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Investing matters final_notes


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Now is the time to start investing again. Now is the time to understand how to invest.

Now is the time to start investing again. Now is the time to understand how to invest.

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  • Introduce yourself briefly (max. 2 minutes): -Give the name of the company you work for -Talk about the jobs you had before your current career Introduce yourself briefly (max. 2 minutes): -Give the name of the company you work for -Talk about the jobs you had before your current career Suggested questions and discussion prompts: How many of you have plans for this summer? What are they? Are you getting ready for those plans? For instance, to go to college after high school you might find out what classes you need to take to get into college. Good. So you do plan. I plan also. As a certified financial planner I help people achieve their goals. Summarize what someone does in your position does: -Help people achieve their financial goals—some times goals are really big (like 4 years of college or retirement) and planning helps to break these big goals into bite-sized pieces -Give advice on investments, money management, help clients make financial decisions about their resources, help clients understand the risks they are taking and protect against unnecessary risks (investment and other risks) -These are the topics we are going to discuss today. At the end of today’s presentation, you’ll have a better understanding of the investment options available to you and adults.
  • [Fill in the information on this slide before presenting.] Begin with the following activity: 1. Tell students you will give them all a handful/small bag of snacks at the beginning of the presentation. 2. Explain that if they have the snacks at the end of the presentation, they will receive double. However, if they eat or give away the snacks before the presentation is over, they will receive none at the end. 3. Pass out the snacks (i.e. jelly beans, candy corn, M&Ms, etc. Ask for 1-2 students to help.) 4. Proceed with the presentation. [Purpose of the candy activity is to help the students learn that, sometimes, they are rewarded for their patience. With the candy, by going to college, by taking some of what they earn and investing it for a better future, the response if often time better later. It’s the concept of delay gratification.] Briefly share that the information provided in the presentation is for example only. All investments and their returns may vary.
  • Discuss the current market environment and conditions with the students. One way to get the conversation started is to ask students, “What are you hearing in regard to the U.S. economy?, the stock market?, what’s going on at your house?” Do your parents talk about investments or the stock market, their retirement fund or home mortgages? As we write this, the markets are not doing well—their parents may not have good things to say about investing. Their parents may be worried or upset about their investments. At other times, the markets may be going quite well—their parents may think they are geniuses for the great investments they have made. Do the students hear nothing about the market because it is plodding along? What advice would you have for their parents depending on the current environment? Spend ten minutes or less on this slide and discussion. If you get laid off work do you have more choices if you have a year’s salary saved, or if you have a month’s salary saved? If you have a health emergency, do you have more choices if you can pay for the treatment and you have health insurance? If your uncle or cousin has his/her house burn down, can you help them if you only have a month’s salary saved? If you have an idea for a company you want to start, can you start it with $1,000 or do you need $100,000? Help students realize that money gives you choices.
  • Have students name things that can rise in value. Write the list of items that students call out on the board. Some items to include would be stocks, bonds, mutual funds, antiques, art (paintings, sculptures, etc.), collectibles, real estate, sports memorabilia, education, etc. Some other items that may be of interest to students would be certain types of cars, etc. Remind students that to consider these things as investments they must be willing to sell them, and they must have the potential for them to increase in value. People invest to create value- talk about value. To an investor this could be philanthropic, growing assets for long-term goals, etc. Investing is purchasing securities such as stocks, bonds, and mutual funds with the goal of increasing wealth over time, but with the risk of loss. Saving is the process of setting income aside for future spending. Saving provides ready cash for emergencies and short-term goals and funds for investing.
  • [This slide is animated. Click the mouse to get ‘True, but’ to appear.] Only adults can invest. Students (under 18) can get involved in investment simulations like the Stock Market Game. Some times, you can be active participants in investments decisions for some of your money with your parent’s approval. Your parents can open an account in your name called a custodial account.
