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. 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!
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. Non Bank Financial
Intermediaries.
1. Finance companies.
2. Life Insurance co.
3. Mutual funds.
4. Pension funds.
5. Real Estate Investment
Trusts.(REITS).
9.
10.
11.
12. 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.
13. 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
14.
15. *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
16. 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
17.
18. 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
19. 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.
20.
21. 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.
24. 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….
25. 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!
26.
27. 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.
28. 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.
29. 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
*
30. 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.
31. 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.)
34. 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.
35. 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.
36. Whole Life Disadvantages.
1. Monthly premiums much higher than term insurance.
2. Most people cash in insurance before five years.
Temptation!
38. Term Life-Disadvantages.
1. No equity/No borrowing.
2. Most people forced out by higher
premiums by early forties.
3. Most people never collect.
39.
40.
41. 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.
42. 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.
43. 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.
44. 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.
45. Words of Advice!
1. NEVER, EVER GIVE SOMEONE THE
POWER TO INVEST YOUR MONEY
WITHOUT YOUR KNOWLEDGE AND
PERMISSION!
46.
47. 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?
49. 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.
50. Mutual Funds
1. Most people who invest in
stocks or bonds do so with
mutual funds.
1. 2. Experts invest money
for you.
51.
52. 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.
55. 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.
56.
57.
58. 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
59. 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.
61. 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?
62. Types of Bonds.
1. Certificate of Deposit.
2. Corporate bonds.
3. Municipal bonds.
4. Federal gov’t bonds.
64. 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.
70. 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.
71. 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.
83. Determining Your Risk Tolerance
Cash
Equivalents
Bonds
Stocks
Return
Risk
Mount Calvary Baptist Church
84.
85. Equities/Stocks
Equities: These are stocks owned that
represents a percent of ownership of a
company. Every share you own is one
vote!
86.
87. 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.
88. 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?
89. 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!
90. Is a Stock Expensive?
1. Look at its Price to Earnings ratio.
91. 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?
92.
93.
94. 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.
95.
96. 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
97. 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!
98. 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!
101. 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
110. 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.
111.
112.
113. 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.
117. 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
119. 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
120. 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…
126. 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?
127. 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.
128. 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!
131. 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!
132. 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!
150. •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.
151. $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
159. 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
160. 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?
162. 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.
163. 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.
164. 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.
165. 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!
168. 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.
169. 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.
170.
171.
172. 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.
