1. 1 Roadmap for Investing Wisely Leslie Lum llum@bcc.ctc.edu www.bellevuecollege.edu/financialeducation

2. 2 The Roadmap Save Focus on financial goals Understand returns Understand risk Evaluate and asset allocation Monitor your investments

3. 3 You are the “influencers” Many of you can directly benefit from this presentation Many of you have successfully navigated the financial journey We need you to be the “influencers” of those around you

4. 4 Rule #1: You can make more money saving aggressively than you can investing aggressively.

5. 5 How much does a typical family make?

6. 6 What happens to your income over your life?

7. 7 How are we doing at savings?

8. 8 Could we save more?

9. 9 Rule #2: If you don’t have goals, you won’t achieve them.

10. 10 Lay out your goals (Yours/your kids/your grandkids) Down payment on house Wedding College tuition Starting your own business Retirement Estate (Inheritance or charity)

11. 11 Rule #3: Know how to measure returns (it will make you less susceptible to fraud.)

12. 12 Returns Always calculate returns on an annualized basis

13. 13 Calculate the return You will get your paycheck next week but you need $100 now. You arrange for a payday loan paying a fee of $15 for the use of $100. The payday loan company will collect the $100 electronically from your bank account when your pay check is deposited next week. What is the annual rate charged?

14. 14 Calculate the lost return You are a typical employee in your 20s who when you left your job in 2005 cashed out (66% do) your 401K account of less than $10,000. What is the cost of cashing out your account if your balance was $8000?

15. 15 Rule #4: Understand risk

16. 16 Investment Risks Market risk Business risk Interest rate Inflation risk Political risk Fraud risk

17. 17 Cash

18. 18 Bonds

19. 19 Stocks

20. 20 Lessons to learn: If you want a higher return, you need to invest in riskier assets (stocks) The more return, the more risk. 322% gain guaranteed? Only if 322% loss guaranteed! Return versus Risk

21. 21 Given the same return, the investment with less risk is better

22. 22 The Northwest is the best. www.riskgrades.com For advanced analysis of risk return

23. 23 How do you get both a good return and low risk?

24. 24 Risk of loss in stocks is high year to year

25. 25 Over 5 years, risk of loss is lower

26. 26 Over 10 years, risk of loss is small

27. 27 Buy low, sell high or Buy high, sell low? Source: John Bogle testimony to US Senate 11/3/03

28. 28 Lesson? Buy and hold market index funds (doesn’t work for individual stocks) Have an emergency fund (3 to 6 months) to tide you over Have other sources of income so you don’t have to cash out during down markets

29. 29 Rule #5: Asset allocate

30. 30 All eggs in one basket? 34.6 percent of families had stock in only one company 59.5 percent had stock in three or fewer companies 9.5 percent had stock in fifteen or more companies Source: 2004 Consumer Finance Survey

31. 31 Two investments – double risk? The key is having two investments which aren’t correlated.

32. 32 Adding a riskier investment to your portfolio

33. 33 If you allocate the right amount you reduce risk and increase return!

34. 34 Pension Fund Portfolio

35. 35 “Millionaires” Portfolio

36. 36 401K Allocations by Age Source: Investment Company Institute

37. 37 Lessons learned Don’t try to time the market Allocate between asset classes based on your income requirements, your financial goals and your time horizon Ladder your fixed income investments Rebalance your portfolio (at least annually) to sell at highs and buy at lows

38. 38 Rule # 6: Always watch your money.

39. 39 Evaluating funds Fund company/manager reputation Fund expenses Past performance (asset class) Fund risks For information, check out www.morningstar.com

40. 40 Use indices to monitor your portfolio

41. 41 Investment Advice According to the Consumer Federation about one-third of mutual fund investors rely completely on their advisors to choose investments and do not read about or research their investments Is this good?

42. 42 Spend time and take care in choosing your advisor Read all your statements, keep good records, and check for errors Only invest in what you understand (Warren Buffet rule #1) Assess your portfolio at least once a year against your cash requirements, financial goals and time horizon Investment Advice

43. 43 The Roadmap Save Focus on financial goals Understand returns Understand risk Asset allocation Monitor your investments