  • Ask the students to identify which three answers are correct. Briefly discuss all choices. [This slide is animated, when you click the mouse, ‘to fill your piggy bank’ will fly off the screen.] If you are filling your piggy bank, you are not investing but saving. You probably have a purpose for the money and, when you have enough, could invest the money. You may also have shorter-term goals but financial independence is the ultimate goal. With financial independence, you have enough money to make the choice to continue to work or to engage in other activities—whether those other activities are sitting on a beach or helping feed the hungry (volunteering). Growing your money is another reason for investing as opposed to saving. In investing, your goal is to achieve a higher return than you can achieve through savings vehicles. You want to beat inflation because you want to at least match and hopefully exceed changes in the cost of living. Say you have $10,000 for a car today and invest the money to buy a car in five years. At 3% inflation, the car will cost $11,593 in five years. You want to earn more than 3% so you will still be able to buy the $10,000 car in five years.
  • [This slide is animated. Each section will fly in from the bottom upon separate mouse clicks.] A good guideline is to put 5 to 15% of your income into a combination of savings or investment accounts. As your income increases over time, it’s a good idea to set aside more. When you do this, you are paying yourself first…and you will not miss having the money. Talk to students about their goals. What are their goals today? What will their goals be when they are 30? Chances are most of their goals today are short-term and will require savings. As their goals become long-term, investing will become important to realizing these goals.
  • Investing doesn’t need to be complicated. The types of investments can be broken into just three unique categories: Cash Bonds Stocks [The following slides give the definitions.]
  • The most basic investment type is the ‘cash’ account. The money in a cash account is usually very accessible or comes with simple terms, such as a a 6 month or 1 year time frame. In exchange for your deposit, a financial institution such as a bank or mutual fund company may pay interest. Because the funds are thought of as ‘safe’ and easy to get, the rates paid tend to be relatively low.
  • There are comparisons between cash accounts and bonds- you exchange money for promise of your money back paid with interest. However the number of bonds issued and the types of bonds are very broad and diverse. Bonds can be very short term or very long term. They are issued by an institution that needs funding. This may be a local school district that needs funding to build a new school or update technology or a major corporation that needs capital to expand their business. The rate of interest a bond pays is usually determined by how long you are willing to let the institution use your money and by how strong the institution is financially. The US government is thought of as being the safest institution on the planet and pays the lowest rates while bonds of shaky companies are termed junk bonds but pay very high rates. The junk bond investor gets paid a high interest rate but accepts the risk that the issuing company is not able to pay all or any of their money back. To help students think about of bonds, ask if their school has had any bond referendums recently, or talk about the 35W Bridge building project as an example of a municipal bond.
  • [This slide is animated. Each logo will fly in after you click the mouse once.] When it comes to stocks, you now step into the role of ownership. There is no set promise to pay your money back but you have the unlimited potential of the company. Even a few shares of Pepsico, Apple, Nike, McDonalds or Dell at the initial offering would be worth a substantial amount of money today. Ask the students, “What are some companies you know and want to invest in?” If available, write the company names on the board. Ask students why they like a particular company.
  • Discuss with the students, the goals for the money being invested? The timeframe for investing? And how much money is there to invest?- Remind students of the discussion on short vs. long term goals. Ask the students to name a goal (or use one from the earlier discussion). Talk about how the ability to take risk increases as the timeframe increases. Ask, “Is all the money you’re investing going to be used for a specific goal? Or do you have slush fund?” You have the ability to take more risk with money that is not earmarked for expenses. Ask students, “Can you sleep at night knowing you can lose money or would you like for your investment to remain stable?” This speaks to an investors willingness to accept risk. Discuss the difference between ability (can you technically afford to accept risk) and willingness (emotionally can accept risk). Discuss investments that may be right for an investor with a high risk tolerance (equities) and an investor who is seeking a stable return (cash equivalents and bonds)- Lead in to the next slide
  • Point out how higher returns come with higher risk. It is important to understand the implications of both. An all Large-Cap stock portfolio could fall -37% in any given year; however the average annual return is 8% compared to government bonds at 3% and cash equivalents at 0.75% (Source: Ibbotson Data 1926-2008; real returns) Discuss why small cap stocks are more risky than, for example, large cap stocks. Small cap stocks are more prone to shifts in the economy and are dependent on bank loans; in a economic downturn small companies will be harder hit than large ones. Thus, their higher return pays for this risk. Large cap stocks are less affected by shifts in the economy because they usually have more than one business segment and have easier access to capital. What can we do with this information? Rather than using an investment at one side of the spectrum or the other you can diversify your holdings in order to decrease your risk and maximize return. Lead into next slide, where an example is shown.
