1. Investing Part 1

2. Wealth Inflation Retirement Audience interaction
Ask about why you would want to invest.
People generally invest to build wealth, protect against inflation, and retire.
Retirement

3. Reality May Not Match Expectations
Risk
Risk-Aversion
Diversification
“Don’t put all your eggs in one basket”
Risk and Return are Positively Related
Risk
Reality May Not Match Expectations
What is risk? It is when reality may not match expectations.
Inform the audience of some of the risks like interest rate risks or market risks

4. Rational • Objective • Dispassionate
Decision Making
Rational • Objective • Dispassionate
Since there is risk involved, that means not everything will work out perfectly. When things are looking bad, it is important to remain “rational, objective and dispassionate” in your decision making. Panic selling is when investors sell too low.
Beware of herd mentality
Research
Avoid selling too early
Decision Making

5. Rationality S&P 500 Over 80 Years
The market is volatile in the short term but has always gone up long term. Panic selling at low points guarantees loss.
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6. Kimberly invests $5,000 every year between the ages of 25 and 65.
Billy invests $5,000 every year between the ages of 35 and 65.
Jason invests $5,000 every year between the ages of 25 and 35.
Talk about the average expected return on the market.
We use an investment calculator from bank rate using an expected return of 8%.
We take a look at Jason who invests from ages 25-35, Billy who invests from 35-65, and Kimberly who invests from 25-65
We see that even though Jason doesn’t put in anymore money, compound interest is so strong that he will have more money than Billy at 65 even though he doesn’t contribute anymore.
This is to emphasize that its best to start investing as soon as you can to maximize gains

7. Education · Stocks · Bonds · CDs · Real Estate
Investment Options
What can I invest in?
Education · Stocks · Bonds · CDs · Real Estate
We all know investing is good, but what can we invest in?

8. Education Debt Investment Less Liquid Less Risky Interest Payments
Corporation or Government
Less Liquid
Less Risky
Interest Payments
Education is an investment in that you pay money now, for a payoff of having a job with a higher salary in the future.
Education

9. Education
What is the difference in lifetime earnings between a high school diploma and a college degree?
$964,000
Cost of going to college vs. Cost of not going to college
$10,000 X 4 years = $40,000
Income difference between those with a college degree and those without = $17,500
Payback period = 2.3 years
The payoff of a college degree over a lifetime

10. Stocks Equity Investment Partial Ownership Liquid Dividends
Explain that stocks are bought and sold in the stock market. When you own stock it is partial ownership of the company. You can be paid dividends where the firm shares its wealth with the shareholders depending on the company. Stocks are liquid. Explain how liquidity means how easily you can turn the asset into cash. If you had stock and needed cash right now, you could simply sell it.
Equity Investment
Partial Ownership
Liquid
Dividends
Stocks

11. Bonds. Explain that there are different types of bonds: Government, corporate, etc. and that some pay coupons. Explain that a bond is the issuer’s debt, they are borrowing your money, and they are obligated to pay you back. Coupons are semi-annual payments. You get your principal payment back at maturity. Bonds are less liquid because you need to wait for the bond to mature, otherwise there may be a tax penalty.
Bonds

12. Equity or Debt Decision Making Beware of herd mentality Research
Explain again that firms can get capital through equity or debt. Equity being stocks where they are not obligated to pay you, and debt being bonds where they are obligated to pay you.
Beware of herd mentality
Research
Avoid selling too early
Decision Making

13. Diversification Example of diversifying on your own.
Talk about what a portfolio is. A set of investments. Here this portfolio is diversified in different stocks which are probably in different industries. Spreading out investments reduces risk.

14. Example of diversifying with mutual funds.

15. Mutual funds tend to be a more passive investment approach
Mutual funds tend to be a more passive investment approach. Mutual fund managers pool in money from investors, and manages the money accordingly. The attractiveness of mutual funds come from their immediate diversification, and not having to research as much if you were building your own portfolio. Mutual funds have expense ratios though that need to be taken into account.
Mutual Funds

16. Certificate of Deposit
Cash Investment
Predetermined Time Frame
Early Withdrawal Penalty
Low Returns
Low Risk
Insured
CD’s are bank insured deposits. They are not liquid. It is an agreement for you to keep your money in a bank for a specified amount of time, and it will grow at a rate higher than in a savings account. The potential income from a CD is not very high, but it is very safe.
Certificate of Deposit

17. Real Estate Real Estate Investment Trust (REIT) Rental Property
Home Ownership Tax Benefits
Land or Buildings
REIT
Land
Rent houses
Real Estate

18. Next Week: Getting Started
Why are you investing?
How much can you invest?
How long can you leave the money invested?
How do I create an account?
Next Week: Getting Started
Where · When · How