Unit 3 - Investing: Making Money Work for You Mr. Vogel.

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    26-Dec-2015

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  • Slide 1
  • Unit 3 - Investing: Making Money Work for You Mr. Vogel
  • Slide 2
  • Financial Planning Goals (SMART) Budget SaveSpendShare LoanOwn ShortLongTerm Risk/Return Credit/Debt Career Planning Insurance
  • Slide 3
  • Credit/Debt - Review Is it part of your Plan (Budget) ??? Use Emergency Fund for your emergencies Use Insurance for any catastrophies Concept of Compounding time and interest rate
  • Slide 4
  • T I M E You are HERE T I M E
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  • Born Start Career Retirement Death 0 226287 22 Years 40 Years 25 Years Childhood Education Work/Professional Career Possible Raising of Family Only Opportunity to Accumulate Wealth Retirement Period Escalating Health Care & Maintenance Needs Running the Race of Your Life
  • Slide 6
  • 10203040 50 60 70 Age 18 Age 28 10 Years Invested $20,000 Age 31 Age 65 35 Years Invested $70,000 $276,474 $361,418 At Age 65 Assumptions: Save $2,000 per year Compound Interest @ 7% The Advantage of Starting Early to Save ______ +$85K Save Age 18 to 65 $60/wk ($2880/yr) $1,000,000 !!!!! If you wait until later you will NEVER catch up
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  • Saving & Investing Saving IS Important ! Investing IS Important! While they are related - They are Quite Different Saving is for meeting your Short Term goals Emergency Fund, Major Purchases Investing is for meeting your Long Term goals Net Worth for retirement years
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  • It Takes Money to Make Money LoanOwn Bank or Credit Union Government Fed/State/Local Company/Corporate Private Company Public Company (stock) Real Estate Commodities SAVINGS INVESTMENTS
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  • Financial Planning Pyramid Penny Stock Commo- dities Collectibles Speculative Stock / Bonds / Mutual Funds Real Estate Blue-Chip Common Stock Growth Mutual Funds High-Grade Convertible Bonds High-Grade Preferred Stock Balanced Mutual Funds High-Grade Corporate Bonds or Mutual Funds High-Grade Municipal Bonds or Mutual Funds Money Market Accounts or Mutual Funds Certificates of Deposit U.S. Savings Bonds Insured Savings / Checking Accounts Treasury Issues Highest Risk Highest Earnings Lower Risk Lower Earnings NEFE High School Financial Planning Program Unit Three Investing: Making Money Work for You
  • Slide 10
  • Banks & Credit Unions Savings AccountMoney Market Account CDs Certificates of Deposit (6mth, 1-5 years) Governments Federal T-bills (28,91,182 days) Treasury Notes (Up to 10 years) Treasury Bonds (10 30 years) State General Obligation Bonds Revenue Bonds (Up to 30 years) Municipalities Muni Bonds (Up to 30 years)
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  • Bond Ratings Moody Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 S & P AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- Investment Grade Bonds Junk Bonds
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  • Public Company President/CEO (Management) Board of Directors (Owners) Sales/Revenue - Less Costs Operating Profit - Less Interest - Less Taxes Net Income Retained Earnings DividendsPay Off Debt Corporate Bonds (Debt) Reinvest in the Business Loan Interest on the Bonds Own Stock Dividends Stock Price Appreciation Stock Holders Elect Board Members
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  • Stock Certificate Example
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  • Stock Exchange S E L L E R S O F S T O C K B U Y E R S O F S T O C K
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  • United StatesNew York Stock Exchange11,838 JapanTokyo Stock Exchange 3,306 United StatesNASDAQ 3,239 EuropeEuronext 2,869 United KingdomLondon Stock Exchange 2,796 ChinaShanghai Stock Exchange 2,705 Hong KongHong Kong Stock Exchange 2,305 CanadaToronto Stock Exchange 1,677 SpainBME Spanish Exchange 1,435 BrazilBM&F Bovespa 1,337 IndiaBombay Stock Exchange 1,307 GermanyDeutsche Borse 1,292 AustraliaAustralian Securities Exchange 1,225 IndiaNational Stock Exchange of India 1,225 SwitzerlandSIX Swiss Exchange 1,065 ChinaShenzhen Stock Exchange 868 South KoreaKorea Exchange 835 Nordic CountriesNASDAQ OMX Nordic Exchange 817 South AfricaJSE Limited 799 TaiwanTaiwan Stock Exchange 658 ItalyBorsa Italiana 656 Stock Exchanges Exist All Over the World Mkt Captialization ($ Billion) TOP 20
  • Slide 16
  • Range of S&P 500 Returns (1926-2005) 1 Yr Periods 3 Yr Periods 5 Yr Periods 20 Yr Periods 54% -43.3% 31.2% -27% 20.1% -12.5% 17.9% 3.1% Annual Average Percent Returns Savings dont belong in the Stock Market !!!!
