investing.ppt

Investing in the Stock Market

The stock market is often compared to

gambling.

The stock market is actually a lot more like

gardening.

Planting

Growing

Harvesting

Damage Control

And maybe more

damage control

Creativity

Money is the language of cooperation.

http://www.luthersem.edu/images/home/Student_group_holding_hands2.jpg

http://www.luthersem.edu/images/home/Student_group_holding_hands2.jpghttp://elver.cellosoft.com/Milton_Friedman.jpg

Milton FriedmanEconomist, University of

Chicago

Free markets allow thousands of people

to cooperate in making an ordinary

pencil.

Social Impact of Social Impact of InvestingInvesting

How do companies use the money you invest?

How does this affect ordinary people?




expand existing businessesstart new businesses




expand existing businessesstart new businesses

creates more jobscreates higher-paying jobs

Open a Roth IRA

But how do I do it?But how do I do it?

Buy shares of SSO

do it right now, takes 10 minutes

once a year, just 10 minutes(once a month is even better!)

How hard is it to set up a Roth IRA?

• Go to office of a discount stock broker

• Fill out a form to open a Roth IRA account

• Give them $500 to put in your account

Opening Opening your Roth your Roth

IRAIRA

• Go to office of a discount stock brokercan also do this on-line, if you like

• Fill out a form to open a Roth IRA account



IRAIRA

• Go to office of a discount stock brokercan also do this on-line, if you like

• Fill out a form to open a Roth IRA account• takes about 10 minutes• they give you an account number and password



IRAIRA

Discount stock Discount stock brokers are very brokers are very

differentdifferent

Charles Schwab

TD Ameritrade

E*Trade

Fidelity

Fee per purchase

Scottrade $7

$13

$10

$13

$20

$500

$1,000

No minimum

$1,000

No minimum

Minimum amount you may invest

http://scottrade.com/online_broker_comparison/discount_brokerage_comparison.asp

Scottrade is the cheapest right now– only $7 fee for each purchase– only $500 minimum is needed to invest– as fast as opening a checking account

Roth IRARoth IRA

Roth IRARoth IRA

Instead of choosing this box for an individual account…

Roth IRARoth IRA

Choose this box for a Roth IRA account

Roth IRARoth IRA

Choose this box for a Roth IRA account

and write in “Roth” on this line

• Account number• Password• Deposit slip for your $500

What you What you get get

Open a Roth IRA

But how do I do it?But how do I do it?

Buy shares of SSO



Cash $500

Total Account Value $500

Your new Roth IRA: The Next Day

SSO costs $70 for one shareYou buy 7 shares for $490Fee is $7 for the SSO purchase

Cash $500


Your new Roth IRA:

Buy SSO


Cash $500


Your new Roth IRA:

SSO – 7 shares $490

Cash $3


After SSO purchase:

Buy SSO


Cash $500


Your new Roth IRA:


Cash $3


After SSO purchase:


Cash $3


Five years later: Five years pass

WOW!!!

TimeTime

TimeTime

We usually just think of time as We usually just think of time as something that turns young people something that turns young people

into old people.into old people.

In your job, In your job, YOUYOU do all the work.do all the work.


In the stock market, In the stock market, TIMETIME does all the does all the

work.work.

but only if you turn on the

faucet



work.work.

1. Open a Roth IRA2. Buy shares of SSO



work.work.

But how do I get

my money back?

But how do I get

my money back?

Easy - go to broker’s office & ask them for a cashier’s check.

For larger accounts, they even give you a regular checkbook, just like an ordinary checking account.

Open a Roth IRA

Two Easy StepsTwo Easy Steps

Buy shares of SSO



Why is SSO asimple, safe strategy for beginners?

1950

Now

Combined Share Prices of the Biggest 500 Companies (S&P500)

The basic direction of the US stock market is

overwhelmingly upwards

http://finance.yahoo.com/q/bc?s=%5EGSPC&t=my&l=on&z=l&q=l&c=

SSOSSOstock pricestock price

General General MotorsMotors

SSOSSO• combination of the largest 500 U.S. companies

• stock price has risen at 14.8% per year 14.8% per year for 50 years

19621962 NowNow

http://finance.yahoo.com/q/bc?t=my&s=GM&l=on&z=l&q=l&c=&c=%5EGSPC

When you buy SSO, your only risk is that the entire United States economy will continue to succeed as it has for 200 years.

crash of crash of 1973-19741973-1974

What about What about stock market stock market

crashes?crashes?

crash of crash of 19871987

crash of crash of 20002000

still still haven’t haven’t

recovered!recovered!