  • [Slide is animated: Trend lines come in on each click.] (Click 1): Here is an example of a large company who sells snow blowers. If Toro sold only snow blowers, this is what its sales would look like. Would you want to own this stock? Lets see what happens if the company decided to sell lawn mowers to make up for the slow sales in spring and summer (Click 2). The result is more reliable earnings (which is what drives stock prices to positive returns). Companies (like Toro) reduce risk by developing several products for a variety of uses, even seasons of the year or parts of the country or world. Ask the student if they can think of any other companies that diversify their risk? Investors can use diversification in investing as well. The idea is that when one investment is not performing well, another may pick up the slack. So instead of owning just large cap companies, you can own large, mid, and small cap companies and mix in bonds as well. The idea is that over time you will see a smoothing of your returns (third click-draws a line between snow blowers and lawn mowers)
  • Inflation is the tendency for prices to gradually rise over time. Over the past 80 years, prices have gone up an average of 3.05% per year. While 3% doesn’t sound like much, it starts to add up. At that rate, prices double every 24 years and triple every 40 years (Tie into the Rule of 72). Ask, “What are some examples of price increases due to inflation that you’ve seen?” Inflation reduces the return on an investment. For example, if you return 2% on your bonds in a given year and inflation is 3%, your rate of return is actually negative. Learning about inflation helps us when we consider our investments. Investing can help get you a rate of return that will preserve the value of your money (i.e. you strive for a return above inflation).
  • [This slide is animated. Each bullet will fly in from the bottom upon separate mouse clicks.] Ask students to give examples of how time has worked for their benefit. How about completing a school project? Practicing for a performance or big game. Ask students, “How does it feel when you cram for a test?” Ask, “Does anyone have a savings plan or investment plan?” “How did you get started?” Ask if anyone would share how much they are saving or investing per year. Request that the students ask their parents about investing and what they would do differently? Share with the students that many parents will comment that they wished that they would have started sooner.
  • Look what getting started can do. Tim began investing $500 a year now. Sally is busy buying “things.” Ask the students, “What do you buy with your money?” If a board is available, write down how students are spending their money.
  • This is what is called the “magic of compounding.” Ask the students, “Guess how much Sally would have to invest at age 25 to reach $ 145,168 at age 65?” The answer is approximately $938 per year! If a board is available write $500 for Tim at age 15 and $938 for Sally at age 25. If Sally wants to end up with the same amount as Tim, she has to save $ 938 at age 25 to reach $145,168 at age 65 because she waited 10 years to get started. This is the COST of DELAYING (if available, write on board). Ask if a student has a calculator. Ask her/him to break down $500 per year to a monthly and then weekly amount. $500 is approximately $41.66 per month and approximately $10.42 per week. If board is available write down these numbers. Ask “How many can save this amount?” Ask the students, “Will you have the ‘things’ you are buying today when you are 25?” Most of them will respond “no.” Then ask the students, “Knowing that you aren’t going to have these “things” that you are buying today when you are 25, 30, 35; does it make it more appealing to invest now about $10 per week?” “Do you think that you will invest more based on what you have learned today?”
  • Walk through one or two examples on the graph. Ask students, “Did you know that Albert Einstein is credited with discovering the compound interest rule of 72.” Referring to compound interest, Albert Einstein is quoted as saying: "It is the greatest mathematical discovery of all time." Ask the students, “Have you ever heard about this concept?’ Ask the students, “What does the Rule of 72 means to you?” “How could you use it?”
