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Investing: Chapter 12.
“Do You Feel Lucky Punk, Well Do
Ya?” Clint Eastwood, Dirty Harry.
SAVINGS
“A penny saved is a penny earned.”
Ben Franklin
Savings = Investments =
Profits = Reinvestments =
Puritans?
 Because of their religion, Puritans saved most of their
mone...
Financial Markets.
 Savings and the Financial System.
1. CAPITAL FORMATION is creating financial
assets. MONEY.
2. Saving...
Futures
O.TC.
Individual
Stocks.
Mutual Fund Stocks
Mutual Fund Bonds
Corporate Bonds
Government Bonds.
Cash-Savings-Insur...
BANKS
Banks and Financial
Intermediaries.
 1. Banks receive money from those who have it and
LOAN it to people who need it.
 2...
Non Bank Financial
Intermediaries.
 1. Finance companies.
 2. Life Insurance co.
 3. Mutual funds.
 4. Pension funds.
...
Start Saving Money Now!
Regular Bank
 1. Pick a bank and
start regular monthly
savings.
 2. Have a pre set
amount taken ...
Why Don’t Americans Save
Anymore?
Household Savings Rate and the Ratio of the S&P 500 to Nominal GDP
0
2
4
6
8
10
12
1970 ...
*Statistics current as of 1999.
Inflation And Your Money
Average
New Car
Half Gallon
of Milk
College
Education
Loaf of Bre...
Inflation a Big Factor.
Source: Ibbotson Associates, 1999 Past Performance is no guarantee of future results.
10000
1000
1...
The Bite:
Assuming a 3% inflation rate, you would need
more money each year to have the same buying
power:
 Year 1: $56...
Why MUST You Understand
Investing?
 1. Banks pay so little INTEREST that you
lose money because of inflation.
 2. People...
INVESTING:
Putting money into something TODAY, in the
hopes that in some FUTURE date it’ll be worth
more.
ALL investments ...
Retirement
Do you want to work until you die?
Retirement
 1. Very few “Defined Benefit” retirement
programs.
 2. The BEST retirement plans have a
matching program tha...
Retirement
Defined Program:
 1. Based on a
formula, a worker is
guaranteed a set
pension for the rest of
their life.
 2....
Tax Advantaged Retirement
401k:
 1. Invest up to
$5000.00 a year.
 2. NO tax when you
earn it.
 3. NO tax while it’s
in...
403b and 457
Government/Non-Profit.
$403b Non-Profit.
 1.Shelter $7,000 a
year.
 2. Can borrow
against it.
 3. Access i...
Taxable vs. Tax-Deferred Earnings
TAXABLE
ACCOUNT
TAX-
DEFERRED
ACCOUNT
Stock investment $100,000 $100,000
Annual 7% retu...
Buy a Home!
 1. As soon as you are “Settled” buy a
home.
 2. Best tax advantage for average
person.
 3. Build equity ov...
Tips About Buying a Home
 1. FHA loans for first time home buyers is %3 percent
down instead of %20!
 2. ONE extra payme...
Life Insurance
Futures
O.TC.
Individual
Stocks.
Mutual Fund Stocks
Mutual Fund Bonds
Corporate Bonds
Government Bonds.
Cash-Savings-Insur...
Two Major Kinds of Life
Insurance.
 1. Whole Life.
 2. Term Life.
 3. Each one has its advantages and
disadvantages.
 ...
Whole Life-Advantages
 1. W.L. meant to be kept for a WHOLE persons
life.
 2. Premium stays the some-Forever.
 3. Equit...
Whole Life Disadvantages.
 1. Monthly premiums much higher than term insurance.
 2. Most people cash in insurance before...
Term Life-Advantages
1. Much lower premiums than Whole
Life earlier on.
2. You can get much more coverage.
Term Life-Disadvantages.
1. No equity/No borrowing.
2. Most people forced out by higher
premiums by early forties.
3. M...
So Whole Life or Term?
 Maybe a combination of both:
 1. $200,000 of Whole Life.
 2. $800,000 of Term Life.
 3. As you...
Another Insurance Product
 ANNUITIES:
 1. Put an amount into an annuity now, and then
get a much larger amount later.
 ...
Disability Insurance
 1. It will pay you if you become ill or
disabled.
 2. It may pay you up to 75% of your
wages/salar...
525 and 529 Plans-Medical
and Educational Tax Breaks.
525 Plan
 No pre/post tax
dollars spent for:
 1. Medical Bills.
 ...
Words of Advice!
 1. NEVER, EVER GIVE SOMEONE THE
POWER TO INVEST YOUR MONEY
WITHOUT YOUR KNOWLEDGE AND
PERMISSION!
How Much Risk?
 1. Investing is NOT savings!
 2. U.S. banks and government bonds are the ONLY
%100 safe investment.
 3....
16%
15%
14%
13%
12%
11%
10%
9%
10% 11% 12% 13% 14% 15% 16% 17%
Minimum Risk Portfolio
25% Stocks, 75% Bonds
Maximum Risk P...
Investment Considerations
 Have a Plan:
Assess your goals and risk tolerance.
 Start Early/Time:
Invest early to take ad...
Mutual Funds
1. Most people who invest in
stocks or bonds do so with
mutual funds.
1. 2. Experts invest money
for you.
How Can You Make Money
From A Mutual Fund?
 1. IF the value of the stock, bonds, or securities
goes up, so does each shar...
BONDS
Futures
O.TC.
Individual
Stocks.
Mutual Fund Stocks
Mutual Fund Bonds
Corporate Bonds
Government Bonds.
Cash-Savings-Insur...
Bonds
A bond is issued by the
government OR a corporation
in order to borrow money.
They pay a fixed amount of
interest to...
Mutual Funds & Risk
page 58
Mutual Funds are
invested in a variety of
ways dependent on
their objective. Risk
also varies ...
Bonds
 1. Primary Market: Issued directly from
the government or corporation.
 2. Secondary market: Resold from
individu...
Relationship Between Bond
Prices and Yields
 When yields increase, bond prices decrease.
Price and yield are based on ind...
Bond Prices and Yield.
1. Bond price: You may not pay the
“Face” value of the bond.
2. Yield: How much TOTAL money
will ...
Types of Bonds.
