What’s Your
Investment I.Q.?
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Prerequisites to
Investments






Prepare financial statements
Set financial goals
Establish a spending plan
Organize financial records
Establish a positive credit history
Maintain adequate insurance coverage
Pyramid of
Investment Risk
Futures
Contracts
Collectibles
Aggressive Growth, Junk Bonds,
Stocks and Mutual Funds
Real Estate
High Quality Corporate Stocks, Bonds and Mutual Funds
Life Insurance Investments
Government Securities
Insured Savings, Savings Bonds, Money Market Funds, Certificates of Deposits
Goals
Budget
Financial Plan
Emergency
Fund
Financial
Records
Credit
Record
Life
Health
Insurance
Disability
Financial Foundation
Property
Liability
Emergency Fund
Goals
Budget
Financial Plan
Financial
Statements
Financial
Records
Life
Credit
Record
Health
Insurance
Property
Disability
Liability
Financial Foundation
Pyramid of
Investment Risk
Futures
Contracts
Collectibles
Aggressive Growth, Junk Bonds,
Stocks and Mutual Funds
Real Estate
High Quality Corporate Stocks, Bonds and Mutual Funds
Life Insurance Investments
Government Securities
Insured Savings, Savings Bonds, Money Market Funds, Certificates of Deposits
Goals
Budget
Financial Plan
Emergency
Fund
Financial
Records
Credit
Record
Life
Health
Insurance
Disability
Financial Foundation
Property
Liability
Every Little
Bit
Counts!
Pay Yourself First
at 5% interest
Save this each week
In 10 years, you will have
$ 7.00
$ 4,720
$14.00
$ 9,440
$21.00
$14,160
$28.00
$18,880
$35.00
$23,600
If you invest $1,000/year
($19.20/week)
Interest
Rate
5%$5,524
6%$5,637
7%$5,751
8%$5,867
9%$5,985
10%$6,105
11%$6,228
12%$6,353
5 years
10 years
12,578
13,181
13,816
14,487
15,193
15,937
16,722
17,548
21,578
23,276
25,129
27,152
26,361
31,772
34,405
37,279
15 years 20 years
33,065
36,786
40,995
45,762
51,160
57,257
64,203
75,052
The Rule of 72
(years to double your money)
72
= Years to double money
Interest Rate
The Rule of 72
(interest rate needed based on time)
72
Years to double
Money
= Interest Rate Required
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 Taxes
Inflation Rate
100 - Federal, State & Local Tax Brackets
Rate of Return to Account
for Inflation and Taxes
3
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%
Years
Invested
5
10
15
20
25
30
35
40
Tax Deferred
Investment
$11,603.83
26,413.57
45,314.98
69,438.49
100,226.90
139,521.55
189,672.58
253,679.42
Taxed
Investment
$11,133.26
24,420.08
40,277.04
59,201.28
81,786.14
108,739.69
140,906.98
179,296.56
Savings
$
470.57
1,993.49
5,037.94
10,237.21
18,440.76
30,781.86
48,765.60
74,382.86
Time is
a
valuable
tool
EARLY INVESTOR
Depositing $1,000
a year at 8%
LATE INVESTOR
Depositing
nothing
Year 1
$1,083
$0
Year 5
$6,397
$0
$15,939
$0
Year 10
Depositing nothing more
but building at 8%
Depositing $1,000
a year at 8%
Year 11
$17,267
$1,083
Year 20
$35,471
$15,939
Year 30
$78,934
$51,939
Year 40
$175,656
$130,344
Year 50
$390,895
$306,000
INVESTING NOW
versus
INVESTING LATER
AT 9% INTEREST
Beginning
Now
Monthly
Amount
Total
Contribution
End Result
in 20 Yrs
$ 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
Real Estate
Stocks and Bonds
Futures
Treasury Certificates
Collectibles
Portfolio
Selection
Low Risk
$Insured Savings
$Savings Bonds
$Certificates of Deposit
$Money Market Deposit Accounts
Limited Risk
 Blue chip stocks
 High quality bonds
 Conservative mutual funds
 Government securities
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
Time makes a Difference!
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
MUTUAL FUNDS
Type
Objective
Investments
Type of Investor
Balanced
Conserve principal,
some growth
One-third bonds,
two-third stocks
Older, incomeoriented
Incomegrowth
Moderate growth
with income
Common Stocks
(blue chip)
Middle-aged,
conservative
Growth
High growth,
low income
Common stocks
(speculative)
Younger,
aggressive
Bond
Income
Bonds
Older, incomeoriented
MUTUAL FUNDS
Type
Objective
Investments
Type of Investor
Preferred
Income
Preferred stock
Older, income-oriented
Specialized
Various
Gold stocks,
specialized
industry stocks,
convertible bonds,
etc.
Depends on objective,
but should only be a
small portion of
investments
Money market
Income and
safety of
principal
Money market
instruments
Anyone needing income
and safety
Limited Risk
Portfolio
medium
stocks
term bonds
20%
30%
cash
50%
Moderate Risk Portfolio
stocks
50%
long term
bonds
five year
bonds
30%
10%
cash
10%
High Risk Portfolio
stocks
100%
Where can
you go for
Financial
Planning
Information?
Who would you want to be
your financial professional?
1.
2.
3.
4.
5.
6.
7.
8.
A chartered life underwriter
A certified financial planner
An attorney
An accredited financial counselor
A financial manager
An accountant
A real estate broker
A stock broker
CRITERIA FOR SELECTING FINANCIAL
ADVISORS
Training
Professional designations
Professional Improvement
Length of time in business
Registrations/licenses
Form of compensation
Types of clients and
income of clients
References
Questions to Ask Your
Potential Financial Professional
1. What is your professional background?
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 that you have counseled for at least two
years?
More Questions for 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.?