Choosing the Right Investments

1. Choosing the Right Investments presented by Carrie A. Gilchrist, Ph.D. Oakland University

2. Choosing the Right Investments Review: Session 2, September 28Introduction • Choose investments that will provide the growth and income you need to meet your goals. • Understand yourself as an investor – everyone’s portfolio will not look the same. Consider your age, goals, timeframe, and attitude towards risk. • As your life changes and your goals evolve, take time to evaluate your investment decisions to make sure they still meet your needs.

3. Choosing the Right Investments Review: Session 2, September 28General Rules of Investing • The more time you have to reach your goal, the more investment risk you can take. • As you age, your investments should become less risky in order to lessen any time needed for market recovery. • Choose investments that are: • Easy to evaluate because there is lots of information available • Easy to buy and sell – avoid those that are not publicly traded • Clearly explained for charges and fees • Registered with the SEC and traded by a FINRA licensed professional

4. Choosing the Right Investments • Identifying your financial goals • Investing in short-term goals • Investing in mid-term goals • Investing in long-term goals

5. Choosing the Right Investments • Four steps to meeting your financial goals • Step OneIdentify your most important short-, medium- and long-term financial goals. The length of the goal will be relative – for example, not everyone here will be going to college four years from now!

6. Choosing the Right Investments • Four steps to meeting your financial goals • Step TwoEstimate how much each of your goals will likely cost. Short term goals will likely be close to the cost now. Mid-term and longer goals will be more, so adjust for inflation and other increases. • Inflation – a 3% increase per year is average • College tuition increases each year at a variable rate, but usually more than the rate of inflation. For today’s purposes, use 5% if one of your goals is college.

7. Choosing the Right Investments • Four steps to meeting your financial goals • Step ThreeSet up separate savings or investment accounts for each of your major goals. • Step FourChoose investments suited to meeting each of your goals based on your time frame and your tolerance for risk.

8. Choosing the Right Investments • Investing for short-term goals • Because you plan to spend the money you set aside for short-term goals relatively quickly, you’ll want to focus on safety and liquidity rather than growth in your short-term portfolio. • Insured bank or credit union accounts • Treasury bills • Money Market accounts • Liquid investments are those you can sell easily with little or no loss of value, such as low-risk investments that pay interest.

9. Choosing the Right Investments • Investing for mid-term goals • You need to strike an effective balance between protecting the assets you’ve worked hard to accumulate while achieving the growth that can help you build your assets and offset inflation. • Balanced options usually include 60% stocks, 40% bonds, depending on how many years until your goal becomes reality.

10. Choosing the Right Investments • Example Option: Balance your mid-term portfolio with a mix of high-quality, fixed-income investments with modest growth investments. Watch the investments closely to limit your losses if there is a major market downturn. • Mid-term government bond fund • High-yield CD • Diversified large-company stock fund • Establish limits for gains and losses in your mid-term stock portfolio. Decide ahead of time if you’ll sell an investment if it increases in value 20% or decreases 15%. As your goal approaches, you can reinvest your assets in less volatile investments.

11. Choosing the Right Investments • Investing for long-term goals • The more time you have to reach a financial goal, the more investment risk you can afford to take. • Individual stock • Stock mutual funds • Stock exchange traded funds • Review of historical returns shows a well-diversified stock portfolio can be the most rewarding over the long term, at least 15 years or more.

12. Choosing the Right Investments