1. 1 INVESTING by Professor Arnold Meltzer March 2010

2. 2 TOPICS GROWTH OF INVESTMENTS TRADITIONAL IRA ROTH IRA 401(k) PLAN TAXES

3. 3 TOPICS BUY A HOUSE MINIMIZE PURCHASES –CAR –FURNITURE –USE OF CREDIT CARDS

4. 4 TOPICS STOCKS BONDS MUTUAL FUNDS –MANAGED FUNDS –INDEX FUNDS –LOAD AND NO-LOAD FUNDS REAL ESTATE

5. 5 GROWTH OF INVESTMENTS AVERAGE GROWTH OF STOCKS OVER THE PAST 60 YEARS IS ABOUT 11%/YR. SAVE $10,000 IN YOUR FIRST YEAR OF WORK AND INVEST IT IN GOOD MUTUAL FUNDS OR STOCKS

6. 6 GROWTH OF INVESTMENTS YOU WILL WORK FOR 40 YEARS BEFORE YOU RETIRE $10,000 x (1.11) 40 = $650,000 AFTER 40 YEARS DO IT AGAIN IN YOUR SECOND YEAR OF WORK. $10,000 x (1.11) 39 = $585,593 AFTER 39 YEARS TOTAL AT RETIREMENT =$1,235593

7. 7 TRADITIONAL IRA (INDIVIDUAL RETIRMENT ACCOUNT) INVESTMENT GROWS TAX FREE UNTIL YOU RETIRE YOU PAY TAXES ON MONEY REMOVED AS INCOME AFTER AGE 59.5 YOU CAN INVEST $5,000 PER YEAR in 2010 YOU MUST START TO REMOVE MONEY AT AGE 70.5 YRS.

8. 8 ROTH IRA YEARLY CONTRIBUTION IS NOT TAX FREE INVESTMENT GROWS TAX FREE YOU PAY NO TAXES WHEN YOU REMOVE MONEY AFTER AGE 59.5 YOU CAN CONTRIBUTE $5000/YR in 2010 YOU ARE NOT REQUIRED TO REMOVE MONEY YOU PAY A PENALY OF 10% IF YOU REMOVE MONEY EARLY, I.E. BEFORE AGE 59.5

9. 9 TRADITIONAL IRA YOU PAY A PENALTY OF 10% IF YOU REMOVE MONEY BEFORE AGE 59.5. IF YOUR TAXABLE INCOME IS BELOW $55K PER YEAR, YOUR CONTRIBUTION TO THE IRA IS TAX DEDUCTABLE.

10. 10 401(k) PLAN TAX FREE CONTRIBUTIONS UP TO $16.5K USUALLY MATCHED BY YOUR EMPLOYER YOU PAY NO TAXES ON THE INVESTMENT YOU PAY TAXES WHEN YOU REMOVE MONEY AFTER AGE 59.5 YEARS YOU MUST REMOVE MONEY BY 70.5 YEARS YOUR PAY A 10% PENALTY IF MONEY IS REMOVED BEFORE AGE 59.5.

11. 11 TAXES IF YOU ARE SINGLE, TAXES WILL EAT YOU ALIVE. 2010 CURRENT FEDERAL TAX RATES TAXABLE INCOMETAX RATE $0 - $8,375K10% $8375 - $34,00015% $34,000 - $82,40025% $82,400 - $171,85028%

12. 12 TAXES QUICK TAX CALCULATION (SINGLE): TAXABLE INCOME = INCOME - EXEMPTION - DEDUCTIONS EXEMPTION (2010) = $3,650 STANDARD DEDUCTION (2010) = $5,700 IF YOU MAKE $60K YOUR TAXABLE INCOME IS $60K - $3,650 - $5,700 = $50,650

13. 13 TAXES YOUR FEDERAL TAXES (SINGLE) $4,681 + 25% X ($50,650 - $32,550) = $4,681 + 25% X $18,100= $4,681 + $4525 TOTAL FEDERAL TAXES = $9,206 ADD STATE AND LOCAL TAXES @ 9% TAXES PAID = $9206 + $4558 = $13,764

14. 14 TAXES YOUR INCOME IS $60,000 YOUR INCOME AFTER TAXES IS $60,000 - $13,764 = $ 46,236 PERCENTAGE TAXES ARE 23%

15. 15 Deductions YOU NEED DEDUCTIONS TO LOWER YOUR TAXABLE INCOME –INTEREST ON A HOUSE IS DEDUCTABLE –REAL ESTATE TAXES ARE DEDUCTABLE –CONTRIBUTIONS TO CHARITY ARE DEDUCTABLE