SSOSSOstock pricestock price

http://finance.yahoo.com/q/bc?t=my&s=GM&l=on&z=l&q=l&c=&c=%5EGSPC

When you buy SSO every When you buy SSO every year, crashes average out year, crashes average out quickly.quickly.

http://finance.yahoo.com/q/bc?t=my&s=SPY&l=on&z=l&q=l&c=

Purchases in later years are much cheaper

Suppose you started buying SSO at the worst possible time

March 24, 2000

When you buy SSO every When you buy SSO every year, crashes average out year, crashes average out quickly.quickly.

http://finance.yahoo.com/q/bc?t=my&s=SPY&l=on&z=l&q=l&c=

Of the last 8 purchases, Of the last 8 purchases, 7 are already profitable7 are already profitable

Price todayPrice today

Suppose you started buying SSO at the worst possible time

March 24, 2000

Buy SSOSSO on your birthday

each year.

http://www.americangirlplace.com/images/chi/pkgs/img_chi_pkgs_party.jpg

Buy SSOSSO on your birthday

each year.

http://www.americangirlplace.com/images/chi/pkgs/img_chi_pkgs_party.jpg

once a month is even better!

Is there abetter strategy

than SSO?

EEMEEM stock price is increasing at 36%36% per yearSSOSSO Standard & Poor’s 500 Index Fund (Ultra)

- largest 500 U.S. companies

EEMEEM Emerging Markets Index Fund (iShares ) - large companies outside the U.S.

http://finance.yahoo.com/q/bc?s=SPY&t=my&l=off&z=l&q=l&c=eem,iws

SSOSSO stock price is increasing at 14.8%14.8% per year

SSOSSOThe 500 largest US companiesThe 500 largest US companies

Exchange Traded FundsExchange Traded FundsEach is a group of similar stocksEach is a group of similar stocks

Individual Individual CompaniesCompanies

SafestSafest

RiskiestRiskiestChoosing Your Choosing Your Risk LevelRisk Level




SafestSafest


Just onechoice!




SafestSafest


Just onechoice!

600 choices




SafestSafest


Just onechoice!

600 choices

8000 choices

Exchange Traded Funds

(ETFs)An ETF is a group of related stocks

SSOSSOUltra S&P500 ETFUltra S&P500 ETF


Includes many different

companies


Includes 500 different

companies

Diversified across many sectors

IYEIYEEnergy ETFEnergy ETF



companies



companies

Nearly all are in the energy sector

Why is a Why is a Roth IRA Roth IRA the best the best kind of kind of accountaccount

??

• typical old-style pension plantypical old-style pension plan

• 401(k) plan401(k) plan

• Roth IRARoth IRA

• Roth 401(k)Roth 401(k)

Retirement BasicsRetirement Basics

• typical old-style pension plantypical old-style pension plan– you get exactly $3000 per month until you die– amount never rises (worth 3.4% less 3.4% less each year)

• 401(k) plan401(k) plan





• 401(k) plan401(k) plan much better– you may invest the money, get 14.8% more14.8% more each

year– some employers makesome employers make matching contributionsmatching contributions– but you still have to pay taxbut you still have to pay tax




Ted Benna

401(k) Retirement 401(k) Retirement PlanPlan

https://www.expertplan.com/images/tedbenna2.jpg

• Your best deal if your employer makes a large matching contributionmatching contribution

• Some employers put $50 into your 401(k) account for every $100 you put in

• Basically like getting 50% interest, an incredible deal

401(k) Retirement 401(k) Retirement AccountsAccounts


• 401(k) plan401(k) plan much better– you may invest the money, get 14.8% more14.8% more each

year– some employers makesome employers make matching contributionsmatching contributions– but you still have to pay taxbut you still have to pay tax



Some Brief HistorySome Brief History


• 401(k) plan401(k) plan much better– you may invest the money, get 14.8% more14.8% more each year– some employers makesome employers make matching contributionsmatching contributions– but you still have to pay taxbut you still have to pay tax

• Roth IRARoth IRA also better, but unlike 401(k)– you may invest the money, get 14.8% more14.8% more each year– employer not involved,employer not involved, no matching contributionsno matching contributions– you pay no taxyou pay no tax



