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Saving and Investing

Saving and Investing. Invest for the Long Term. Get Started Early... What will it take to have ½ million dollars at retirement…starting at age 25? 35? 45? * 10% rate of return, tax-deferred. $37,920. $79,560. $157,920. Start Saving at 25 $79 per month $37,920 Out of Pocket

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Saving and Investing

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  1. Saving and Investing

  2. Invest for the Long Term Get Started Early...What will it take to have ½ million dollars at retirement…starting at age 25? 35? 45? * 10% rate of return, tax-deferred $37,920 $79,560 $157,920 Start Saving at 25 $79 per month $37,920 Out of Pocket $500,000 Total Start Saving at 35 $221 per month $79,560 Out of Pocket $500,000 Total Start Saving at 45 $658 per month $157,920 Out of Pocket $500,000 Total

  3. You Can Be a Millionaire!Plan A $1,047,608

  4. You Can Be a Millionaire!Plan B $403,898

  5. You Can Be a Millionaire!Plan C $894,380

  6. You Can Be a Millionaire!Plan D $477,335

  7. Your Honor, I Object! I’ll be dead when I’m 65! Financial Planners are planning out to age 100. Where can I get 10%?? It’s out there, and we’ll show you where!

  8. The Financial Planning Pyramid Options, Commodities, etc. Controlled Spending

  9. Savings Plans Savings factors to consider: Safety Liquidity Yield Options, Commodities, etc. Controlled Spending

  10. Savings Tools Regular savings account or Share savings account Certificates of deposit Money market accounts U.S. savings bonds (EE and I)

  11. Saving vs. Investing Different Time Frames Different Risks Inflation : $100 in 1984 = $215.00 in 2007 Taxes The Effect of Compound Interest and Time

  12. How Savings and Investments in “Regular Account” are Taxed

  13. How Savings and Investments in “Tax-Deferred Accounts” are Taxed Contributions are taken out of your pay before taxes are withheld, so you pay less tax now. Taxes on contributions and attributable earnings are deferred until you withdraw your money. Qualified withdrawals are taxed at MITB (at the time of withdrawal).

  14. Compound Interest and Time 250 $228,033 0% 200 5% 150 10% Thousand $ 100 $83,673 50 $36,000 0 0 5 10 15 20 25 30 Years

  15. Should I Spend That Nest Egg? 250 $228,033 10% 200 10% $94,144LOST! 150 Thousand $ $133,889 100 Spent nest egg on a car 50 0 5 10 15 20 25 30 Years

  16. The Tools of Investing Options, Commodities, etc. Controlled Spending

  17. Asset Classes Everything else is a combination of these three!

  18. Fixed-Income: Bonds Represent a loan Provide fixed income payments Reliable source of income Rate of Return: 3.7 – 5.5% Moderate level of liquidity Typically purchased through a brokerage

  19. Equity: Stocks U.S. Foreign Large Companies Small Companies Growth Value Represent ownership Can be purchased through a brokerage, an employer investment plan, or directly from issuing company (DRIPs)

  20. Stocks Returns from dividends and capital gains Rate of Return: 10 - 12% Higher Risk than Bonds Need from 10 – 30 to diversify! Best choice for long-term growth

  21. The Lessons… • Stocks provide a higher potential for earnings over the long-term • There is always a trade-off between S-L-Y • A well-balanced portfolio has a combination of all asset classes • There are no good or bad tools, just good or bad uses • For younger investors, it is better to be an owner than a loaner • The steady income stream provided by bonds is great for retirement • Investing can be complex, but doesn’t have to be!

  22. Mutual Funds Pool of Investors The Funds Professional Management Diversified Portfolio Interest & Dividends Capital Gains NAV

  23. Mutual Funds Advantages: Professional Management Diversification Liquidity Affordability Benefits small investors

  24. Mutual Funds Disadvantages: Cost Despite Negative Returns Lack of Control Price Uncertainty Not Insured Complex Records

  25. Mutual Funds • Stocks: • Growth • Income • Index • Sector • Stocks & Bonds: • Asset allocation • Balanced • Bond: • High-yield bond • Corporate bond • Municipal (tax-free) bond • Government bond • Index • Cash: • Money Market

  26. Choosing a Mutual Fund Goals/Objectives Performance/Risk (long-term) Management Cost (loads & fees) Services

  27. What is “The Market”? The Dow NASDAQ S&P 500 Wilshire 4500 Wilshire 5000 LBA Bond NYSE AMEX NIKKEI EAFE

  28. The TSP Investment Options • G Fund • Government Securities • Especially Issued for TSP • 2006: 4.93% • 10 Yr: 5.31% • F Fund • Bonds • Based on LBA Index • 2006: 4.40% • 10 Yr: 6.25% • C Fund • Stocks • Based on S&P 500 Index • 2006: 15.79% • 10 Yr: 8.37% • S Fund • Stocks • Based on Wilshire 4500 Index • 2006: 15.30% • 10 Yr: 9.56% • I Fund • International Stocks • Based on EAFE Index • 2006: 26.32% • 10 Yr: 7.53% • L Funds • Combination of other funds • Combination based on Time Horizon to Retirement Returns are as of end of year 2006. For up-to-date returns go to www.tsp.gov.

  29. Saving & Investing Techniques Pay Yourself First The Military Saves Campaign Maximize Tax-Deferred Opportunities Make disciplined, regular monthly investments that fit in your budget

  30. Take Action! Determine financial goals Review your budget Save money you don’t have … Yet! Establish savings funds Get help if you need it Build an investment portfolio Keep learning Keep at it!

  31. Print Your Certificate Click on the following link to add your name to the certificate and print it: Saving & Investing

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