WHY INVEST IN STOCKS?

Transcription

1 WHY INVEST IN STOCKS? Carol Theine PRESIDENT, PUGET SOUND CHAPTER Avi Horwitz DIRECTOR, NEW YORK & ALASKA CHAPTERS & BETTERINVESTING VOLUNTEER ADVISORY BOARD Disclaimer: All stock references are meant to be used for educational purposes. No recommendation for purchase or sale is intended or implied. 2 1

2 FINANCIAL FREEDOM What does it mean? Some examples Travel anywhere, anytime Help the grandkids Eat steak and sip good martinis Not worry about emergencies 3 WANTS AND NEEDS Travel Dining out New car every three years Charitable contributions Plastic surgery Gasoline Health insurance Pay bills on time Property insurance Prescription drugs Food 4 2

3 SET GOALS Determine what is important to you Determine which are short-term goals and which are long-term 5 DO YOU HAVE A PLAN? Strike oil from a well Pick the winning numbers Knock off a rich uncle Get adopted by Warren Buffett or Bill Gates Develop a budget Invest for the future Fund your IRAs, 401Ks and Pensions Collect Social Security 6 3

4 ARE YOU IN CONTROL? Lottery Inheritance IRA 401K Savings Account Savings/Corporate/Municipal Bonds Stock Portfolio Social Security 7 WHATEVER YOUR PLAN, PAY YOURSELF FIRST! INVEST IN YOUR FUTURE! 8 4

5 Let s pause for some questions! 9 Which would you take? A million dollars or one cent doubled each day for 30 days? 10 5

6 COMPOUNDING Day 1 $.01 Day 2 $.02 Day 3 $.04 Day 4 $.08 Day 5 $.16 Continue this pattern for 30 days 11 Day 29 $2,684,355 Day 30 $5,368,709 What was the growth rate? 100% compounded daily 12 6

7 Fifteen percent over five years doubles your money! 1.Take your calculators and start with $ Multiply by 1.15 to see the value after one year at 15% annual compounded growth. 3.Do this four more times to see the value at the end of five years! 13 $100 x 1.15 = $115 at end of Year 1 $115 x 1.15 = $132 at end of Year 2 $132 x 1.15 = $152 at end of Year 3 $152 x 1.15 = $175 at end of Year 4 $175 x 1.15 = $201 at end of Year 5 HERE S THE NUMBERS! Is there a quick way to determine how long it takes to double your money? 14 7

8 RULE OF 72 Divide 72 by the growth rate you desire. The answer is close to the time it will take to double your money. 72 divided by 15 gives you divided by 12 gives you 6 15 LET S CHECK... $100 X 1.12 = $112 at end of Year 1 $112 X 1.12 = $125 at end of Year 2 $125 X 1.12 = $140 at end of Year 3 $140 X 1.12 = $157 at end of Year 4 $157 X 1.12 = $176 at end of Year 5 $176 X 1.12 = $197 at end of Year

9 How long will it take to double your money at 11%? Did you get about 6.5 years? (72/11 = ) 17 Let s pause for some questions! 18 9

10 WHAT GENERATES THE BEST RETURNS? Passbook Savings Savings Bonds Common Stocks Real Estate Gold Collectibles 19 Here s how some of the financial asset classes stack up. All asset classes begin in 1925 with a value of $

11 Since 1941, the average total return for the S&P 500 index has been 12% If common stock is the best investment over the long term, what is the potential risk? 21 Yearly Returns (S&P 500) Since

12 Five-year Blocks of Time Since 1945, the majority (83%) of 5-year annualized returns have been between 0% and 20%. The 5-year returns for the years ending and 2008 have been historically unusual. So was 2000! History suggests that we can expect better from a long-term perspective Year Blocks of Time POSITIVE RETURN NEGATIVE RETURN 2009 There are only two negative numbers on this chart! 24 12

13 Let s pause for some questions! 25 CONVINCED? 26 13

14 INVESTING STYLES STYLES Technical Fundamental Speculative People make money using all of these styles! 27 INVESTING STYLES ORIENTATION Value Income Growth People make money using all of these orientations! 28 14

15 KEYS TO SUCCESS Pick a style Learn the discipline Practice Practice Practice Maintain the discipline Do not jump from style to style to style 29 BetterInvesting 60 years of experience Growth at a Reasonable Price (GARP) investing Goal oriented Aim to double your money every five years 30 15

16 BetterInvesting Method Sleep-at-Night Investing Long-term Generally, aim to hold a stock at least five years Conservative Purchase companies with consistent history of growth and quality 31 BetterInvesting The BetterInvesting Stock Selection Guide is our key to evaluating and purchasing stocks Provides a method to evaluate the quality of a stock Uses your judgment to determine whether the stock is a BUY at today s price Calculates potential compounded annual return for next five years 32 16

17 BetterInvesting Principles 1. Invest Regularly 2. Reinvest all Earnings 3. Invest in Quality Growth Companies 4. Diversify 33 BetterInvesting encourages investment clubs: Meet and invest on a regular basis Share the responsibility for stock studies Provide support and education for investors of all levels 34 17

18 Let s pause for some questions! 35 Future Webinars Understanding the Jargon Monday, October 4, 2010, 8:30 PM to 9:45 PM EDT Introduction to the Stock Selection Guide 5 sessions on Mondays, 8:00-10:00 PM EDT Selecting the Best Companies Oct 18 Determining a Fair Price - Nov 1 Estimating Future Growth Nov 15 Estimating Future P/Es Dec 6 Review/Q&A Wrap-up Jan 10 $40 for the entire series for BI members, $60 for non-members Recordings available 36 18

19 37 Learn More Chapter Classes Webinars Online Stock Studies Online Tools National and Regional Investor Conferences

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