1. Certificate of Deposit.
2. Corporate bonds.
3. Municipal bonds.
4. Federal gov’t bonds.
Muni’s
Four Kinds of Federal Bonds.
1. U.S. Savings Bonds.
2. Treasury Notes. 2-10 years.
3. Treasury bonds. 10-30 years
4. T...
Bonds. Bond Components:
1. Coupon.
2. Maturity.
3. Par-value.
4. Discount
anyone?
`
Bond Ratings.
 1. The better condition of a company, the better
rating.
 2. Better ratings means the company can offer b...
JUNK BONDS
 1. HIGH RISK bonds.
 2. These companies have a high risk of failing.
 3. What about a mutual fund of JUNK b...
Bond Markets.
 Primary market.
 Secondary market.
Bond Market Performance
 Bonds typically carry less risk, but on average have not performed
as well as stocks historicall...
WAR BONDS
War Bonds
War Bonds
Stock Market &
Stocks.
Futures
O.TC.
Individual
Stocks.
Mutual Fund Stocks
Mutual Fund Bonds
Corporate Bonds
Government Bonds.
Cash-Savings-Insur...
Determining Your Risk Tolerance
Cash
Equivalents
Bonds
Stocks
Return
Risk
Mount Calvary Baptist Church
Equities/Stocks
 Equities: These are stocks owned that
represents a percent of ownership of a
company. Every share you ow...
What is a Stock?
 1. One share of a stock purchased is part
ownership of that company.
 2. If you have 100 shares of KO
...
Stock Classification.
A. Micro stock-Tiny co.
B. Small Cap.
C. Medium Cap.
D. Large Cap.
E. Growth v. Value?
F. Foreign/In...
How are Stocks Priced?
1. Book Barf: Efficient Market
Hypothesis.
2. Mr. King’s Barf: Supply and
Demand, period!
3. Two...
Is a Stock Expensive?
 1. Look at its Price to Earnings ratio.
Besides Price and P.E. What
Else is Important?
 1. YIELD: How much, in a percentage form, does the
stock or bond make ove...
How Can You Make Money
From Stocks?
 1. If the value of the stock goes up, it can be
sold at a profit.
 2. Many stocks p...
Stocks Offer Greater
Investment Returns.
Historical Average is 11%
Source: Ibbotson Associates, 1999 Past Performance is ...
Going Public
I.P.O.
 1. Initial Public Offering.
I.P.O.
 2. Why sell shares of a
company?
 3. Creates cash for a
compan...
Hostile Take Over?
 1. Once a corporation has sold stock of itself, it can be
taken over by another corporation OR person...
Remember Investment 101?
 1. Set investment
goals.
 2. Know thy risk and
reward.
 3. K.I.S.S.
 4. Dollar-Cost
averagin...
Futures
O.TC.
Individual
Stocks.
Mutual Fund Stocks
Mutual Fund Bonds
Corporate Bonds
Government Bonds.
Cash-Savings-Insur...
Inflation must be a factor.
Growth of a Dollar
Source: Ibbotson Associates, 1999 Past Performance is no guarantee of futu...
Organized Stock Exchanges.
1. New York
2. American.
3. Over-The-Counter markets.
(OTC.)
4. NASDAQ.
Measuring the Stock Market.
1. Dow-Jones Industrial. (DOW.)
2. Standard and Poor’s. (S&P 500)
3. NASDAQ.
4. Russell 50...
Make Up of the S&P 500
Index Funds
The Way to G0?
Futures
O.TC.
Individual
Stocks.
Mutual Fund Stocks
Mutual Fund Bonds
Corporate Bonds
Government Bonds.
Cash-Savings-Insur...
Standard & Poor’s 500
Index.
This mutual fund index
beats 80% of all mutual
funds every year.
Very low annual fees.
This w...
Warren Buffets Will
 1. The “Oracle of Omaha” is one of the
most successful investors in world
history.
 2. Berkshire-Ha...
Time
Time is ONLY on the side of the young!
Fully Taxable
Account
Tax-Deferred
Account After
Taxes Paid
Tax-Deferred
Account Before
Taxes Paid
$74,695
$108,957
$157,9...
Time Equals Money. Start Early for Retirement!
Scenario A: $200 per month for 40 years
Scenario B: $400 per month for 2...
Time: Stay Invested.
Don’t Try Market Timing!
Stay Invested Reguardless of
Events
page 119
Over the last few
decades, there have
been countless
economic, social and
pol...
Compound 15.6% 13.9% 11.7% 9.9% 8.3%
Return
$13,566
Missed the
Top 5 Days
$6,603
Missed the
Top 25 Days
Time in, Not Timin...
62 Green 21 Red
Dollar Cost Averaging
This Helps Time To Be On YOUR Side!
Dollar Cost Averaging
Month Investment Share
Price
No. of
Shares
1 $100 $10.00 10
2 $100 $ 9.00 11.11
3 $100 $ 8.50 11.76
...
Market
Price
Time
Dollar Cost Averaging
$100 at
$5/share =
20 shares (=20)
$100 at
$10/share =
10 shares
(=30)
$100 at
$2/...
Bull v. Bear Market.
 1. Bull Market: Indexes and stocks trending UP for a
longer period of time.
 2. Bear Market: Index...
Investment Psychology
Bull Market
 1. As stocks rise it draws in
more and more investors.
 2. Even though many
companies...
Bear Market: Bust or
Stagnation.
How Long Can a Bull or Bear
Market Last?
1. There is no set time.
2. The Worst Bear Market lasted
from 1966-1982!
3. Th...
Bull v. Bear.
Q. When is the best time for a
long term investor to buy
stocks/mutual funds?
A. During a Bear market!
Buy l...
Diversified Portfolios and
Bear Markets
Mid-1970s Recession
$1,149
$1,014
Jun
1976
$500
$1,000
$1,500
Dec
1972
Dec
1973
De...
Investment Bubbles
 1. Tulip Bulb Craze. 1634-
1637.
 2. South Seas Bubble. 1711.
 3.Florida Real Estate Frenzy.
1926.
...
Diversification and Asset
Allocation
Every Dog Has Its Day!
Futures
O.TC.
Individual
Stocks.
Mutual Fund Stocks
Mutual Fund Bonds
Corporate Bonds
Government Bonds.
