Investor Education. Index. Investor Education. Investor Education Page 2. Financial Education - High School Level Page 3

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1 Index Investor Education Page 2 Financial Education - High School Level Page 3 Investor Education July 2018 Investor Education Investor Education is Critical to reach your Financial Goals Wealth gives you Freedom and Control of your Life Setup an Auto-Investment Plan to Invest on a Regular Basis in Bull and Bear Markets Create a Diversified Portfolio with the Proper Asset Allocation Purchase Quality Investments Manage your Portfolio Properly PDM Investment Services, LLC A Registered Investment Advisor 5131 Standish Drive, Troy, Michigan * * info@fginvestor.com For complete disclosure see our website Wealth Building Books Page 5 Stock Market Books Page 6 Investment Strategy Books Page 7 Portfolio Design & Asset Allocation Books Page 8 Mutual Fund & Stock Selection Books Page 9 Investor Advisor Books Page 10 Second Career Job Books Page 11 Self-Improvement Books Investment Newsletters Financial and Investment Websites Page 12 Investor Organizations & Clubs Page 12 Newspapers and Magazines College Training Beginner Level Book Review Page 14 Personal Finance and Financial Planning Moderate Level Book Review Page 16 Investing, Investment Plans and Advisors Investor Terminology Page 17 Taxes on Investments Page 19 Cyber Security Page 20 1

2 Investor Education Investor education is critical to reach your financial goals. Wealth gives you freedom and control of your Life Career knowledge is important to produce a good income stream to pay living expenses and feed your investment plan. Financial knowledge is important to help you to grow your assets and not waste away your hard earned money. Financial knowledge includes accounting, investing, markets and taxes. Accounting teaches you about income statements, balance sheets, taxes, profits and losses. Investing teaches you about compounding returns, investment vehicles, diversification, risk and investment strategies. The market teaches you about supply and demand, economics, technical analysis, fundamentals and emotions. Financial intelligence improves your odds of financial success. It is up to you to learn financial knowledge from family, friends, books, investment newsletters, classes, advisors and other successful people. Learn from the poor what not to do, and the rich what to do. The poor spend their money foolishly, the middle class spend their money on liabilities, and the rich invest and build assets. Avoid the temptation of consumer spending debt. Do not buy more house then you need. Larger houses mean higher interest payments, taxes, insurance, utilities and maintenance. Setup an automatic savings plan to distribute your paycheck between your checking account to pay expenses and your investment accounts. 2

3 Financial Education - High School Level Key areas of discussion College, Career and Income Spending Saving Investing Debt Taxes Insurance My children took the Troy Schools financial class. Financial classes in high school are becoming mandatory in most states. They learned the basics of finance and did mock exercises like planning a wedding, buying a car, buying a house, buying a stock and budgeting. We as parents, helped them with their finance projects and shared our views. We used real life examples of what to do and what not to do and why. Keep in mind that many parents do not have good financial skills. College, Career and Income Discussion of each child s individual talents and interests with parents, grandparents and councilors. Discussion of each career they are interested in and the value proposition of college. Are you taking the correct high school classes to support your college plans? Are your high school and college jobs supporting your chosen career? College costs, funding and student loan limits should be discussed. Calculation of college return-on-investment. The truth about sports scholarships and long shot carriers in sports and entertainment. Discussion of why a career selection and college environment should drive your college selection. Trade school or 4-year college? Job demand and expected salaries should be discussed. Will your career support $5,000 per month spending expectations enabling you to live in a good school district? 3

4 Financial Education - High School Level Spending Discussion of what it really costs to live in a house in a good school district. Budgeting and balancing a checkbook. Prioritize saving over spending, plan savings first then adjust your budget for what you have left. Live within your means with a modest home and car. Vacation homes and boats are not typically good investments. Do not buy more house than you need. The house you live in is more of a liability than an asset. A large home mean high interest payments and high taxes, insurance, utilities and maintenance. Saving No matter what your income and spending levels are, you should always put some money aside for emergencies, large purchases and investments for retirement. You should automatically be contributing to your 401(k) from each paycheck in bull and bear markets. The money is taken out tax free before you even see your paycheck. After your investments are made you use the rest for spending, a savings controlled budget. Do not try to time the market or your returns will likely suffer from poor emotional decisions. Contribute enough to your 401(k) to get at least the full match. Review your 401(k) plan for savings, investments and performance at least annually. Investing Basic understanding of a money market account, CD, bond fund, stock and mutual fund. Debt Debt management. Credit card management. Pay off credit card balances each month. Pay off high interest loans first. Maintain a good credit rating to get lower interest loans. Taxes Do their taxes with them for a few years then let them try on their own using last year s return. All children need to learn how to do taxes at first when they are simple. Insurance Discussion about car, home and life insurance and their needs. 4

