Money Basics Diversification Risk Cost of Waiting.pdf

1. HIGH COST OF WAITING
Yrs Age
Fixed
Contrib. Rate
Principal Plus
Interest Tax
Deferred
1 22 $5000 12% $5,600
2 23 $5000 12% $11,872.00
3 24 $5000 12% $18,896.64
4 25 $5000 12% $26,764.24
5 26 $5000 12% $35,575.95
6 27 $5000 12% $45,445.06
7 28 $0 12% $50,898.47
8 29 $0 12% $57,006.28
9 30 $0 12% $63,847.04
10 31 $0 12% $71,508.68
11 32 $0 12% $80,089.72
12 33 $0 12% $89,700.49
13 34 $0 12% $100,464.55
14 35 $0 12% $112,520.29
15 36 $0 12% $126,022.73
16 37 $0 12% $141,145.45
17 38 $0 12% $158,082.91
18 39 $0 12% $177,052.86
19 40 $0 12% $198,299.20
20 41 $0 12% $222,095.10
Yrs Age
Fixed
Contrib. Rate
Principal Plus
Interest Tax
Deferred
1 22 $0 12% $0
2 23 $0 12% $0
3 24 $0 12% $0
4 25 $0 12% $0
5 26 $0 12% $0
6 27 $0 12% $0
7 28 $5000 12% $5,600
8 29 $5000 12% $11,872.00
9 30 $5000 12% $18,896.64
10 31 $5000 12% $26,764.24
11 32 $5000 12% $35,575.95
12 33 $5000 12% $45,445.06
13 34 $5000 12% $56,498.47
14 35 $5000 12% $68,878.28
15 36 $5000 12% $82,743.68
16 37 $5000 12% $98,272.92
17 38 $5000 12% $115,665.67
18 39 $5000 12% $135,145.55
19 40 $5000 12% $156,963.01
20 41 $5000 12% $181,398.57
I N D I V I D UA L “ A ” I N D I V I D UA L “ B ”
INDIVIDUAL “A” INDIVIDUAL “B”
Started @ Age 22
Paid $5,000 for 6Years
$5,000 x 6 =$30,000
Growth @ 41= $222,095
Started @ Age 28
Paid $5,000 for 14Years
$5,000 x 14 =$70,000
Growth @ 41= $181,398
The Difference in growth = $40,697
Investment Difference= $40,000
Total Difference after 20 years = $80, 697
$5,000 x 6 =$30,000
Growth @ 62=
2,399,481
$5,000 x 35yrs =$175,000
Growth @ 62=
$2,417,315
The Difference in growth = $17,834.
Investment Difference = $145,000
Total Difference after 41Years = $127,166

2. THE IMPACT OF LOSSES
LOSS
GAIN NEEDTO
GET BACKTO EVEN
-10% +11%
-20% +25%
-30% +43%
-40% +67%
-50% +100%
What does it take to fully recover rom -50% loss?
A 100% Gain is needed to just get back to even.

3. DIVERSIFICATION

4. DOLLAR COST AVERAGING
AT THE END OF SIX MONTHS,YOU HAVE 64 Shares
VALUED AT ($10 A SHARE) $640
SUBTRACTTHE INVESMENT <$500>
ANDYOU ARE LEFTWITH A PROFIT OF $140
AT THE END OF SIX MONTHS,YOU HAVE 290 Shares
VALUED AT ($5 A SHARE) $1,450
SUBTRACTTHE INVESMENT <$500>
ANDYOU ARE LEFTWITH A PROFIT OF $950
COMPANY“A”:
- INVEST A TOTAL OF $500 AT $100 PER MONTH
COMPANY“B”:
- INVEST A TOTAL OF $500 AT $100 PER MONTH
$10 Buy 10 Shares
/
$9 Buy 12 Shares
/ 17
$8 Buy 13 Shares 14
/ 12
$7 Buy 14 Shares 11
/ 10
$6 Buy 17 Shares 64 Shares
Buy 20 Shares Buy 50 Shares Buy 20 Shares
$5 $2 $5
20 $1 $1
100 Buy 100 Shares Buy 100 Shares
50
100
20
290 Shares

5. DOLLAR COST AVERAGING
$100 $100 $100
$10 $1 $5
10 100 20
120 = # of Shares
$5 = Cost Per Share
$650 =TotalValue of Shares
$300 = Investment
$350 = Profit