Get Rich Slow Investment Ideas for the Rest of Us

Time (The Ultimate X Factor) The amount of time that an investment has to grow is more important than the amount invested or the interest rate earned.

Time Couple A: Invests $500 per month beginning at age 30. Quits investing at age 40. Earns 10% per year. Total Value at age 65: $1,240,000 Total invested: $60,000

Time Couple B: Invests $500 per month beginning at age 40. NEVER quits investing until retirement. Earns 10% per year. Total Value at age 65: $663,416 Total invested: $150,000

Time The difference? Couple A: Invested total of $60,000. Ended up with $1.24 million. Couple B: Invested total of $150,000. Ended up with $663,416. Couple A STARTED SOONER, was able to invest less, and ended up with more. TIME is the investor’s greatest ally. START NOW.

Rate of Return Rate of Return Matters A fraction of a percentage point makes a significant difference over time.

Consistency Dollar Cost Averaging: Buy more when the price is low Buy relatively less when the price is high

Investment Objectives Identify Objectives before Choosing Investments

De-Mystifying Investment Terms Beware: The Media has a Short-Term Focus The Financial Industry has NO Incentive to Clear Any of This Up

Investor Confusion Rules Too much information Not enough understanding Not enough planning Everyone has ‘Advice’ Emotions rule the day Risk is not kept in check All is madness…

Stock Shares of Ownership in a Corporation Publicly Traded Shares Are Easy to Buy and Sell

Bonds Form of Debt When you buy a Bond, you are promised an interest payment and a return of the original investment. Sold by Governments and Corporations

Stock Exchanges A place where shares of Stock are traded. NYSE (A physical exchange) NASDAQ (A non- physical exchange) AMEX, Philly, Pacific, London, Tokyo

Stock Indexes (Indices) Measure the performance of a group of Stocks Be VERY CAREFUL: Understand what the Index measures, before drawing conclusions Dow Jones Industrial Average: Measure of 30 Industrial Stocks NASDAQ: Measure of all Stocks listed on NASDAQ exchange. S&P 500: Measure of 500 large stocks in USA. Russell 2000: Small Stocks Wilshire 5000: Total Stock Market Index

Mutual Funds Collect money from a large number of people. Invest the money together in a group of stocks. Gives the small investor ability to DIVERSIFY investments.

Mutual Fund Types More Mutual Funds exist today than individual Stocks Each Fund Invests in a specific way (outlined in a document called a prospectus) Growth Funds Sector Funds Income Funds International Funds Large/Mid/Small Cap Funds Value Funds Index Funds

Mutual Fund Characteristics Some charge a Sales Fee (Load) All charge an annual Management Fee (average of about 1.5% per year) You pay tax on realized gains (even though you don’t withdraw $) Fees Matter Tax Efficiency Matters Actual Return is impacted by Both Advertisements LIE about these things…

Selecting Mutual Funds How do you choose? Chase hot tips… Read mountains of reports… Follow your ‘GUT…’ Pray…

Choosing Mutual Funds The Benchmark: The Game: Success Rate: S&P 500 Index Historical Average of approx. 10.7% Try to actively manage your fund to a higher return than the S&P % of all Mutual Funds FAIL to beat the S&P500

INDEX Mutual Funds The mutual fund buys the same stocks found in the Index (such as the S&P500) Require very little active management, resulting in lower fees Buy and Sell less frequently than actively managed funds, resulting in lower taxes Return the average that the Index returns (will beat 85% of actively managed funds over time)

Index vs. Actively Managed Funds Index (S&P500) Fund: 0.20% Mgt fee No Sales fee (load) Low turnover / low taxes Earns the average of the Index Performs well over long periods of time Actively Managed Fund: 1.5% Mgt fee Some have loads (some don’t) Some have very high turnover / high taxes Beats the S&P500 Index 15% of time Can outperform in down markets Some funds consistently outperform Indexes. Some funds are flat-out lousy.

A Word About Tax-Deferred Plans Deferring the taxes on an investment plan allows more money to work for you over time. When taxes are finally paid at retirement, hopefully one has dropped to a lower tax bracket. IRA and 401(k) are common versions.

401(k) Company Sponsored Retirement Savings Plan Contributions to the plan are tax-deductible Employers may match part or all of contribution Investments in 401(k) are not taxed until withdrawals begin Restrictions / Penalties for early withdrawal

IRA (Individual Retirement Acct) You may set up the account on your own Contributions are tax deductible (maximum limits apply) Investments grow tax-deferred Taxed at withdrawal

Roth IRA Contributions are not tax deductible Investments / Earnings in the account are not taxed, even at withdrawal. Maximum contributions / limits apply

A Simple Way to Start Open a Roth IRA account with Charles Schwab, Fidelity, or someone similar Purchase a Vanguard Index 500 Mutual Fund WITHIN the Roth IRA Account Add to it regularly As more money becomes available, investigate other alternatives

How? Call a number, ask for an application Fill it out Attach a check Mail it Wait a few days for confirmation to be mailed to you

Other Topics Investing in Individual Stocks Bond Funds Derivatives (Option and Futures Contracts)

Conclusions Start early Be consistent Educate yourself Take advantage of tax- deferred programs Make investing a habit Pay tithing, avoid debt, and be proactive

Other good sources of information Smartmoney.com Fool.com The Wall Street Journal Guide to Understanding Money and Investing The Wall Street Journal Guide to Planning your Financial Future Money.com One Up on Wall Street B201 (non-bus. Majors), B410, B411, B418 Morningstar.com Quicken.com Finance.yahoo.com Bloomberg.com Businessweek.com Kiplinger.com The Millionaire Next Door Fundamentals of Investments Moneycentral.msn.com