  • Ask students, “ What is the ultimate goal when putting money into a volatile investment?” (The answer you are looking for is: “Buy low and sell high”.) Ask students, “Does that sound difficult to do?” Let’s take an example: Let’s say Dairy Queen Blizzards go on sale for $1.50. Would you consider buying several Blizzards at that price and storing them in your freezer? What if Apple stock, which has historically traded at around $100, is now trading at $70? What would you do? Interestingly enough, most people have problems investing in this manner. Why? Anxiety! Let’s look at this chart, which illustrates stock market performance. Ask for three students to give you their opinion on where they think we are on this chart currently. Those who feel that we’re at the bottom might consider buying more stocks while the prices are at a perceived low. Those who think we’re closer to the top would probably want to hold off on adding to their investment portfolio. When it comes to investing in the stock market, it’s very important to decide where you think we are on this pattern. These ties into our next chart.
  • Ask, “Does anyone know how a mutual fund works?” “What would be the benefit of investing under a mutual fund platform?” Mutual funds pool money from many people all over the world. A professional money manager invests this money into a diversified portfolio of stocks, bonds, money market accounts – this depends on the objective of that particular mutual fund. The benefits of investing in a mutual fund include: --Their primary job of the money manager is to figure out which companies will make money or pay off their debts in the future. --The mutual fund also provides diversification. This means the money manager invest into many companies. If one company goes out of business the others will hopefully not go out of business. This way you will not lose all of your money. While mutual funds aren’t as tax efficient as individual stocks, for most people the professional management and diversification are wonderful benefits. One thing people may not like about mutual funds is that there is an expense connected to the professional management. Let me give an example: “If you invested $1,000 into a mutual fund, you would have to pay a management fee of between $3 per year to $17.50 per year. Nevertheless, time is money, and each person needs to decide how they want to spend both. Other options you may discuss depending on the class’ knowledge: Exchange traded funds, individual stocks (or individual issues. Some clients hold a single issue stock simply because they were “attached” to it. The company went out of business. How much better would it have been had they sold the single issue stock at a high and transferred the proceeds to a mutual fund?
  • Ask, “So how do we combine the emotions connected to investing with the mutual fund platform of investing?” Let’s talk about a powerful investment strategy called Dollar/Cost Averaging. Let’s walk through an example: Let’s say you came into my office on October 1, 1929 with $600. You want to put it into the market, as it’s been up for the past five years. I recommend that rather than putting the $600 in all at once, you put in $100 per year for the next six years. Although you thought this was boring, you agreed to do it. So on October 1, 1929 you bought $100 of a stock fund at $10 per share. QUIZ: How many shares did you buy? (Just checking your math!) The next year we put in another $100, even though the stock market has crashed and the stock fund is now down to $4 per share. How many shares are you purchasing now? Two more years go by and the stock fund has now gone down 90% in value. “What the heck,” you say, “I had this money put aside anyways, and I made the commitment to do this for 6 years. I might as well continue.” So we buy 100 more shares at $1 per share. You now have $400 into the investment and it’s worth a grand total of $185. How would you be feeling? The next year the stock fund goes back up to $2 per share and by the sixth year it goes back to $4 per share. On October 1, 1934 you call me and say, “Steve, this is terrible. We started at $10, it’s now at $4. Get me out of this and send me the money.” Before I do that, I add up the number of shares you bought over the 6 years – 260 at $4 per share and you held it for 6 years. It’s now worth $1,040. You invested $600. That’s an average annual rate of return of 21.84%.
  • [This slide is animated. Each bullet & accompanying graphic will fly in upon separate mouse clicks.] Ask students, “What goals have you been thinking about today?” “Have you written them down?” “ What strategies will you use?” “How much do you spend on wants that could be used for your future?” “ Do you have a plan to save or invest?” Consider a mutual fund as an easy way to diversify. Share your plans with someone else to help you stay accountable.
  • This is a handout for the students. Conclude the presentation by rewarding the students that didn’t eat their candy. Note that saving takes patience and discipline. Story: Have you heard about the Marshmallow Test? Psychologists at Stanford University tested 4-year-olds by giving them a marshmallow and telling them they can either eat the marshmallow now, or wait for 20 minutes and they would then get two. They tracked these kids for 18 years. They found the ability to wait for the second marshmallow was an amazingly strong predictor of their success in school, their ACTs scores, success in college, and even their happiness and popularity.
  • YOU can make a difference.
