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Investor Boot Camp – Financial Fitness 201

Investor Boot Camp – Financial Fitness 201. Presented by Glendale Community Library Instructors: Chuck Milliner and Annette Fisher. Calendar. April 25 Preparing to Invest May 2 Key Investment Concepts May 9 Bank Products and US Treasury Securities May 16 Common Types of Investments,

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Investor Boot Camp – Financial Fitness 201

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  1. Investor Boot Camp – Financial Fitness 201 Presented by Glendale Community Library Instructors: Chuck Milliner and Annette Fisher

  2. Calendar April 25 Preparing to Invest May 2 Key Investment Concepts May 9 Bank Products and US Treasury Securities May 16 Common Types of Investments, and Retirement Savings Vehicles

  3. Calendar May 23 Choosing the Right Investments May 30 Managing Investment Risk June 6 Evaluating Performance June 14 Investment Professionals and Safeguarding Your Investments

  4. Key Investment Concepts Return and Rate of Return The Risk-Return Relationship Time and Your Portfolio Allocating Your Portfolio Diversifying Your Portfolio Rebalancing Your Portfolio Dollar Cost Averaging Investing Tax Strategies

  5. Return and Rate of Return Total Return = Gain or loss in value + investment earnings Rate of Return = Total return / investment amount Annualized Return = Percent return / number of years

  6. Example – sold at a profit

  7. Example – sold at a loss

  8. How do we know if it is a good or bad return?

  9. Average Returns on Different Investments 1926 – 2002 Ibbotson Associate’s Historical Rates • S&P 500 Stocks – 10.5% • Long term Treasury bonds – 5.3% • Treasury bills – 3.8% • (Inflation – 3.1%)

  10. http://www.1stock1.com/1stock1_141.htm

  11. Types of Risk Market Risk Interest-Rate Risk Inflation Risk Recession risk Currency Risk Political Risk

  12. Risk vs. Return Low Risk High Risk Conservative Aggressive Very Aggressive Moderately Aggressive Moderately Conservative

  13. Investment Pyramid

  14. How much risk should I take? • Capacity for risk • The amount of your total assets • The higher your total assets, the more risks you can take • Your financial responsibilities • The fewer your financial responsibilities, the more risk you can take • Your stage in life • The younger your are, the more risks you can take

  15. Rule of Thumb for Risk • Invest in higher risk/higher return investments early in life (20/80 split) • Move toward lower risk/lower return investments as you grow older (80/20 split just prior to retirement)

  16. Determine Your Risk Tolerance www.rce.rutgers.edu/money/riskquiz

  17. Time and Your Portfolio

  18. Time and Your Portfolio

  19. Inflation – Defined as: Continuous increase in cost of living Continuous decreases in the buying power of your money

  20. Outwitting Inflation

  21. CPI Site http://www.bls.gov/data/inflation_calculator.htm

  22. Financial goals Personal circumstances Asset amount Larger economy Age Asset Allocation

  23. Allocation Over Time

  24. Go to online site http://www.schwab.com/public/schwab/home/new_to_investing/investing_basics/create_a_portfolio?cmsid=P-2878173&lvl1=home&lvl2=new_to_investing

  25. Diversification Reduce Risk by Diversifying Your Assets Invest some money conservatively for safety, invest some aggressively for returns

  26. Diversification As you move further up the pyramid, risk and potential for return both increase

  27. Bonds • Loan money to governments and corporations and get it back with interest • You purchase a bond for a set amount, and at maturity, issuer will pay back that amount plus interest • Interest is specified when you purchase the bond – so it won’t change or decrease

  28. Stocks • You own ‘shares’, which are a percentage of group ownership of a company • Shares may gain or lose value, or even become worthless if the company fails • Usually considered a long-term investment and held in terms of years

  29. Mutual Funds • A combination of several stocks in joint ownership between members of the fund • Sometimes includes bonds or money market accounts for greater diversification • Safer than individual stocks and bonds • Professional fund manager makes decisions and actively invests for members

  30. Diversify within Stocks/Mutual Funds Market industries and Sectors Cyclical Stocks Counter Cyclical Stocks Market Capitalization Growth Stocks Value Stock International Stock

  31. Stock Caps • Large Cap Stocks • The company has assets valued between $10 billion and $200 billion (Wal-Mart, GM) • Medium Cap Stocks - $2 billion to $10 billion • Small Cap Stocks - $300 million to $2 billion • Micro Cap Stocks - below $300 million

  32. Stocks • Large cap stocks are also known as blue chip stocks. • Larger cap stocks are generally safer than smaller cap stocks. • Smaller cap stocks may provide opportunity for higher return that compensates for their greater risk.

  33. Rebalancing Your Portfolio

  34. Dollar Cost Averaging

  35. Dollar Cost Averaging Total number of shares - 31.15 Average Cost per share - $25.68

  36. Dollar Cost Averaging Doesn’t guarantee you won’t lose money You can’t buy only when the market is doing well

  37. Investing Tax Strategies Taxable Account Tax-Deferred Account, Traditional IRA Tax-Free Account: Roth IRA Page 48 goes into Pros and Cons

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