Basics of Investing

Presented by: Patrick Leonard

February 5, 2021

Saving vs. InvestingBoth are needed for a balanced financial future and long-term wealth.

Saving Investing

When do you need the money?(Time horizon)

Within the Next Few Years (Now to 3 yrs) Longer term (3+ years)

What if I need to get the money quickly? (Liquidity)

Use this Don’t use this

Are there expensive fees involved? Not usually. Very inexpensive. Can be. Transaction costs, brokerage costs, taxes.

Can I lose my money?(Risk of loss)

Very unlikely. FDIC-insured up to $250,000. Possibly could lose some or all of it. Relatively higher risk

How much can I make? (Return) Relatively low return Potentially higher return

Will it beat inflation? Not always. Could lose purchasing power. Very likely better return than inflation.

Typical Products Checking accounts, Savings accounts, Money Market Accounts, Certificates of Deposit (CDs)

Stocks, bonds, mutual funds, index funds, exchange traded funds, real estate, private equity

When to Save vs. Invest

Emergency Fund

Buying a First HouseBuying a Car

Sending Your Kids to College

Retirement

Paying Your Bills

S a v e

I n v

e s t

It’s never too early to start doing either one.

Risk vs. RewardTo take on additional risk, an asset must offer you a higher reward, or why would you take it?

Growth Investments: Aggressive Mutual Funds, Individual Growth Stocks

Balance for Growth

Relatively Safe Investments: Blue Chip or Dividend Stocks, Inflation-Indexed Mutual Funds

Buy and Hold

Safest Investments: Treasury Bills, Money Market or Checking Accounts

Use for savings

High Risk Investments:Day Trading, Commodities,

Foreign CurrencySpeculation

Risk

Reward

Investments to ConsiderEquity Investment: I own a piece of a company, but I’m not guaranteed a return

Investment Definition Examples Pros / Cons

Individual Company Stock Shares of a single individual company

Netflix - NFLX, Coke - KO, Tesla - TSLA

Riskier than mutual funds, potential for higher return, opportunity for dividends

Mutual Funds A prescribed group of stocks Vanguard Growth 100, Fidelity Stable Income

Lower risk than individual stocks, managed by a professional money manager, higher cost than individual stocks

Index Funds A piece of all companies in an entire stock market segment

S&P 500 - SPY, NASDAQ - QQQ

Usually less risky than other mutual funds, usually lower cost. Set it and forget it.

Debt Investment: I’m lending money for a specific expected return

Treasury Bonds A loan to the federal government, maturity from 10 to 30 years

10 year T-Bond20 year T-Bond30 year T-Bond

Safe and secure, but don’t return much

Municipal Bonds A loan to a city or county government

Often used to fund new construction projects (airports, stadiums)

Usually return more than Treasury bonds

Corporate Bonds A loan to a specific company, used for them to raise capital.

GOOG AAA Can return more than municipal bonds. Look at investment rating (AAA, A+, B+), Beware of junk (high yield) bonds.

Should you invest in individual stocks?Do you want to do your own research and your own trading?

Open a brokerage account and hire a registered investment advisor.

Do you have time to check stocks at least a few times per week?

Are you comfortable with the fluctuation of individual stocks?

Do you think you can beat the market?

Open a brokerage account.Research mutual funds.Invest in a diversified portfolio of low cost funds.

Try your hand at picking stocks with no more than 10% of your total portfolio.

Yes

Yes

No

No

Rules of thumb for investing in stocks

1. If you’re a new investor, start out by investing in index funds or mutual funds to keep your portfolio diversified and reduce risk while you learn more.

2. Keep your emotions in check to be a successful investor.

3. Have an investing routine.

4. Separate facts from opinions and hype.

5. Preserve your principal. Investing is closer to gambling than saving.

6. Have buy and sell rules, beyond buy low, sell high.

7. Invest based on your risk tolerance.

Stock picking is not a science1. Look at the company’s financials

a. Is the company making money, growing every year?

b. Does the company have a lot of debt?

c. Is the stock a good value relative to its competitors?

2. Look at the charts

a. More on stock charts on the next slide.

3. Look at the news and the broader market

a. What do analysts think about the company?

b. Has the company had any big headlines recently? Acquiring or being

acquired? Leadership changes? A new product or partnership?

c. Is the market volatile, or inflated?

d. Is the economy volatile? Is unemployment high?

Basics of Reading Stock Charts● Where to find stock charts?

○ Yahoo Finance (finance.yahoo.com)

○ Google Finance (finance.google.com)

○ Wall Street Journal (wsj.com)

○ Investors Business Daily (investors.com)

● Stock charts tell a story○ The more of the chart that you read, the more of the story you know.

○ The story is subjective and interpreted differently by everyone, based on your

investment horizon/duration

● Reading stock charts is just the tip of the iceberg of technical analysis

● Past performance doesn’t correlate to future indications on price

Sample Charts: Amazon and Gamestop

Use your trend line as a first-glance, high-level indicator of something to look into

Look for lines of support and resistance - bumpers at a bowling alley

Understand historic trading volumes. Usually trading volumes increase when there is major news (good or bad) about the company.

Look at moving average lines - 10, 50, 200 day averages to look for further evidence of support or resistance.

Planning for Retirement

Asset / Account Pros Cons How to Invest

401(k) Can be automated and/or self-directed investingGet your company’s matchTax-free contributions

Beware of costsCan only invest up to $19,000 per yearTaxed on withdrawals

Open an account through your employer. Usually can open within 90 days.

Individual Retirement Account (IRA)

As many investing options as your broker allowsTax-free withdrawals

Only contribute up to $6,000 per year

Open an account through a broker. Can open at 18.

Social Security A good safety net to prevent poverty Low return compared to other investments

Automatically contribute through your employer

Pension No contribution required Very rare to get these days Through your employer if offered

Other Assets (Gold, Commodities, Rental property, etc.)

Good way to diversifyMay appreciate faster than other asset classes

Often unpredictable returns Open an account with a broker. Buy and maintain rental property.

Don’t rely on your employer, your house, or the government for your retirement. Take retirement into your own hands using any of the following accounts.

Online Brokerage Account AlternativesBroker Pros Cons Acct. Min.

Good for goal-based, passive investingAllows ETF investing

Low-fee (.25% annually), not no fee.Roboadvisor, automatic allocation

$0

M1

FreeSelf-directed, not robo allocationHand-holdingGood for passive, long term investing

Not as fast to execute trades as Robinhood

$100

Robinhood

Free to tradeGood mobile interface

Not a full-service platform. Few analysis tools. Only offers taxable accounts (no IRA). Only trade stocks and options.

$0

Robinhood Gold

Enables pre and post market and margin tradingBetter analytics than free Robinhood

Costs a fee to trade $2,000

Can trade in stocks, options, futures, mutual funds, bonds and cryptocurrency

Not free to trade. Has s confusing price structure.Cluttered layout

$0

These are only a few of many online brokers available.

Go with a full service brokerage if you want the help of a broker.

Your most important investment: You

Education + Experience = Income

Larger Income = More opportunities to save and invest

More Saved and Invested Earlier = More Wealth Later

Take a risk on yourself and invest in your education!

Where can I learn more?

● Wisebread.com - Personal finance blog. Lots of topics.

● Kiplingers.com - Personal finance magazine.

● Investopedia.com - Basics of investing

● Investors Business Daily - Investors.com - Leading source of stock research

● Wall Street Journal - wsj.com - A leading publication about business news and investments

Questions?

Thank you