5 Wealth Building Books The Wealthy Barber David Chilton Millionaire Next Door Thomas Stanley Learn from the wealthy. Beginner s guide to financial planning. Learn from the wealthy. Ordinary people financial independence. I Will Teach you to be Rich Beginner s guide to financial planning. Easy read for ages Ramit Sethi Rich Dad Poor Dad Robert Kiyosaki Simple Wealth Inevitable Wealth Nick Murray The Only Guide You ll Ever Need for the Right Financial Plan, Managing Your Wealth, Risk and Investments Larry Swedroe It s About More Than the Money Saly Glassman The Education of Millionaires Michael Ellsberg How to be Richer, Smarter and Better-Looking-Than Your Parents Zac Bissonnette Think and Grow Rich Napoleon Hill Financial Planning Handbook Charles Chaffin First Time Investor Grow and Protect your Money Paul Merriman Learn from the experts by associating with smart people. Financial planning, investments and investment advisors. Financial planning, investments and investment advisors. Financial planning, investments and advisors. Self-education for career success. Financial planning and avoiding bad advice. A study of traits of great minds like determination and self-control. CFP Board financial planning competency handbook Financial planning, investing, asset allocation. 5

6 Stock Market Books 101 Years on Wall Street Good stock market and economic summary each year. John Brown Market Logic Norman Fosback Strategic Investment Timing Dick Stoken Winning on Wall Street Martin Zwieg Yes, You Can Time the Market Ben Stein Probable Outcomes Ed Easterling This Time Is Different - Financial Crises Carmen Reinhart The Inefficient Stock Market Robert Havgen Predicting the Markets of Tomorrow James O Shaughnessy A Random Walk Down Wall Street Burton Malkiel Being Right or Making Money Ned Davis The Brainwashing of the American Investor Steven Selengut Stock market indicators and equity selection. Economic cycle analysis. Market timing indicators and equity selection. Long-term market timing. Buy at secular bear market lows. Future stock market return expectations and secular trends. List of past crisis and bubbles. Stock market pricing models. Mean-reversion, valuations and asset classes. Efficient market theory and the random market. Market timing model and indicators. Investment firms and banks taking advantage of the uninformed investor. 6

7 Investment Strategy Books What Works on Wall Street James O Shaughnessy The Triumph of Contrarian Investing Ned Davis The Most Important Thing - Illuminated Howard Marks Valuing Wall Street Andy Smithers \ The Warren Buffett Way Robert Hagstrom Warren Buffett Speaks Janet Lowe One Up on Wall Street Peter Lynch Beating the Street Peter Lynch The Ivy Portfolio Mebane Faber The Only Three Questions That Count Kenneth Fisher Finding Alpha Eric Falkenstein The Quest for Alpha Larry Swedroe Winning at Active Management William Priest The Warren Buffett s Next Door Matthew Schifrin Navigate the Noise Richard Bernstein A list of stock screen variables and their past performance. Using investor sentiment to time the market. Essential elements of investment success. Strategy, valuation, risk, psychology and cycles. Protecting wealth in turbulent markets. Tobin Q indicator. Outline of his career. Investment techniques and methods. Warren Buffett strategies and lessons. Equity selection and portfolio design strategies. Equity and mutual fund selection strategies. Strategies of hedge funds and college endowments. Market timing and equity selection. Strategies to outperform the benchmarks consistently. Strategies to outperform the benchmarks consistently. Investment strategies, active or passive management, stock selection using free cash flow Traits of self-taught successful investors. Marketocracy.com Find strategies and information that has long term success. 7

8 Portfolio Design & Asset Allocation Books Super Sectors John Nyaradi Sector Rotation: The Ultimate Tony Pow All about Asset Allocation Richard Ferri Trend Following Michael Covel Asset Rotation Matthew Erickson Safe Profitable Investing with Relative Strength Michael Carr Change Wave Investing Tobin Smith Sectors in a positive secular trend like technology, healthcare. Sector rotation strategy. Asset allocation is the key contributor to portfolio performance. Identify and invest in markets that are in a positive trend. Sector rotation strategy. Using relative strength and sector rotation methods to invest. Invest in revolutions like the internet wave. 8

9 Mutual Fund & Stock Selection Books Super Stocks Kenneth Fisher The Intelligent Investor Benjamin Graham Wall Street s Best Mutual Fund Managers (Winner s Circle) R. J. Shook How to Make Money in Stocks? William ONeil Guide to Financial Newsletters (Publication ended 2016) Mark Hulbert Why Most Investors Are Mostly Wrong William Scheinman Contrarian Investment Strategies David Dreman The Encyclopedia of Technical Indicators Robert Colby Technical Analysis from A to Z Steven Achelis Equity selection using fundamental and valuation analysis. Godfather of stock market analysis and equity selection. Characteristics of the best mutual fund managers. Stock selection. Investors Business Daily One-page summary of many investment newsletters. Investor psychology. Market psychology and why many current strategies do not work. Collection of technical indicators analysis and definition. Collection of technical indicators analysis and definition. 9