16. 16 Deductions - INTEREST ON SCHOOL LOANS –STATE AND LOCAL TAXES ARE DEDUCTABLE

17. 17 BUYING A HOUSE YOU NEED TO STAY IN THE AREA FOR AT LEAST 3 YEARS TO OVERCOME THE CLOSING COSTS OF BUYING THE HOUSE YOUR HOUSE WILL BE A GOOD INVESTMENT AND CAN APPRECIATE YOU PAY NO CAPITAL GAINS ON THE SALE OF A HOUSE WORTH LESS THAN $500K (married), $250K (single) YOU CAN SELL YOUR HOUSE EVERY 2 YEARS AND PAY NO CAPITAL GAINS

18. 18 BUYING A HOUSE 3 IMPORTANT CONCEPTS IN BUYING A HOUSE ARE: –1) LOCATION –2) LOCATION –3) LOCATION BUY A HOUSE AND RENT OUT ROOMS. MAKE OTHERS PAY FOR YOUR HOUSE.

19. 19 MINIMIZE PURCHASES DO NOT BUY A NEW CAR –BUY A USED CAR –USE MASS TRANSPORTION DO NOT BUY EXPENSIVE FURNITURE –BUY USED FURNITURE –SHARE THE EXPENSE WITH HOUSEMATES

20. 20 MINIMIZE EXPENSES DO NOT BUY ANYTHING ON CREDIT –ALWAYS HAVE THE MONEY IN YOUR BANK ACCOUNT BEFORE YOU USE A CREDIT CARD –INTEREST ON CREDIT CARDS IS 18% –SAVE FOR A RAINY DAY - IT WILL COME (3 months income)

21. 21 STOCKS YOU BUY A PART OF A COMPANY (EQUITY) –THE STOCK INCREASES IN VALUE OVER TIME (HOPEFULLY) –THE COMPANY PAYS YOU DIVIDENDS EACH QUARTER –THE INVESTMENT IS FAIRLY LIQUID (EASY TO SELL AND OBTAIN MONEY)

22. 22 STOCKS IF YOU SELL A STOCK AT A PROFIT AND YOU OWNED THE STOCK FOR A YEAR OR MORE, THE CURRENT TAX RATE IS 15% ON THE CAPITAL GAIN CAPITAL GAIN = SALE PRICE - PURCHASE PRICE.

23. 23 BONDS YOU BUY THE DEBT OF THE COMPANY OR GOVERNMENT PAYS A FIXED RATE, I.E. 4% OF THE PURCHASE PRICE VALUE OF THE BOND FLUCTUATES BASED ON THE VALUE OF MONEY IF BOND PRICE INCREASES - THE PERCENTAGE INTEREST PAID DECREASES IF BOND PRICE DECREASES - THE PERCENTAGE INTEREST PAID INCREASES

24. 24 BONDS BONDS PRICES DO NOT INCREASE AT THE SAME AVERAGE RATE AS STOCK PRICES BONDS ARE A CONSERVATIVE INVESTMENT INTEREST OF STATE AND CITY BONDS (MUNI) ARE FEDERAL TAX FREE INTEREST RATE FOR MUNI BONDS ARE LESS THAN FOR US GOVERNMENT BONDS OR CORPORATE BONDS –MUNI - 3% –FEDERAL BOND - 5% –CORPORATE BOND - 7%

25. 25 BONDS CORPORATE BONDS ARE RISKIER THAN FEDERAL OR MUNI BONDS, HENCE THEY USUALLY PAY A HIGHER INTEREST RATE. JUNK BONDS ARE HIGH INTEREST PAYING BONDS OF COMPANIES THAT DO NOT HAVE ENOUGH EQUITY TO PAY THE BONDS

26. 26 MUTUAL FUNDS COMPANIES THAT OFFER SHARES IN A GROUP OF STOCKS CALLED A FUND PAY THE DIVIDENDS OF THE STOCKS THEY HOLD IN THE FUND TO YOU PAY THE INTEREST OF THE BONDS THEY HOLD IN THE FUND TO YOU THE VALUE OF A SHARE OF THE FUND IS THE AVERAGE OF THE VALUE OF THE STOCKS OR BONDS THEY HOLD IN THE FUND