Cash-Savings-Insur...
•Investing Begins with
the Basics:
Diversification And
Asset Allocation.
Diversified Portfolios and
Bear Markets
Mid-1970s Recession
$1,149
$1,014
Jun
1976
$500
$1,000
$1,500
Dec
1972
Dec
1973
De...
Potential Asset Allocation
for Your 20s and 30s.
Emphasis on long-term
growth with stocks.
•Potential Asset Allocation for Your
40s and 50s:
Start moving your stock
investments into bonds.
•Potential Asset Allocation for
Your 60s and 70s:
Emphasis on capital preservation:
providing income,
avoiding loss/
Limit...
$201,209.29
Asset Allocation at Work
Are foreign stocks
too risky? Will bonds
hold back your
investment portfolio?
Good qu...
Conservative Retirement
Diversification
’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00
Large-Cap Growth Mid-Cap Small-Cap
Large-Cap Value Internation...
Diversification
’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00
Large-Cap Growth Mid-Cap Small-Cap
Large-Cap Value Internation...
Asset Class Winners and
Losers.
Highest
return
Lowest
return
Illustration of the annual performance of various asset class...
Cover Your Bases
What performs well
today may not
perform well
tomorrow. Because
you’ll never know
exactly where the
marke...
1993 Germany U.S.
1994 Japan U.K.
1995 U.S. Japan
1996 U.K. Japan
1997 U.S. Japan
1998 Germany Japan
1999 Japan U.K.
2000 ...
Futures
O.TC.
Individual
Stocks.
Mutual Fund Stocks
Mutual Fund Bonds
Corporate Bonds
Government Bonds.
Cash-Savings-Insur...
Trading in the Future. High
Risk!
 1.Spot Market: Sale is in present time.
 2.Futures Contract: An agreement to buy
or s...
Option Markets. High Risk.
1. Options give you the RIGHT to
buy or sell in the future.
2. Call Option: Right to BUY a st...
Over The Counter Stocks.
High Risk!
HIGH RISK stocks that can
be called “micro” stocks.
Companies just getting started
tha...
O.T.C. and Futures.
1. These are very risky.
2. What about a mutual fund of
O.T.C and future contracts?
3. Maybe!
Gold and Silver
Gold and Silver Bugs
1. They are waiting for economic
collapse.
2. Don’t believe in FIAT money or
banks.
3. Believe tha...
Should You Own Gold/Silver?
 1. Yes!
 2. It is a great hedge against inflation AND a
bad BEAR market.
 3. Investing in ...
International Crisis!
 1. When the world turns into a mess, investors run
home to momma: GOLD/Silver!
 2. 1970’s had sta...
Constant Dollars Gold Prices
v.
Current Dollars Gold Prices.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
Econ. Chapter 12: How to Invest Your Money.
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Econ. Chapter 12: How to Invest Your Money.

  1. 1. Investing: Chapter 12. “Do You Feel Lucky Punk, Well Do Ya?” Clint Eastwood, Dirty Harry.
  2. 2. SAVINGS “A penny saved is a penny earned.” Ben Franklin
  3. 3. Savings = Investments = Profits = Reinvestments = Puritans?  Because of their religion, Puritans saved most of their money in banks.  This later provided the “Seed” money for the U.S. Industrial Revolution. QuickTim e™ and a TIFF (Uncom pressed) decompressor are needed to see this picture.
  4. 4. Financial Markets.  Savings and the Financial System. 1. CAPITAL FORMATION is creating financial assets. MONEY. 2. Savings = Investments = Profits = More Savings = More Reinvestment….and so on!
  5. 5. Futures O.TC. Individual Stocks. Mutual Fund Stocks Mutual Fund Bonds Corporate Bonds Government Bonds. Cash-Savings-Insurance-Home- Retirement-525-529 Plans-
  6. 6. BANKS
  7. 7. Banks and Financial Intermediaries.  1. Banks receive money from those who have it and LOAN it to people who need it.  2. Financial intermediary = Money recycler.  3. With out banks the economy dies.  NO NOTES!
  8. 8. Non Bank Financial Intermediaries.  1. Finance companies.  2. Life Insurance co.  3. Mutual funds.  4. Pension funds.  5. Real Estate Investment Trusts.(REITS).
  9. 9. Start Saving Money Now! Regular Bank  1. Pick a bank and start regular monthly savings.  2. Have a pre set amount taken out AUTOMATICLY.  3. Avoid debit cards for at least ONE account. Credit Union  1. Join a C.U. over a regular bank!  2. C.U’s exist for the benefit of its members.  3. Much easier to get loans than from regular banks.
  10. 10. Why Don’t Americans Save Anymore? Household Savings Rate and the Ratio of the S&P 500 to Nominal GDP 0 2 4 6 8 10 12 1970 1975 1980 1985 1990 1995 2000 2005 HouseholdSavingsRate 0 20 40 60 80 100 120 140 160 180 S&P500toNominalGDPRatio(1972=100) Household savings rate S&P 500 / Nominal GDP
  11. 11. *Statistics current as of 1999. Inflation And Your Money Average New Car Half Gallon of Milk College Education Loaf of Bread Average New Home 1980 $1.09 $.52 $4,806 $7,571 $64,600 Current $3.50 $3.55 $14,500 $35,000 $250,000
  12. 12. Inflation a Big Factor. Source: Ibbotson Associates, 1999 Past Performance is no guarantee of future results. 10000 1000 100 10 1 S&P 500 U.S. LT Gvt U.S. Inflation U.S. 30 Day TBill
  13. 13. The Bite: Assuming a 3% inflation rate, you would need more money each year to have the same buying power:  Year 1: $56,000  Year 2: $57,680  Year 3: $59,410  Year 4: $61,193 Your investment would need to earn more than 3% just to beat inflation
  14. 14. Why MUST You Understand Investing?  1. Banks pay so little INTEREST that you lose money because of inflation.  2. People are forced to invest in stocks/bonds to get ahead of inflation.  3. IF you ever want to retire, you need to understand the financial markets and tax advantaged retirement vehicles.
  15. 15. INVESTING: Putting money into something TODAY, in the hopes that in some FUTURE date it’ll be worth more. ALL investments have some or a lot of RISK.
  16. 16. Retirement Do you want to work until you die?
