Samp2

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Samp2

  1. 1. The value of investing • Pursuing your goals • Adding to savings • Taking control • Setting your direction
  2. 2. How much would your money have grown? Growth of $10,000 investment, 9/82–9/02 $250,000 $200,000 $150,000 $119,181 $100,000 $63,379 $50,000 $33,580 $0 9/82 9/84 9/86 9/88 9/90 9/92 9/94 9/96 9/98 9/00 9/02 Large cap stocks Government bonds Money market securities
  3. 3. Inflation-adjusted returns Growth of hypothetical $10,000 investment over 20 years $80,000 $73,281 $60,000 $40,574 $40,000 $33,102 $18,328 $18,208 $20,000 $10,081 $0 10% annual rate of return 6% annual rate of return 3% annual rate of return on investment on investment on investment Before inflation After inflation
  4. 4. Sound investing takes more than returns into account Risk and return, 9/30/82–9/30/02 20 15.56 15 13.19 9.67 10 5.80 4.82 5 0.57 0 Money market securities Government bonds Large cap stocks Annualized total return (%) Annualized standard deviation (risk) Sources:2005
  5. 5. Stocks Common, preferred Large cap, mid cap, small cap Major types Growth, value International, domestic High return potential Reasons to choose May provide income Long-term investment Relative risk High
  6. 6. Understand and manage the risks Why stock prices rise and fall • Company fundamentals • Industry trends • General market movements • Political or economic events
  7. 7. Balancing risk and reward: Aggressive portfolio 1982–2001 Number of down years 3 Average loss in down years -4.51% Worst 1-year loss -7.80% Average annual total return 14.50% Stocks: 80% Bonds: 20%
  8. 8. Balancing risk and reward: Moderate portfolio 1982–2001 Number of down years 2 Average loss in down years -1.04% Worst 1-year loss -2.06% Average annual total return 12.79% Stocks: 60% Bonds: 30% Cash: 10%
  9. 9. Avoid the high price of procrastination Monthly investment required to meet $250,000 goal $4,000 $3,402 Monthly investment t $3,000 $2,000 $1,367 $1,000 $424 $168 $0 5 10 20 30 Years from goal
  10. 10. Regular investing may lower your average cost Amount Shares Month invested Price per share purchased January $100 $10 10.0 February $100 $ 8 12.5 March $100 $ 5 20.0 April $100 $ 7 14.3 May $100 $ 8 12.5 June $100 $10 10.0 .. TOTAL $600 79.3 Average share price: $48 ÷ 6 = $8 Average share cost using $600 ÷ 79.3 = $7.56 dollar-cost averaging: Systematic investment plans do not assure a profit or protect against loss in a declining market. You should consider your ability to make regular investments through periods of fluctuating price levels before choosing a regular investment plan.
  11. 11. Pay yourself first Painless ways to find money to invest Monthly investment Invest the amount of your car loan when you pay it off $200–$450 Bring lunch to work $90–$100 Invest your annual raise or bonus in monthly installments $55–$100 Run in the park instead of on a treadmill at the gym $45–$80 Drink regular coffee instead of a daily mochaccino deluxe $25–$60
  12. 12. Don’t miss the best days Annualized stock returns, 9/30/91–9/30/02 12% 9.1% 8% 4.6% 4% Returns 1.3% 0% -1.4% -4% -3.8% -5.9% -8% -12% All trading Missing Missing Missing Missing Missing days 10 best 20 best 30 best 40 best 50 best trading trading trading trading trading days days days days days Past performance is no guarantee of future results. Source: Ned Davis Research Inc. You cannot invest directly in an index. Stocks are represented by the S&P 500 Index, 500 stocks chosen for market size, liquidity and industry group representation.
  13. 13. No one knows what will happen next Total return (%) 1997 1998 1999 2000 2001 2002 Stocks 33.36 28.58 21.04 -9.10 -11.89 -22.10 Government 9.59 9.85 -2.23 13.24 7.23 11.50 bonds Money market 5.19 4.88 4.74 5.99 3.43 5.76 securities Past performance is no guarantee of future results. You cannot invest directly in an index. Stocks are represented by the S&P 500 Index, 500 stocks chosen for market size, liquidity and industry group representation. Government bonds are represented by the Lehman Government Bond Index, comprised of U.S. government and government agency securities (other than mortgage securities) with maturities of one year or more. Money market securities are represented by the 3-Month Treasury Bill Index.
  14. 14. Develop an investment plan 1. Determine your goals and objectives 2. Develop an asset allocation strategy 3. Choose investments 4. Monitor and adjust your portfolio

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