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Personal Investing Jamie Harmon Vice President Fidelity Investments. smart woman securities. December 13, 2006. 2006 Smart Woman Securities. All materials are for SWS members’ use only. Section 1: INTRODUCTION. My Story. Personal investing Alan Abelson From Gov concentrator to Fidelity
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Personal InvestingJamie HarmonVice PresidentFidelity Investments smartwomansecurities December 13, 2006 2006 Smart Woman Securities. All materials are for SWS members’ use only
My Story • Personal investing • Alan Abelson • From Gov concentrator to Fidelity • Internship • Fidelity • Associate to Portfolio Manager • I am always growing as an investor • You should be, too
Overview • Intro • Investing Basics • Open a Roth IRA • Asset Classes • What to Buy? • Stocks • Bonus
Investing Goals? • Beat CPI • Make tons of money • Learn about investing • Have experience to discuss in interviews • Note: Don’t say you are interested in personal investing unless you really are!
What Is an Investment? • Expensive shoes • Car • “12” on roulette • College education • Savings account • Art • House
An Investment Is… • An asset with an expected return that is strong on a real basis • “Expected Return” is key • Current income • Capital appreciation • Growth • Valuation • NPV of cash flows
Problem 2: Growth Source: FMR; FactSet; S&P 500
What You Need • Temperament • Research • Spend more time buying stocks than shoes • Savings
Requirements • Earned income equal to your IRA contribution (or greater) • But less than $95k • Regular IRA has no max on income • Parents can fund • But you still need earned income
Advantages • Compounds tax free • Can be withdrawn tax free • What is this worth?
How Much Can You Put In? • Up to $4k per year • If possible, invest in 06 and on 1/1/07 • Is it worth borrowing to do this?
Where? • Fidelity Investments • Local branches • $2500 minimum • I use Fidelity, and it seems good to me • E*Trade or Ameritrade • No branches (?) • No Minimum
When? NOW!! • Save money from age 20 to 65 • 4k per year for 45 years at 8% = $1,669,704 • What if you wait 1 year? • 4k per year for 44 years at 8% = $1,542,022 • You lose $127,682 !!!
How? • Web • Phone • In person
Asset Classes • Financial assets • Fixed income • Equity • Hard assets • Residential real estate • Commercial real estate • Other
Fixed Income • Short term • T bills • Savings accounts, etc. • Long Term • Government bonds • Government, Sovereign, Municipal • Relation to national debt • Corporate debt • Corporates, High yield • Asset-backed securities
Equity • Stocks • Mutual funds • Private companies
Stocks • Pieces of businesses • Why do they exist? • To help companies • Raise money • Compensate employees • Buy other companies • Estate planning • Etc.
Types • Large, small • Fast growing, slow growing • Low PE, high PE • IPO’s • Specialty • REITs, biotech, international
Mutual Funds • A group of stocks (or bonds) • Diversified • Strategy • Growth, emerging markets, big cap • Types • Actively managed funds • Index funds • ETF’s
Mutual Funds (more) • Want • Lower fees • Higher performance • Minimum investment • Often $1k or $2.5k • Vs. hedge funds
Private Companies • A mature business • Local 7-11 • Leverage Buyouts • A start up business • Friend with an idea • Venture Capital • Similar to stocks in some ways…
Hard Assets • Residential real estate • Commercial real estate • Other • Gold, art
Section 5: WHAT TO BUY?
Long Term Real Returns Source: Prudential Securities; Ibbotson data
Cash Equivalents • Expected return? • Sample rates • 0% checking • 2.5% savings • 4.5% money market • 3 months of expenses in cash • Or less
Bonds • Expected return? • Sample rates: • 10 year = 4.5% • Mexican 10 year = 5.5% • High yield = 8.0% • No growth • Credit risk • Interest rate risk
Bond Yields Are Low Source: Haver Analytics; FMR
Baa Spread is Low Source: Merrill Lynch
High Yield Spread is Low Source: Merrill Lynch US High Yield Master II Index
EM Spreads Are Low Source: JP Morgan EMBI Global Index
Paying Down Your Debt • Expected return? • Credit card rates average 14% • Better types of debt • Student loans • Mortgage • Tax advantages
Gold • Expected return? • Carrying cost • Good inflation hedge • Supply and demand • Never gets used up
Other Collectables • On Nov 30, 2006, a bottle of Scotch whiskey from 1856 sold for $28,820 • This seems extraordinary for a collectable • What was the return?
Residential Real Estate • Has been good longer term • More complex than most people think • Still a good place to look
Conventional Wisdom • Median existing home price has increased at about 6% per year since WWII • No down years • Might go down 4% in 07? • With 20% down, that is 30% a year, right?
Dig Deeper • High end real estate vs. the median home • Think about expected return • Cash costs of owning vs. renting • Growth in rent • Capital appreciation • Leverage • Rent vs. Buy example
House Price vs. Income Source: FMR Real Estate
Affordability is Mixed Source: FMR Real Estate
Residential Rent Growth Source: FMR Real Estate
Commercial Real Estate • Has also been good longer term • Easy to leverage • Different from residential real estate • Expected Return • NOI yield • Growth in rents • REITs as a way to get exposure
Commercial RE is good LT Source: FMR;Prudential
Office Rent Growth Source: FMR Real Estate
REIT’s Pricey vs. Bonds? Source: FMR Real Estate