  17. 17. Retirement  1. Very few “Defined Benefit” retirement programs.  2. The BEST retirement plans have a matching program that the workers invests in stocks or bonds..  3. IF the worker invests well, they can retire, if not….
  18. 18. Retirement Defined Program:  1. Based on a formula, a worker is guaranteed a set pension for the rest of their life.  2. The formula is age of retirement, years of work, and amount of money contributed.  3. The only “Defined” pensions now are gov’t workers. Non Defined Programs:  1. Based on workers contributions and MAYBE the employer’s to a 401k or Roth IRA.  2. Retirement total based on amount invested.  3. Where and what it is invested.  4. How the market performs over a period of time?  5. A lot of LUCK is needed!
  19. 19. Tax Advantaged Retirement 401k:  1. Invest up to $5000.00 a year.  2. NO tax when you earn it.  3. NO tax while it’s invested.  NO tax on investment return.  4. Use it when 59.5 years of age. Roth IRA:  1. $5000.00 a year.  2. Taxed when you EARN it.  3. No tax while it’s invested.  4. No tax when retired.  5. NO penalty if used before retirement.
  20. 20. 403b and 457 Government/Non-Profit. $403b Non-Profit.  1.Shelter $7,000 a year.  2. Can borrow against it.  3. Access it at 59.5.  4. NOT taxed when earned and invested. 457-Gov’t Employees.  1. Same as 403b.  2. NO penalty for early withdrawal.
  21. 21. Taxable vs. Tax-Deferred Earnings TAXABLE ACCOUNT TAX- DEFERRED ACCOUNT Stock investment $100,000 $100,000 Annual 7% return $7,000 $7,000 Tax on realized gains or dividends (15% long-term capital gains tax) -$1,050 -$0 Reinvested amount $105,950 $107,000 After 10 years* $189,000 $210,500 After 20 years* $336,600 $414,100 *
  22. 22. Buy a Home!  1. As soon as you are “Settled” buy a home.  2. Best tax advantage for average person.  3. Build equity over time.
  23. 23. Tips About Buying a Home  1. FHA loans for first time home buyers is %3 percent down instead of %20!  2. ONE extra payment(13 v. 12) a year will turn a 30 year mortgage into 23 years.  3. IF you pay %20 more a month, the 30 year mortgage turns into 15. For Example:  $2000 (30 years) a month v. $2400 (15 years.)
  24. 24. Life Insurance
  25. 25. Futures O.TC. Individual Stocks. Mutual Fund Stocks Mutual Fund Bonds Corporate Bonds Government Bonds. Cash-Savings-Insurance-Home- Retirement-525-529 Plans-
  26. 26. Two Major Kinds of Life Insurance.  1. Whole Life.  2. Term Life.  3. Each one has its advantages and disadvantages.  4. All life insurance pay outs are tax free events.  5. Most couples need 6-8 years of their yearly income as an insurance pay out.
  27. 27. Whole Life-Advantages  1. W.L. meant to be kept for a WHOLE persons life.  2. Premium stays the some-Forever.  3. Equity is built up over time.  4. You can borrow against the equity.  5. At some point, maybe ten years, the equity will pay the month premium.
  28. 28. Whole Life Disadvantages.  1. Monthly premiums much higher than term insurance.  2. Most people cash in insurance before five years. Temptation!
  29. 29. Term Life-Advantages 1. Much lower premiums than Whole Life earlier on. 2. You can get much more coverage.
  30. 30. Term Life-Disadvantages. 1. No equity/No borrowing. 2. Most people forced out by higher premiums by early forties. 3. Most people never collect.
  31. 31. So Whole Life or Term?  Maybe a combination of both:  1. $200,000 of Whole Life.  2. $800,000 of Term Life.  3. As you age and have fewer bills and responsibilities, you can slowly reduce your Term Life and reduce your monthly premiums.
  32. 32. Another Insurance Product  ANNUITIES:  1. Put an amount into an annuity now, and then get a much larger amount later.  2. Tax free payout.  3. A person can take a periodic pay out that will last the rest of their life.  4. Steve Young USFL.
  33. 33. Disability Insurance  1. It will pay you if you become ill or disabled.  2. It may pay you up to 75% of your wages/salary.  3. It’s also tax free!  4. This insurance has a fixed term. Usually one year.
  34. 34. 525 and 529 Plans-Medical and Educational Tax Breaks. 525 Plan  No pre/post tax dollars spent for:  1. Medical Bills.  2. Child Care.  No tax when you make it and no tax when it’s spend it. 529 Plan  1. No pre/post tax on money spent on a child’s education.  2. Child can use it till they 45.  3. Left over money can be used on other children.  4. No tax when you make it and no tax when it’s spent.
  35. 35. Words of Advice!  1. NEVER, EVER GIVE SOMEONE THE POWER TO INVEST YOUR MONEY WITHOUT YOUR KNOWLEDGE AND PERMISSION!
  36. 36. How Much Risk?  1. Investing is NOT savings!  2. U.S. banks and government bonds are the ONLY %100 safe investment.  3. Normally, RISK equals potential return.  4. Individuals have different acceptable levels of risk.  5. Can you sleep at night with your investments?
  37. 37. 16% 15% 14% 13% 12% 11% 10% 9% 10% 11% 12% 13% 14% 15% 16% 17% Minimum Risk Portfolio 25% Stocks, 75% Bonds Maximum Risk Portfolio 100% Stocks 45% Stocks, 55 % Bonds 80% Stocks, 20 % Bonds 60% Stocks, 40 % Bonds 100 % Bonds Portfolios of U.S. Stocks and Bonds Return Risk
  38. 38. Investment Considerations  Have a Plan: Assess your goals and risk tolerance.  Start Early/Time: Invest early to take advantage of compounding and tax- deferred interest.  K.I.S.S: Keep It Simple Stupid.  Stick with It: Contribute to your investments consistently using techniques such as dollar cost averaging and don’t try to time the market.  Dollar Cost Averaging: Invest something every month.  Diversification of investments: Don’t put all your eggs in the same basket.  Diversify Use asset allocation and different types of investments to strengthen your portfolio.
  39. 39. Mutual Funds 1. Most people who invest in stocks or bonds do so with mutual funds. 1. 2. Experts invest money for you.
