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Chapter 13. MAKING YOUR MONEY GROW - AN OVERVIEW

Chapter 13. MAKING YOUR MONEY GROW - AN OVERVIEW. The ABCs of Putting Your Money to Work… Evaluating Risks, Tax Consequences… Investigate Before You Invest. A. Today Dollars and Tomorrow Dollars 1. Automatic Accumulation 2. Active Accumulation a. By Lending b. By Buying

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Chapter 13. MAKING YOUR MONEY GROW - AN OVERVIEW

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  1. Chapter 13. MAKING YOUR MONEY GROW - AN OVERVIEW The ABCs of Putting Your Money to Work… Evaluating Risks, Tax Consequences… Investigate Before You Invest A. Today Dollars and Tomorrow Dollars 1. Automatic Accumulation 2. Active Accumulation a. By Lending b. By Buying B. Investment Criteria 1. Safety - The Reward/Risk Rule 2. Liquidity 3. Yield and “Total Return” 4. Pledge Value 5. Hedge Value and the “Time Value” of Money Slide 1 of 5

  2. B. Investment Criteria, continued 6. Tax Implications a. Taxable investments b. Tax-deferred and tax-sheltered investments c. Tax-exempt investments C. Investigation 1. Books 2. Magazines 3. Newspapers 4. Seminars and Courses 5. Television 6. Information Overload Slide 2 of 5

  3. D. Sources of Investable Funds (See Personal Action Worksheet, text page 348) 1. Discretionary Income 2. Inheritances and Gifts E. Who Can Help You? 1. Financial Planners 2. Yourself Slide 3 of 5

  4. Evaluate your tolerance for risk and your possible need for liquidity in the following investment situations: 1. Can be expected to range in value in the short term by 30%, up or down. Pays no income. Immediate liquidity at current market value should you need the cash in a hurry. (This might be shares of stock.) 2. Can be expected to range in value in the medium term by 10%, up or down. Pays 6% yield on your investment. Immediate liquidity at current market value, but will pay 100 cents on the dollar 10 years from now. (This might be a bond.) 3. Will not fluctuate in value. Pays 4% yield. Immediate liquidity of your principal investment, but you might lose some accumulated interest depending on when you cash in. (This might be a savings account.) 4. Can be expected to range in value by 10% on the downside, 30% on the upside over a longish pull. Pays 10% on your investment. Heavy management required. Could sell quickly, could take many months to sell. (This might be real estate.) TALKING POINTS…Chapter Thirteen, Number One Slide 4 of 5

  5. Planner A - no credentials, has been calling himself planner for less than 6 mos., background: jr. exec. in a large industrial company, MBA from a state univ., seems very bright, very thorough in seeking info.about you, works on a fee- only basis, makes no commission on securities/services you acquire. Planner B - excellent credentials, is a Certified Life Underwriter (see text page 491) and an ICFP (see text page 274), has good references from other clients which were written during a time when the stock market was on a long rise, works on commission, seems aggressive regarding the stock market. Planner C - was stock broker for 10 years, dropped out because of volatility and stress of market, excellent references, but very low-keyed and conservative, works on a low a fee-plus-commission basis. “Planner D” - old pal of yours who’s done very well in stock market, you’ve always admired his track record but never wanted to impose on him, offers to give you a helping hand in picking stocks, will not charge you anything. You’re interviewing prospective financial planners to handle your money matters. How would you evaluate the prospects based on the information you’ve gathered? TALKING POINTS…Chapter Thirteen, Number Two Slide 5 of 5

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