• you pay NO TAXNO TAX on Roth IRA• you can only contribute $4000 per year• start receiving retirement pay at age 60• no penaltyno penalty for early withdrawal

– but pay 15% capital gains tax on any increases

Roth IRARoth IRA

William V. Roth, Jr.U.S. Senator,Delaware

http://www.sussexcountyonline.com/campaign2000/results/images/roth.jpegwww.fairmark.com/rothira/roth101.htm

Roth Individual Retirement Account -1998Roth Individual Retirement Account -1998

• Deposit $4000 into a Roth IRA in 2007– Invest the $4000 in a good stock (like SSO)– Stock price increases 10% by 2008 ($400)

• Roth IRA is worth $4400 in 2008– you lose your job, and you need money– withdraw the entire $4400 to live on– pay 15% tax on $400 increase ($60 pay 15% tax on $400 increase ($60

tax)tax)– you have $4340 left to live on

15% Capital Gains Tax15% Capital Gains Tax


• 401(k) plan401(k) plan much better– you may invest the money, get 14.8 % more14.8 % more each year– some employers makesome employers make matching contributionsmatching contributions– but you still have to pay income tax each yearbut you still have to pay income tax each year

• Roth IRARoth IRA also better, but unlike 401(k)– you may invest the money, get 14.8 % more14.8 % more each year– employer not involved,employer not involved, no matching contributionsno matching contributions– you pay no taxesyou pay no taxes




• 401(k) plan401(k) plan much better– you may invest the money, get 14.8 % more14.8 % more each year– some employers makesome employers make matching contributionsmatching contributions– but you still have to pay income tax each yearbut you still have to pay income tax each year

• Roth IRARoth IRA also better, but unlike 401(k)– you may invest the money, get 14.8 % more14.8 % more each year– employer not involved,employer not involved, no matching contributionsno matching contributions– you pay no taxesyou pay no taxes

• Roth 401(k) Roth 401(k) best of both! (new 2006)


• Open a Roth IRA

• Buy shares of SSO

ReviewReview

• Open a Roth IRA– Go to office of a discount stock broker

• can also do this on-line, if you like


ReviewReview



– Fill out a form to open a Roth IRA account• they give you an account number and

password


ReviewReview




password

– Give them $500 to put in your account


ReviewReview




password

– Give them $500 to put in your account

• Buy shares of SSO– Go to WWW & log into new Roth IRA– Buy shares of SSO with your $500

ReviewReview

http://images.amazon.com/images/G/covers/0/45/116/520/0451165209.l.gifhttp://www.edicionesobelisco.com/portadas/3717.jpg

http://www.pragma.cz/files/2f24f9b0ed5a310f5fab5bf90ff65bb6.jpgwww.buch-des-tages.de/ Archiv/20020707.htm http://www.qbooks.com.tw/C_qbooks/book_pic/BIIXXC100004.jpg

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90%

10%

Save or invest 10% of each paycheck as soon as you’re paid.

Then pay your new bills.

Pay yourself first.

My job at Quizno’s doesn’t pay that much.– shouldn’t I wait until I get a real job?

But I’m just a But I’m just a kid.kid.



No. You need actual practice in investing.


I already have a lot of student loan debt– shouldn’t I pay that off first?




I already have a lot of student loan debt– shouldn’t I pay that off first?



No. You need to invest even when you’re in debt.

20%

70%

10%

Then pay your new bills.

Use the next 20% of each paycheck to pay a portion of your debt.

What if I’m in debt?Save or invest 10% of each paycheck as soon as you’re paid.

Pay all credit card Pay all credit card debt firstdebt first

www.best-credit-card-deals.com/images/best-credit-card-deals.jpg

• your absolute highest priority• credit card interest is ridiculous, often 20%

GivinGivingg

• get started now

• it’s important to practice giving, even when you don’t have much

Jennifer Thompson 123-45-67893 Jan 08 sisterx x 100

If you die, when your new baby sister turns 60, she’s already a multimillionaire

TAX-FREE

American Red CrossFEIN

123-45-6789charitabl

e foundati

on

xx 100

If you die, your favorite charity gets a million

dollars

CSU Student CSU Student Investing ClubInvesting Club•every Monday•6 PM•Rockwell Hall, Room 119

You will not be spending any money!

Further Further ReadinReadin

gg

investing.ppt

Economy & Finance

Transcript of investing.ppt