  40. 40. How Can You Make Money From A Mutual Fund?  1. IF the value of the stock, bonds, or securities goes up, so does each share.  2. IF the fund has profits it is given to the fund holder.  3. IF investors start pouring money into a fund, the share price will go up EVEN IF its investments haven’t improved. Supply and Demand! NET ASSET VALUE: N.A.V.
  41. 41. BONDS
  42. 42. Futures O.TC. Individual Stocks. Mutual Fund Stocks Mutual Fund Bonds Corporate Bonds Government Bonds. Cash-Savings-Insurance-Home- Retirement-525-529 Plans-
  43. 43. Bonds A bond is issued by the government OR a corporation in order to borrow money. They pay a fixed amount of interest to the bondholder or the buyer of the bond. At the end of the term, the principle is given back.
  44. 44. Mutual Funds & Risk page 58 Mutual Funds are invested in a variety of ways dependent on their objective. Risk also varies dependent on investment focus MONEY MARKET FUNDS MUNICIPAL BOND FUNDS TAXABLE BOND FUNDS STOCK & BONDS FUNDS STOCK FUNDS GLOBAL EQUITY FUNDS Income Equity Global Equity Conservative Aggressive
  45. 45. Bonds  1. Primary Market: Issued directly from the government or corporation.  2. Secondary market: Resold from individual/ institution to another.  3. The price or “Par Value” may be less or more than the “Face” value.  4. Supply and Demand effects price.
  46. 46. Relationship Between Bond Prices and Yields  When yields increase, bond prices decrease. Price and yield are based on indexes and are illustrative; they assume reinvestment of income and no transaction costs or taxes. Past performance is no guarantee of future results. Index source: Government Bond—20-year U.S. Government Bond. Direct investment cannot be made in an index. Used with permission. ©2003 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from the work of Roger G. Ibbotson and Rex Sinquefield.] $0 $.20 $.40 $.60 $.80 $1.00 $1.20 $1.40 $1.60 1925 1935 1945 1955 1965 1975 1985 2003 0% 2% 4% 6% 8% 10% 12% 14% 16% Bond yields (%) Bond prices ($) 1995
  47. 47. Bond Prices and Yield. 1. Bond price: You may not pay the “Face” value of the bond. 2. Yield: How much TOTAL money will the bond buyer realize at maturity?
  48. 48. Types of Bonds. 1. Certificate of Deposit. 2. Corporate bonds. 3. Municipal bonds. 4. Federal gov’t bonds.
  49. 49. Muni’s
  50. 50. Four Kinds of Federal Bonds. 1. U.S. Savings Bonds. 2. Treasury Notes. 2-10 years. 3. Treasury bonds. 10-30 years 4. Treasury Bills. 13 to 52 weeks.
  51. 51. Bonds. Bond Components: 1. Coupon. 2. Maturity. 3. Par-value. 4. Discount anyone?
  52. 52. `
  53. 53. Bond Ratings.  1. The better condition of a company, the better rating.  2. Better ratings means the company can offer bonds at lower interest rates  3. Bad ratings mean that HIGHER interest rates must be offered.  4. JUNK BONDS. QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture.
  54. 54. JUNK BONDS  1. HIGH RISK bonds.  2. These companies have a high risk of failing.  3. What about a mutual fund of JUNK bonds?  4. Maybe.
  55. 55. Bond Markets.  Primary market.  Secondary market.
  56. 56. Bond Market Performance  Bonds typically carry less risk, but on average have not performed as well as stocks historically. 1925–2003 Average Return Ending Wealth Hypothetical value of $1 invested at year-end 1925. Results shown are based on indexes and are illustrative; they assume reinvestment of income and no transaction costs or taxes. Past performance is no guarantee of future results. Index sources: Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and is considered to be representative of the stock market in general; Corporate Bonds—Salomon Brothers Long- Term High-Grade Corporate Bond Index; Government Bonds—20-year U.S. Government Bond; Municipal Bonds—1926–1984, 20-year prime issues from Salomon Brothers’ Analytical Record of Yields and Yield Spreads and Moody’s Bond Record thereafter; Cash—30-day U.S. Treasury Bill. Direct investment cannot be made in an index. Used with permission. ©2003 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from the work of Roger G. Ibbotson and Rex Sinquefield.] $.10 $1 $10 $100 $1,000 $10,000 1925 1935 1945 1955 1965 1975 1985 2003 3.7%$17.66 Treasury bills 1995 4.4%$27.71 Municipal bonds 5.4%$60.56 Government bonds 5.9%$86.82 Corporate bonds 10.4%$2,285 Stocks
  57. 57. WAR BONDS
  58. 58. War Bonds
  59. 59. War Bonds
  60. 60. Stock Market & Stocks.
  61. 61. Futures O.TC. Individual Stocks. Mutual Fund Stocks Mutual Fund Bonds Corporate Bonds Government Bonds. Cash-Savings-Insurance-Home- Retirement-525-529 Plans-
  62. 62. Determining Your Risk Tolerance Cash Equivalents Bonds Stocks Return Risk Mount Calvary Baptist Church
  63. 63. Equities/Stocks  Equities: These are stocks owned that represents a percent of ownership of a company. Every share you own is one vote!
  64. 64. What is a Stock?  1. One share of a stock purchased is part ownership of that company.  2. If you have 100 shares of KO (Coke), then you get 100 votes.  3. KO must pay you a share of its quarterly profits.  4. If the share price of KO goes up in value, you can sell it for a profit.
  65. 65. Stock Classification. A. Micro stock-Tiny co. B. Small Cap. C. Medium Cap. D. Large Cap. E. Growth v. Value? F. Foreign/International or domestic?
  66. 66. How are Stocks Priced? 1. Book Barf: Efficient Market Hypothesis. 2. Mr. King’s Barf: Supply and Demand, period! 3. Two biggest emotional stock buying/selling motivators? Greed and fear! 4. This can make the market CRAZY!
  67. 67. Is a Stock Expensive?  1. Look at its Price to Earnings ratio.
  68. 68. Besides Price and P.E. What Else is Important?  1. YIELD: How much, in a percentage form, does the stock or bond make over a period of time?