27. 27 MUTUAL FUNDS MUTUAL FUNDS TEND TO GROW SIMILAR TO STOCKS IF THE FUND PICKS FAST GROWING STOCKS THEIR PRICE WILL INCREASE RAPIDLY FAST GROWING STOCKS ARE USUALLY RISKY AND THEIR PRICE FLUCTUATES OVER A LARGE RANGE

28. 28 MUTUAL FUNDS THERE ARE MORE MUTUAL FUNDS THAN STOCKS TYPES OF MUTUAL FUNDS –MANAGEMENT STYLE HIGHLY MANAGED INDEXED COMBINATION

29. 29 MUTUAL FUNDS –TYPES OF STOCKS IN FUND GROWTH VALUE BONDS BLEND

30. 30 MUTUAL FUNDS –LOCATION OF COMPANIES US ONLY INTERNATIONAL = NON US GLOBAL = US + INTERNATIONAL INDIVIDUAL COUNTRIES, I.E. JAPAN, RUSSIA, TURKEY, BAZIL, ETC. REGIONAL FUNDS, I.E. ASIA, ASIA- JAPAN, BRIC, EUROPE, EASTERN EUROPE

31. 31 MUTUAL FUNDS –SIZE OF THE COMPANIES IN THE FUND LARGE CAP MID-CAP SMALL-CAP BLEND SMALL TO MID-CAP

32. 32 MUTUAL FUNDS –COST OF FUNDS LOAD FUND = PAY A PERCENTAGE OF THE SHARES YOU BUY TO JOIN THE FUND, TYPICALLY 4.5% IN ADDITION TO THE PRICE OF THE SHARES NO-LOAD FUND = ONLY PAY FOR THE SHARES REAR END FUNDS = PAY A PERCENTAGE OF THE PRICE OF THE SHARES THAT YOU SELL. PAY AT THE END

33. 33 MUTUAL FUNDS EXAMPLE OF FUNDS –MANAGED, LOADED,GLOBAL, GROWTH FUND –INDEXED, NO-LOAD, MID-CAP, US FUND QQQ - NASDAQ 100 (highest capitalization) DIA - DOW JONES 30 INDUSTIAL STOCKS SPY - STANDARD & POORS 500 STOCKS (top 500 stocks by capitalization)

34. 34 BUYING STOCKS, BONDS OR MUTUAL FUNDS BUY STOCKS AND CORPORATE BONDS THROUGH A STOCK BROKER – ONLY PEOPLE LISENCED BY THE STOCK EXCHANGES CAN SELL STOCKS AND CORPORATE BONDS BUY GOVERNMENT BONDS THROUGH BROKERS OR FROM THE GOVERMENTS BUY MUTUAL FUNDS THROUGH BROKERS OR DIRECTLY FROM THE FUNDS.

35. 35 COST OF BUYING STOCKS AND MUTUAL FUNDS THE MORE STOCK YOU BUY AT A GIVEN TRANSACTION THE LESS YOU PAY THE BROKER FEE ($/SHARE) NOT ALL BROKERS CHARGE THE SAME FEES YOU PAY A BROKER FEE WHEN YOU BUY OR WHEN YOU SELL BUYING MUTUAL FUNDS THROUGH A BROKER IS JUST LIKE BUYING STOCKS. BUYING NO LOAD FUNDS WITHOUT A BROKER IS VERY COST EFFECTIVE.

36. 36 COSTS OF HOLDING MUTUAL FUNDS MUTUAL FUNDS CHARGE A YEARLY FEE FOR RUNNING THE FUND FEES VARY WITH EACH FUND HIGHLY MANAGED FUNDS CHARGE MORE THAN INDEX FUNDS CHARGES VARY FROM 0.5% TO 2.5% OF YOUR HOLDINGS

37. 37 REAL ESTATE REAL ESTATE CAN BE A GOOD INVESTMENT –BUY A HOUSE TO RENT –RENT IT- YOUR RENTERS PAY FOR THE HOUSE –TAKE DEPRECIATION OFF YOUR TAXES –WHEN YOU SELL IT - IT’S A CAPITAL GAIN

38. 38 REAL ESTATE BEING A LANDLORD CAN BE A PAIN –YOU MUST MAINTAIN THE PROPERTY –RENTERS DO NOT ALWAYS PAY THE RENT –RENTERS CAN RUIN THE PROPERTY –FINDING NEW GOOD RENTERS IS DIFFICULT

39. 39 CONCLUSION INVEST FOR YOUR RETIREMENT INVEST FOR YOUR INCOME INVEST FOR YOUR FUTURE INVEST