  • Slide 17
  • S&P 500 Returns (1996 2005) (3,650 days) 9.1% 4.1% 0.2% -3.1% -5.9% Annual Average Percent Returns Excluding Top 10 Days Excluding Top 20 Days Excluding Top 30 Days Excluding Top 40 Days Timing the Market Doesnt Work
  • Slide 18
  • Mutual Fund
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  • Diversification Stocks & Bonds Mutual Funds Spreads Your Risk Any ONE Stock/Bond can Fail or Default Personally managing large numbers of investments gets messy Convenient/Affordable Way to Hold a Large Portfolio of Investments Can Have Hundreds of Positions in a Portfolio Minimum Investment can be Quite Low (e.g. $1,000) You Can Find a Fund for Every Investment Interest Over 6000 Funds Exist Today Their Operating Rules are Covered in the Prospectus
  • Slide 20
  • Practical Advice on Choosing Mutual Funds Check out the Funds Performance Ratings on Morningstar 3, 4, 5 Star Ratings Select a NO LOAD Fund Cheaper than Loaded Funds On Average They Perform Equivalently Watch a Funds Management Fees VERY Carefully Should be < 1% per annum Seriously Consider Index Funds A special type of mutual fund passive management Indexed to a major stock index Extremely Low Fees
  • Slide 21
  • 1. Understand Your Risk Tolerance Savings Low/No Risk Short Term Needs Investments More Risk, But an Individual Choice/Comfort As Age Increases Risk Tolerance should decrease As Wealth Increases Risk Tolerance should increase Your Investment Strategy
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  • Bonds S.T. Investments Dom. Stocks Foreign Stocks ConservativeBalancedGrowthAggressive Annual Returns (1926-2008) Average Best 12 Months Worst 12 Months Best 5 Years Worst 5 Years 6.06% 31.06% (17.67%) 16.79% (0.37%) 7.85% 76.57% (40.64%) 22.06% (6.18%) 8.73% 109.55% (52.92%) 27.23% (10.43%) 9.31% 136.07% (60.78%) 31.91% (13.78%) 2. Select Asset Allocation That Matches Your Risk Target
  • Slide 23
  • 3. Choose Individual Investments Consider Mutual Funds or Index Funds Diversification Check out performance with 3 rd Parties e.g. Morningstar Remember: No Loads perform as well as Load funds Wherever possible, Index Funds are you least expensive choice 4. Track and Readjust as needed Keep your asset allocations proportioned correctly
  • Slide 24
  • W A T C H O U T S ! ! ! Be Wary of People (Friends) Wanting to Help Manage Your Money You ALWAYS Pay Them Often in Hidden Ways Placement in Loaded Funds Commissions on Trades Outright Fees (0.5% to 3.0%/yr) Dont Take on More Risk than you can Comfortably Stomach Dont chase returns
  • Slide 25
  • Special Deals You Should Never Pass Up (Tax Sheltered Investments) 401Ks, 403bs, Self Directed IRAs Money Goes IN BEFORE Taxes Possible Company Match Money Compounds without Taxes! Money OUT is Taxed as Income Start Withdrawls Age 59.5 to 70.5 Roth IRAs Money Goes IN AFTER Taxes Money Compounds without Taxes! Money OUT is Tax FREE !!!!!!!!! Start Withdrawls Age 59.5 No Mandatory Withdrawls can be passed to next generation
  • Slide 26
  • A Short Tax Tutorial Tax Rates Federal Income 28% - 33% - 39% - Capital Gains 15% State (MO) 6% Income is Wages, Salaries, Bonus, Winnings,Dividends & Stock Price Gains (stock held < 1 year) Capital Gains are Stock Price Gains (stock held > 1 yr) Example Bought Stock: 10 shares @ $80.00Sold Stock: 10 shares @$100.00 Sold (10 X $100) $1,000 Bought (10 X $80) $ 800 Gain $ 200 Held 1 Yr Fed @33% $66Fed@15%=$30 State $12State $12 Total Tax $78 $42 Investing isnt about what you earn its what you keep!
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  • Slide 28
  • Popular Stock Indexes of the World S&P 500 500 US Stocks of Large Companies (>$10B) Selected by Analysts & Economists on the committee DJIA Weighted Average of 30 Significant Stocks Stocks must be traded on NYSE and Nasdaq Wilshire 5000 Total US Market Index over 6700 stocks Companies must be US Hdqrtrs, US exchange traded FTSE 100 Financial Times Stock Exchange Index Blue Chip stocks on London Stock Exchange NIKKEI 225 Blue Chip stocks on Tokyo Stock Exchange