  69. 69. How Can You Make Money From Stocks?  1. If the value of the stock goes up, it can be sold at a profit.  2. Many stocks pay a quarterly “Dividend.” This is your share of the profit.  3. Many invertors roll the dividend into buying more stock.
  70. 70. Stocks Offer Greater Investment Returns. Historical Average is 11% Source: Ibbotson Associates, 1999 Past Performance is no guarantee of future results. 10000 1000 100 10 1 S&P 500 U.S. LT Gvt U.S. Inflation U.S. 30 Day TBill
  71. 71. Going Public I.P.O.  1. Initial Public Offering. I.P.O.  2. Why sell shares of a company?  3. Creates cash for a company to grow.  4. Can make founders VERY rich! Secondary Market  1. Once the stock is sold, it can/will be resold many times.  2. The company receives NO more money after I.P.O.  3. It can, however, sell more shares.  4. Vernon Davis 49ers? 4 million!
  72. 72. Hostile Take Over?  1. Once a corporation has sold stock of itself, it can be taken over by another corporation OR person.  2. The “Corporate Raider” has to buy %51 of the of the company to control it.  3. They can then run the company OR break it up and sell the pieces.  4. The parts might be worth more than the whole.  5. The C.R. may also be “Green Mailing” the company.  Levi’s went back to private ownership!
  73. 73. Remember Investment 101?  1. Set investment goals.  2. Know thy risk and reward.  3. K.I.S.S.  4. Dollar-Cost averaging.  5. Diversify..  6. Start Early.
  74. 74. Futures O.TC. Individual Stocks. Mutual Fund Stocks Mutual Fund Bonds Corporate Bonds Government Bonds. Cash-Savings-Insurance-Home- Retirement-525-529 Plans-
  75. 75. Inflation must be a factor. Growth of a Dollar Source: Ibbotson Associates, 1999 Past Performance is no guarantee of future results. 10000 1000 100 10 1 S&P 500 U.S. LT Gvt U.S. Inflation U.S. 30 Day TBill
  76. 76. Organized Stock Exchanges. 1. New York 2. American. 3. Over-The-Counter markets. (OTC.) 4. NASDAQ.
  77. 77. Measuring the Stock Market. 1. Dow-Jones Industrial. (DOW.) 2. Standard and Poor’s. (S&P 500) 3. NASDAQ. 4. Russell 5000. 5. There’s more….
  78. 78. Make Up of the S&P 500
  79. 79. Index Funds The Way to G0?
  80. 80. Futures O.TC. Individual Stocks. Mutual Fund Stocks Mutual Fund Bonds Corporate Bonds Government Bonds. Cash-Savings-Insurance-Home- Retirement-525-529 Plans-
  81. 81. Standard & Poor’s 500 Index. This mutual fund index beats 80% of all mutual funds every year. Very low annual fees. This would be a great mutual fund for a beginner to start their investment program.
  82. 82. Warren Buffets Will  1. The “Oracle of Omaha” is one of the most successful investors in world history.  2. Berkshire-Hathaway mutual fund. Stock price in 1967: $20.15 a share. NOW: $167,000 a share!  3. His Will instructed his aide to put %20 percent in bonds and the rest in an index fund for his wife.
  83. 83. Time Time is ONLY on the side of the young!
  84. 84. Fully Taxable Account Tax-Deferred Account After Taxes Paid Tax-Deferred Account Before Taxes Paid $74,695 $108,957 $157,900 Start Early  Tax Advantaged Investing
  85. 85. Time Equals Money. Start Early for Retirement! Scenario A: $200 per month for 40 years Scenario B: $400 per month for 20 years Total investment are the same: $96,000 at 7% annual interest Accumulated investment in Scenario A: $513,000 Accumulated investment in Scenario B: $210,500 Difference in results is effect of compounding over time
  86. 86. Time: Stay Invested. Don’t Try Market Timing!
  87. 87. Stay Invested Reguardless of Events page 119 Over the last few decades, there have been countless economic, social and political events that affected the market. Many experts believe that investment success requires commitment— not timing. 1970s Vietnam War Nixon Devalues Dollar Watergate Break-in Agnew Resigns OPEC Oil Embargo Nixon Resigns Gas Rationing Three Mile Island Iran Hostage Crisis 1980s President Shot AIDS Virus Identified U.S. Becomes Debtor Nation Challenger Disaster Insider-trading Scandal S&L Bailout Iran-Contra Hearings Exxon Valdez Disaster San Francisco Earthquake U.S. Invades Panama 1975 1980 1985 19901970 $10,000 $439,634 Growth of $10,000 Invested in Stocks (1970–2000) Events Along the Way… 1995 100,000 200,000 300,000 400,000 $500,000 – – – – – 2000 (12/31/00) 1990s Gulf War L.A. Riots Orange County Default Oklahoma City Bombing Government Shutdown Asian Economic Crisis Impeachment Trial El Niño Russian Bond Default
  88. 88. Compound 15.6% 13.9% 11.7% 9.9% 8.3% Return $13,566 Missed the Top 5 Days $6,603 Missed the Top 25 Days Time in, Not Timing 20-Year Period (1/1/81–12/31/00) Stay Invested—Trading in and out can be costly. (Hypothetical $1,000 investment) No one can accurately predict market performance. Trying to do so by moving in and out of the market can be very costly. $18,079 Stayed Invested $9,176 Missed the Top 15 Days $4,969 Bonds If You…
  89. 89. 62 Green 21 Red
  90. 90. Dollar Cost Averaging This Helps Time To Be On YOUR Side!
  91. 91. Dollar Cost Averaging Month Investment Share Price No. of Shares 1 $100 $10.00 10 2 $100 $ 9.00 11.11 3 $100 $ 8.50 11.76 4 $100 $ 9.50 10.53 5 $100 $10.00 10 Total $500 $9.36 (average) 53.4
  92. 92. Market Price Time Dollar Cost Averaging $100 at $5/share = 20 shares (=20) $100 at $10/share = 10 shares (=30) $100 at $2/share = 50 shares (=80) $100 at $10/share = 10 shares (=90) $100 at $20/share = 5 shares (=95) $100 at $10/share = 10 shares (=105) $100 at $33/share = 3 shares (=108) Sold 108 shares @ $30/share = $3,240 $700 investment yields $3,240 When did you buy the most shares? When did you buy the least shares? OK, Buyers? What is your tolerance for risk in a down market?
