a plan is just a wish.”• This activity will help you put an
approximate price tag on your financial goals. (worksheet)– How much for a wedding?– How much for a down payment on a car? – What will the financing cost?– How much to pay for college in five years?– New heater, head gasket on car, etc.?
Needs and Wants
• What is the difference between a: NEED and a WANT?
• Needs are things you use or require every day.
• Wants are things you would love to have but can live without.
Good Debt and Bad Debt• Good Debt:
– Car loan and home – Save to buy special wanted items– Things I need and can afford
• Bad Debt– Things I want, not need– Things that make me feel good (conspicuous spending) – Have no long term value or growth potential
• Borrow strategically will help you meet long term goals
• “What Is My Worth?” – (handout)
SAVING -Diversification not putting all financial
“eggs” in one basket.
COMMODITIES
PENNYSTOCK
SPECULATIVESTOCKS/BONDS/MUTUAL FUNDS
COLLECT-IBLES
FINANCIALPLANNINGPYRAMID
Highest Risk/Highest Earnings
Lowest Risk/Lowest
Earnings
BLUE CHIP COMMON
STOCK
REAL ESTATE
GROWTH MUTUAL FUNDS
BALANCED MUTUA L FUNDS
HIGH-GRADE PREFERRED
STOCK
HIGH-GRADE CONVERTIBLE
BONDS
MONEY MARKET
ACCOUNTS or MUTAL FUNDS
HIGH-GRADE MUNICIPAL BONDS or
MUTUAL FUNDS
HIGH-GRADE CORPORATE
BONDS or MUTUAL FUNDS
INSURED SAVINGS/
CHECKING ACCOUNTS
U.S. SAVINGS BONDS
CERTIFICATES OF DEPOSIT
TREASURY ISSUES
AUTOMOBILE INSURANCE
HOMEOWNERS OR RENTERS
INSURANCE
LIFE INSURANCE
MEDICAL/ DISABILITY INSURANCE
LIABILITY INSURANCE
The Rule of 72……states that 72 divided by the interest rate will result in the number of years it will take your investment to double…...
Three Questions:Every Financial Advisor Should Ask.
• How much do you want to invest?
• For how long do you want to invest?
• How’s your risk tolerance (stomach)?– Can you handle volatility over the long period
of investing?– Is this money you need or money you want!
Savings Accounts• Savings accounts are accounts at financial
institutions designed to keep your money safe and help it grow.– Low interest rate– Provides liquidity– Losing growth to inflation
• Guaranteed by FDIC up to $250,000• You can make deposits and withdrawals as needed• Initial deposit varies with the bank. From $1 to as
much as $1,000
Insured v. Uninsured Accounts• Savings accounts and bank CDs that are
insured by the FDIC offer a smaller return because they are safer.
• Stocks, bonds and mutual funds are not insured or offer guarantees.
• There is not a single investment that gives you high return, low risk, and ease of access (liquidity).
CDs, or Time Deposits
• Certificates of deposit (CD’s) are a safe way to make your money grow.
• The longer you leave your money on deposit, the higher interest rate you’ll earn.
• Length of deposit varies form 1 month to 5 years.
U.S. Treasury Investments• Include Savings Bonds and Treasury Bills.
• When you buy treasury securities you are making a loan to the government.
• Interest varies, but you are always guaranteed a minimum return
• Low risk, low return
• Interests and principal payments are backed by the federal government
Treasury Bills
• T-Bills are sold for less than their face value.
• Your profit is the difference between the purchase price and the face value.
• T-Bills pay you back with interest in one year or less from their issue date.
U.S. Savings Bonds• Interest can vary, but you are always guaranteed a
minimum return.
• Dominations ranging from $50 to $10,000.
• Maximum purchase in one year is $5,000.
• Redeemable only to the person to whom they are registered.
• Earnings on savings are not tax deductible.
Stock Market Risk• No guarantee that stock prices will go up or
that you will make money on stocks.
• Banks now sell all types of investment products which are NOT insured.
• BE AWARE! Volatility can be bad and good!
Bonds• U.S. Government Bonds (Treasuries):
– Exempt from state and local taxes. – U.S. Treasury bills -- maturities from 90 days to one year – U.S. Treasury notes (coupons) -- maturities from two to 10 years – U.S. Treasury bonds -- maturities from 10 to 30 years
• Municipal Bonds– Many muni’s are safe from city, state and federal taxes.
• Corporate Bonds– Riskiest fixed-income securities.– Susceptible to economic problems, mismanagement and
competition.– Pan Am and Chrysler bankruptcies of 1979 come to mind.
Mutual Funds• Are a portfolio of stocks, bonds, and other
securities.
• Run by a fund manager who gets a commission.
• Each investor in a fund shares in the fund’s gains, losses and expenses.
• A way to “diversify” or spread out your risk.
Saving for Education
• There are a number of special accounts that can help you save for your children’s college educations.– Unified Gift to Minors Act (UGMA’s – Age 18)– 529 College Savings Plans– IRA’s can be used for educational expenses
Traditional v. Roth IRATraditional Roth IRA
Who May Contribute Under age 70 ½ No age limit - MAGI Single below $116,000Married below $169,000
2008 Contribution Limit Individual: $5,000Married (jointly): $10,000Age 50+:$1,000 catch up
Individual: $5,000Married (jointly): $10,000Age 50+:$1,000 catch up
Federal Income Tax Deductible
Deductible if part of employee plan
No income tax deduction
Tax-Advantaged Growth (5 year hold)
No taxes on distributions until you withdraw
Tax free growth and withdraws after age 59 ½
Required Distributions April 1st of the year after turning 70 ½
No mandatory age for taking distributions.