45
What’s Your Investment I.Q.? Revised 2006
What’s Your Investment
I.Q.?
Revised 2006
Your CountyYour Name
Family and Consumer Sciences
“Educating People to Help Themselves”
$ $ $ $ $
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Prerequisites toInvestments
Prepare financial statements Set financial goals Establish a spending plan Organize financial records Establish a positive credit history Maintain adequate insurance
coverage
Financial Foundation
Goals
Emergency Fund
Budget
Financial Records
Credit Record
Life
Disability
Health
Property Liability
Financial Plan Insurance
Insured Savings, Savings Bonds, Money Market Funds, Certificates of Deposits
Life Insurance Investments Government Securities
High Quality Corporate Stocks, Bonds and Mutual Funds
Real Estate
Aggressive Growth, Junk Bonds, Stocks and Mutual
Funds
Futures Contracts Collectibl
es
Pyramid of Investment Risk
Incr
ease
d Ris
k
Emergency Fund
Financial Foundation
Goals Budget
Financial Plan
Financial Statement
s
Financial Records
Credit Record
Life Health
Insurance
Disability
Property
Liability
Every Little
Bit
Counts!
Every Little
Bit
Counts!
Pay Yourself Firstat 5% interest
Save this each week In 10 years, you will have
$ 7.00 $ 4,754
$14.00 $ 9,509
$21.00 $14,263
$28.00 $19,018
$35.00 $23,772
InterestRate 5 years 10 years 15 years 20
years
If you invest $1,000/year
($19.20/week)
5% $5,692 13,009 22,411 34,4936% $5,843 13,739 24,408 38,8237% $5,999 14,522 26,631 43,8338% $6,160 15,363 29,108 49,6389% $6,327 16,265 31,870 56,378
10% $6,500 17,233 34,955 64,21411% $6,679 18,274 38,401 73,34112% $6,864 19,392 42,257 83,986
The Rule of 72
(years to double your money)
72 = Years to double moneyInterest Rate
The Rule of 72 (interest rate needed based on
time)
72 = Interest Rate RequiredYears to double Money
Investments
Actively Manage
Understand Risk
Know Your Tax Bracket
Appropriate For Your Timeline
Protect Against Inflation
It’s Not What You Earn,
It’s What You
Keep
Rate of Return to Account for Inflation and
TaxesInflation Rate
100 - Federal, State & Local Tax Brackets
Rate of Return to Account for Inflation
and Taxes3
100 - (28+5+2.5)
RR = 4.65%
Tax Free Vs. Taxable Yield
Tax Equivalent = Yield
tax free rate (5%)
100 - (tax rate) (28%)
5 = 6.9%72
TAX DEFERRAL MAGIC
$2,000 Annual Investment @ 5%
5 $11,603.83 $11,133.26 $ 470.57 10 26,413.57 24,420.08 1,993.4915 45,314.98 40,277.04 5,037.9420 69,438.49 59,201.28 10,237.2125 100,226.90 81,786.14 18,440.7630 139,521.55 108,739.69 30,781.8635 189,672.58 140,906.98 48,765.6040 253,679.42 179,296.56 74,382.86
Years Tax Deferred TaxedInvested Investment Investment Savings
Time is a
valuable tool
EARLY INVESTOR
Depositing $1,000a year at 8%
$1,083
$6,397
$15,939
Depositing nothing morebut building at 8%
$17,267
$35,471
$78,934
$175,656
$390,895
LATE INVESTORDepositing
nothing
$0
$0
$0
Depositing $1,000a year at 8%
$1,083
$15,939
$51,939
$130,344
$306,000
Year 1
Year 5
Year 10
Year 11
Year 20
Year 30
Year 40
Year 50
INVESTING NOW versus INVESTING LATER
AT 9% INTEREST
Monthly Total End Result Beginning Amount Contribution in 20 Yrs
Now $ 50.00 $12,000 $33,394
In 10 years $150.00 $18,000 $29,027
Invest$1,000 a year
@ 6%for 20 years
=$36,790
You have earned
$16,790!!!
Investment Alternatives
Mutual Funds
Stocks and Bonds
Treasury Certificates
Real Estate
Futures
Collectibles
Investment
PortfolioSelection
s
Low Risk
$Insured Savings
$Savings Bonds
$Certificates of Deposit
$Money Market Deposit Accounts
Limited Risk
Blue chip stocks High quality bonds Government securities Conservative mutual funds
Moderate Risk
• Growth stocks
• Real estate
• Mutual funds
• Medium rated corporate, municipal and zero-
coupon bonds
• Small company stocks
High Risk
* Futures, options, and derivatives
* Aggressive growth, stocks and mutual funds
* Junk or low rated bonds
* Collectibles, precious metals
Risk Reward
Investment StrategiesInvest regularly by dollar-cost
averagingDiversify your portfolio Check your investments
regularlyStay invested during down
marketsBe patient
Since 1950, if stocks were held for:
10 years -- no risk of loss
5 years -- 5% chance of loss
1 year -- 23% chance of loss
Time makes a Difference!
MUTUAL FUNDSType Objective Investments Type of Investor
Balanced Conserve principal, One-third bonds, Older, income-some growth two-third stocks oriented
Income- Moderate growth Common Stocks Middle-aged, growth with income (blue chip) conservative
Growth High growth, Common stocks Younger, low income (speculative) aggressive
Bond Income Bonds Older, income-oriented
MUTUAL FUNDSType Objective Investments Type of Investor
Preferred Income Preferred stock Older, income-oriented
Specialized Various Gold stocks, Depends on objective,
specialized but should only be a industry stocks, small portion ofconvertible bonds, investmentsetc.
Money market Income and Money marketAnyone needing income safety of instruments and safety
principal
Investment
PortfolioSelection
s
Limited Risk Portfolio
Cash
50%
Medium
Term Bonds
30%
Blue Chip
Stocks
20%
Moderate Risk Portfolio
long term
bonds
10%
cash
10%
five year
bonds
30%
stocks
50%
High Risk Portfolio
stocks
100%
Where can you go for Financial Planning
Information?
Who would you want to be your financial
professional? Chartered Life Underwriter (CLU) Certified Financial Planner (CFP) Chartered Financial Consultant (ChFC) Accredited Financial Counselor (AFC) Attorney Financial manager Accountant Real estate broker Stock broker
Chartered Life Underwriter (CLU) Certified Financial Planner (CFP) Chartered Financial Consultant (ChFC) Accredited Financial Counselor (AFC) Attorney Financial manager Accountant Real estate broker Stock broker
CRITERIA FOR SELECTING FINANCIAL ADVISORS
Training
Professional Improvement
Registrations/licenses
Types of clients and income of clients
References
Professional designations
Length of time in business
Form of compensation
Questions to Ask Your Potential Financial
Professional1. What is your professional background, including certifications?
2. How long have you been doing financial planning?
3. How long have you been in the community?
4. Who can vouch for your professional reputation?
5. Will you provide references from three or more clients who you have counseled for at least two years?
More Questions to ask a Financial Professional…
6. Will you manage my account(s) or will it be an associate?
7. May I see examples of your plans and monitoring reports you have
drawn up for other investors?
8. Are you a member of any financial planning trade organizations?
9. If you earn commissions, from whom?
10.What level of investment risk do you generally use?
How is a Financial Professional Paid?
Fee Only Planner
Commission Only Planner
Fee and Commission Planner
Keys
to
Success
What’s Your Investment
I.Q.?
Your CountyYour Name
Family and Consumer Sciences
“Educating People to Help Themselves”