  93. 93. Bull v. Bear Market.  1. Bull Market: Indexes and stocks trending UP for a longer period of time.  2. Bear Market: Indexes and stocks headed DOWN for a longer period of time.
  94. 94. Investment Psychology Bull Market  1. As stocks rise it draws in more and more investors.  2. Even though many companies have the same fundamentals as BEFORE the B.M., more investors push up the price.  3. Supply and Demand.  4. A flood of investors push up the N.A.V., EVEN if their investments do nothing!  5. Another reason of Index Funds! Bear Market  1. As stocks trend downward investors sell.  2. The sell off makes the market plunge.  3. Many investors end up buying high and selling low.  4. The BEST time to buy is in a BEAR market.  5. BUY LOW and SELL HIGH!
  95. 95. Bear Market: Bust or Stagnation.
  96. 96. How Long Can a Bull or Bear Market Last? 1. There is no set time. 2. The Worst Bear Market lasted from 1966-1982! 3. The LONGEST Bull Market lasted from 1982-2000!
  97. 97. Bull v. Bear. Q. When is the best time for a long term investor to buy stocks/mutual funds? A. During a Bear market! Buy low and sell high!
  98. 98. Diversified Portfolios and Bear Markets Mid-1970s Recession $1,149 $1,014 Jun 1976 $500 $1,000 $1,500 Dec 1972 Dec 1973 Dec 1974 Diversified portfolio Stocks Diversified portfolios historically perform better through recessions. 1987 Market Crash Dec 1990 $500 $1,000 $1,500 Jun 1987 Jun 1988 Jun 1989 $1,324 $1,227 Diversified portfolio Stocks Diversified portfolios also historically perform better through bear markets. Mid-1970s Recession: December 1972 through June 1976. 1987 Market Crash: June 1987 through December 1990. Diversified Portfolio: 35% stocks, 40% bonds, 25% cash. Hypothetical value of $1,000 invested at month-end December 1972 and June 1987, respectively. Diversification does not eliminate risk of experiencing investment losses. Results shown are based on indexes and are illustrative; they assume reinvestment of income and no transaction costs or taxes. Past performance is no guarantee of future results. Index sources: Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general; Bonds—20-year U.S. Government Bond; Cash—30-day U.S. Treasury Bill. Direct investment cannot be made in an index. Used with permission. ©2003 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from the work of Roger G. Ibbotson and Rex Sinquefield.]
  99. 99. Investment Bubbles  1. Tulip Bulb Craze. 1634- 1637.  2. South Seas Bubble. 1711.  3.Florida Real Estate Frenzy. 1926.  4. Stock Market Crash. 1929.  5. Stock Market Crash 1987.  6. Asian Crisis of 1969.  7. Dot Com Crash. 2005.  8. Real Estate/Bank Crisis of 2006.
  100. 100. Diversification and Asset Allocation Every Dog Has Its Day!
  101. 101. Futures O.TC. Individual Stocks. Mutual Fund Stocks Mutual Fund Bonds Corporate Bonds Government Bonds. Cash-Savings-Insurance-Home- Retirement-525-529 Plans-
  102. 102. •Investing Begins with the Basics: Diversification And Asset Allocation.
  103. 103. Diversified Portfolios and Bear Markets Mid-1970s Recession $1,149 $1,014 Jun 1976 $500 $1,000 $1,500 Dec 1972 Dec 1973 Dec 1974 Diversified portfolio Stocks Diversified portfolios historically perform better through recessions. 1987 Market Crash Dec 1990 $500 $1,000 $1,500 Jun 1987 Jun 1988 Jun 1989 $1,324 $1,227 Diversified portfolio Stocks Diversified portfolios also historically perform better through bear markets. Mid-1970s Recession: December 1972 through June 1976. 1987 Market Crash: June 1987 through December 1990. Diversified Portfolio: 35% stocks, 40% bonds, 25% cash. Hypothetical value of $1,000 invested at month-end December 1972 and June 1987, respectively. Diversification does not eliminate risk of experiencing investment losses. Results shown are based on indexes and are illustrative; they assume reinvestment of income and no transaction costs or taxes. Past performance is no guarantee of future results. Index sources: Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general; Bonds—20-year U.S. Government Bond; Cash—30-day U.S. Treasury Bill. Direct investment cannot be made in an index. Used with permission. ©2003 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from the work of Roger G. Ibbotson and Rex Sinquefield.]
  104. 104. Potential Asset Allocation for Your 20s and 30s. Emphasis on long-term growth with stocks.
  105. 105. •Potential Asset Allocation for Your 40s and 50s: Start moving your stock investments into bonds.
  106. 106. •Potential Asset Allocation for Your 60s and 70s: Emphasis on capital preservation: providing income, avoiding loss/ Limited to moderate investment in stock to offset inflation.