  • Transcript

    • 1. “Investing Matters”
    • 2. Goals of today’s presentationGround yourself in the basicsUnderstand riskCreate a strategyHow to get startedPresentation given by ______________Securities available through ______________Investments are not FDIC insured, may lose value, are not a deposit, have no bank guaranteeand are not insured by any government agency.
    • 3. 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
    • 4. What is investing? Putting your time or money into something with hopes of getting something greater in return Invest to create value
    • 5. Who can invest? True or False Only adults can invest? True, butStudents can have their parent/guardian open a custodial account for them.
    • 6. 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
    • 7. 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
    • 8. Investments typesCashBondsStocks
    • 9. Cash Accounts Accounts you can access quickly  Bank accounts (checking & savings)  CDs (Certificates of deposit)  Money market accounts
    • 10. Bonds Youlend money to the government or a company  Examples may include schools or municipalities
    • 11. Stocks You own shares of the company  Many investors buy companies they know
    • 12. 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?
    • 14. Managing Risk- DiversificationSnowBlowersLawnMowers Winter Spring Summer Fall
    • 15. Inflation Risk Private Four-Year Movie Ticket2 College Tuition1 1975 $2.00 1987-88 $10,455 1980 $2.75 1992-93 $15,027 1985 $3.55 1997-98 $19,360 1990 $5.00 2002-03 $24,867 1995 $6.00 2007-08 $32,307 2000 $7.001 Source: The College Board, Trends in College Pricing 2006 $8.502 Source: Motion Picture Association of America
    • 16. How much andwhen should I invest? Any amount counts. Just get started. Timeis on your side. Take advantage of compounding growth. “Time and tide wait for no man.” Mark Twain
    • 17. Time is on Your SideCompounding Growth Themore time you have the more you can benefit from compound growth Tim begins Sally waits untilinvesting at age 15. she is age 25.Both invest $500 per year. What is the difference?
    • 18. Time is on Your Side Compounding Growth At age 15, Tim begins investing $500 per year. Sally waits until age 25 to invest the same amount. Both earn 6% annualized return. $160,000 $140,000 Tim earned $120,000 $145,168 $100,000 $80,000 Sally earned $60,000 $77,381 $40,000 $20,000 Tim $0 Sally 15 25 35 45 55 656% is not a guaranteed rate of return. Age
    • 19. 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.
    • 20. Consider Your EmotionsEmotion is NOT a Strategy
    • 21. Strategy for InvestingMutual Funds Professional Pool of Management Di vi de nd s Diversified Portfolio C ain ap s G ita Inv. Objective l Stocks &/or Bonds, Share in underlying etc. Investment Results (Gains or Losses)
    • 22. Strategy for Investing Dollar Cost AveragingYear $$ Price/share # of Shares 29 $100 $10 10 30 $100 $4 25 31 $100 $2 50 32 $100 $1 100 33 $100 $2 50 34 $100 $4 25 $600 260Total value of all the shares after year 6 = $1040Results in 21.84% average annual return
    • 23. Strategy for InvestingDollar Cost Averaging Worksif 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. Lessensthe emotional roller coaster of investing.
    • 24. What can I do now? Identify goals Create a strategy Get started Diversify, diversify, diversify Use resources/Get advice
    • 25. Resources for You! Keep one finger on the pulse of the market:      Look into an investment account for long-term goals  
    • 26. Remember…The choices we make with our money can change the world.
    • 27. Thank youBestPrep gratefully acknowledges the Foundation for FinancialPlanning for providing financial support to fund this project. We alsoare indebted to the “Investing Matters” committee for their help increating and piloting this presentation.Committee membersRon Chu, Ameriprise FinancialJohn Comer, Comer ConsultingCathy Ehrlich, Lake Junior High SchoolAndy Fishman, Affiance Financial, LLCJohn HelgersonJenna Holm, Accredited Investors Inc.Shawn Jacobson, Legacy FinancialBob Kaitz, BestPrepSteve Lear, Affiance Financial, LLCKara Mueller, St. Louis Park High SchoolJoan Rossi, Rossi Financial ManagementJanet Stanzak, Financial Empowerment LLCBonnie Vagasky, BestPrep