  107. 107. $201,209.29 Asset Allocation at Work Are foreign stocks too risky? Will bonds hold back your investment portfolio? Good questions. And one way to hedge these possibilities is asset allocation. Growth of $10,000 over 30 Years (12/31/70–12/31/00) Conservative Bonds Foreign Stocks Stocks Commodities 10% 60% 30% 10% 40% 45% 5% 10% 15% 70% 5% Moderate Aggressive $347,626.67$271,034.24
  108. 108. Conservative Retirement
  109. 109. Diversification ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 Large-Cap Growth Mid-Cap Small-Cap Large-Cap Value International S&P 500 This table is for informational purposes only and is not meant to represent the performance of any Phoenix Investment Partners investment. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio, or that diversification among different asset classes will reduce risk. -0.3 46.1 18.4 32.6 7.8 38.4 23.1 35.2 38.7 33.2 8.25 -3.1 41.5 16.3 18.9 2.7 37.5 23.0 33.4 28.6 27.3 7.01 -8.1 41.2 13.8 18.1 1.3 37.2 21.6 30.5 20.0 21.3 -3.02 -11.5 30.5 7.6 14.3 -1.8 34.5 19.0 29.0 15.0 21.0 -10.10 -19.5 24.6 5.0 10.1 -2.0 28.4 16.5 22.4 10.1 18.2 -13.96 -23.5 12.1 -12.2 2.9 -2.1 11.2 6.1 1.8 -2.6 7.4 -22.42 Mount Calvary Baptist Church
  110. 110. Diversification ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 Large-Cap Growth Mid-Cap Small-Cap Large-Cap Value International S&P 500 This table is for informational purposes only and is not meant to represent the performance of any Phoenix Investment Partners investment. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio, or that diversification among different asset classes will reduce risk. -0.3 46.1 18.4 32.6 7.8 38.4 23.1 35.2 38.7 33.2 8.25 -3.1 41.5 16.3 18.9 2.7 37.5 23.0 33.4 28.6 27.3 7.01 -8.1 41.2 13.8 18.1 1.3 37.2 21.6 30.5 20.0 21.3 -3.02 -11.5 30.5 7.6 14.3 -1.8 34.5 19.0 29.0 15.0 21.0 -10.10 -19.5 24.6 5.0 10.1 -2.0 28.4 16.5 22.4 10.1 18.2 -13.96 -23.5 12.1 -12.2 2.9 -2.1 11.2 6.1 1.8 -2.6 7.4 -22.42 Mount Calvary Baptist Church
  111. 111. Asset Class Winners and Losers. Highest return Lowest return Illustration of the annual performance of various asset classes in relation to one another. This chart is for illustrative purposes only. It does not reflect the performance of any specific investment. Results shown are based on indexes and are illustrative; they assume reinvestment of income and no transaction costs or taxes. Past performance is no guarantee of future results. Index sources: Small Company Stocks—Dimensional Fund Advisors, Inc. (DFA) U.S. Micro Cap Portfolio thereafter; Large Company Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general; International Stocks—Morgan Stanley Capital International Europe, Australasia, and Far East (EAFE®) Index; Government Bonds—20-year U.S. Government Bond; Treasury Bills—30-day U.S. Treasury Bill. Indexes are unmanaged. Direct investment cannot be made in an index. Used with permission. ©2003 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from the work of Roger G. Ibbotson and Rex Sinquefield.] 19981990 1991 1992 1993 1994 1995 1996 1997 1999 2000 2001 20021989 Internat’l stocks Large stocks LT gov’t bonds Large stocks LT gov’t bonds Large stocks LT gov’t bonds Large stocks LT gov’t bonds LT gov’t bonds Internat’l stocks LT gov’t bonds Large stocks Internat’l stocks Large stocks Internat’l stocks LT gov’t bonds 30 day T-bills 30 day T-bills 30 day T-bills 30 day T-bills 30 day T-bills 30 day T-bills LT gov’t bonds Internat’l stocks Small stocks Small stocks Small stocks Small stocks Small stocks Small stocks LT gov’t bonds Large stocks Internat’l stocks Small stocks 2003 Small stocks Large stocks LT gov’t bonds 30 day T-bills Internat’l stocks Internat’l stocks 30 day T-bills LT gov’t bonds Small stocks Internat’l stocks Small stocks Large stocks LT gov’t bonds Internat’l stocks 30 day T-bills LT gov’t bonds Small stocks Internat’l stocks Large stocks 30 day T-bills Internat’l stocks
  112. 112. Cover Your Bases What performs well today may not perform well tomorrow. Because you’ll never know exactly where the market is going, it may be wise to cover your bases with investments in every major asset class. Average Annual Total Returns (%) ’70s ’80s ’90s 2000 COMMODITIES 21.76% 10.53% 4.58% 49.47% FOREIGN STOCKS 6.21 18.91 4.58 –15.21 U.S. STOCKS 6.46 16.59 17.44 –9.11 BONDS 7.52 10.55 6.65 5.97
  113. 113. 1993 Germany U.S. 1994 Japan U.K. 1995 U.S. Japan 1996 U.K. Japan 1997 U.S. Japan 1998 Germany Japan 1999 Japan U.K. 2000 U.S. Japan The Best and Worst Performing Developed Markets (1985–2000)1 page 160 Best Worst While the U.S. stock markets have demonstrated strong growth, overseas markets also offer excellent growth potential. Best Worst 1985 Germany U.S. 1986 Japan U.S. 1987 Japan Germany 1988 Japan U.K. 1989 Germany Japan 1990 U.K. Japan 1991 U.S. Germany 1992 U.S. Japan What About International?
  114. 114. Futures O.TC. Individual Stocks. Mutual Fund Stocks Mutual Fund Bonds Corporate Bonds Government Bonds. Cash-Savings-Insurance-Home- Retirement-525-529 Plans-
  115. 115. Trading in the Future. High Risk!  1.Spot Market: Sale is in present time.  2.Futures Contract: An agreement to buy or sell at a set price in the FUTURE.  3.Many Ag products are sold this way and aviation fuel.
  116. 116. Option Markets. High Risk. 1. Options give you the RIGHT to buy or sell in the future. 2. Call Option: Right to BUY a stock or commodity in the future. 3.Put Option: The right to SELL a stock or commodity in the future.
  117. 117. Over The Counter Stocks. High Risk! HIGH RISK stocks that can be called “micro” stocks. Companies just getting started that are very small and are a very risky investment.
  118. 118. O.T.C. and Futures. 1. These are very risky. 2. What about a mutual fund of O.T.C and future contracts? 3. Maybe!
  119. 119. Gold and Silver
  120. 120. Gold and Silver Bugs 1. They are waiting for economic collapse. 2. Don’t believe in FIAT money or banks. 3. Believe that Fort Knox is empty. 4. They buy gold coins and bars. 5. A lot of it is buried in their back yard.
  121. 121. Should You Own Gold/Silver?  1. Yes!  2. It is a great hedge against inflation AND a bad BEAR market.  3. Investing in gold mining stock is probably better than physically owning gold coins or Bars.  4. Some experts say that %5 to %10 of your portfolio should be in gold/silver stock.  5. There is an inverse relationship between Gold and the S&P 500.
  122. 122. International Crisis!  1. When the world turns into a mess, investors run home to momma: GOLD/Silver!  2. 1970’s had stagflation, energy shortages, wars and the threat of war drove gold/silver prices sky high.  3. 2008 world-wide meltdown of real estate, stock market, banks, insurance companies, and auto industry sent gold to record highs.
  123. 123. Constant Dollars Gold Prices v. Current Dollars Gold Prices.

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