10 Investment Advisor Books Wealth Management Insights from America s Best Financial Advisors R. J. Shook Asset Allocation Strategies from America s Best Financial Advisors R. J. Shook Questions Financial Advisors Ask and Investors Need to Know Alan Parisse The Million Dollar Financial Services Practice David Mullen Get Smart or Get Screwed How to Select the Best and get the Most from your Financial Advisor Paul Merriman Wealth management practices from 20 advisors. Asset allocation strategies. What to look for in a good Financial Advisor? Steps to grow your financial advisor business. Selecting a financial advisor. 10

11 Second Career Job Books AARP Great Jobs for Everyone 50+ Kerry Hannon What s Next Kerry Hannon Your Career Asset: Developing, Managing and Optimizing Your Greatest Financial Advantage Michael Haubrich Self and Career Improvement Books How to Win Friends and Influence People Dale Carnegie 7 Habits of Highly Effective People Stephen Covey List of part time jobs in retirement. General book about retirement life. Career, income and retirement planning. Building your interpersonal skill to be more successful in life. Investment Newsletters Newsletter Rating Hulbert Financial Digest Timer Digest Market Forecast Focused Growth Investor Investech Research Ned Davis Research Market Digest Stocks Focused Growth Investor Investor Advisory Service AAII Superstars Report Investors Business Daily Motley Fool Stock Advisor Dow Theory Forecasts Mutual Funds Focused Growth Investor Fidelity Monitor Retirement Bob Carlson s Retirement Watch 11

12 Financial and Investment Websites Finance.yahoo.com MarketWatch.com HaysAdvisory.com Technical Analysis BigCharts.com StockCharts.com Stocks Valueline.com Investors.com ManifestInvesting.com BetterInvesting.org Morningstar.com Schwab.com Mutual Funds Morningstar.com Financial & Retirement Planning TRowePrice.com Finance.yahoo.com Kiplinger.com MyMoney.gov USA.gov Estate Planning & Taxes EstatePlanningAnswers.com Finance.Toolkit.com IRA.gov Medicare & Medicaid Medicare.gov Medicaid.gov 12

13 Investor Organizations & Clubs American Association of Individual Investors (AAII) National Association of Investors Corporation (NAIC) Newspapers and Magazines Barron s Wall Street Journal The Economist Smart Money Money Magazine Kiplinger's College Training Financial Planning & Finance Classes Security Analysis & Portfolio Management Classes 13

14 Beginner Level Book Review - Personal Finance and Financial Planning Good general wealth building books for a person with their first full time job, for newlyweds and for others of all ages. The books do not spend much time on investing and investment strategies. The Wealthy Barber: Everyone s Common Sense Guide to Becoming Financially Independent David Chilton Reviews: 4.5 stars. Everyday common sense. A good beginner s guide to financial planning. Easy read, interesting and with a plot around three people. Learn from the Wealthy Income Spending, collage, rent Saving, automated Debt and Credit Cards Investment Plan and Investing Investor Education Investment Strategies and Financial Advisor, asset allocation, active strategies, mutual funds Estate Planning and Insurance The Millionaire Next Door: The Surprising Secrets of America s Wealthy Thomas Stanley and William Danko Reviews: 4.0 stars. How ordinary people can achieve financial independence. Interesting stories. Learn from the Wealthy, traits of millionaires Income, career selection, self employed Spending, frugal Saving, automate Debt and Credit Cards Investment Plan and Investing Investor Education Investment Strategies and Financial Advisor, asset allocation, active strategies 14

15 I Will Teach You to Be Rich Ramit Sethi Reviews: 4.5 stars. Easy read for ages 20 through 35 years old. Income, setup banking Spending, budgets, buying a house, planning a wedding, frugal Saving, automated, selecting and setting up a savings, investing and checking account Debt and Credit Cards, lot of detail Investment Plan and Investing, account structure, IRA, 401 (k) Investor Education Investment Strategies, simple asset allocation, passive funds. Financial Advisor if you do not take the needed time. Rich Dad Poor Dad: What the Rich teach their Kids about Money that the Poor and Middle Class do not Robert Kiyosaki Reviews: 4.0 stars. Good points made by the self-promoter. Learn from the experts, associate with smart people, financial independence, assets and liabilities Income, career, planning a second career with your own business Spending Saving, automated Debt and Credit Cards Investment Plan and Investing Investor Education. Promotes his investor education coaching business. Investment Strategies and No Financial Advisor, asset allocation, real estate 15

16 Moderate Level - Investing, Investment Plans and Advisors This book is a higher level wealth building book for a person in their late twenties and older. The book does not spend much time on career income, spending, saving, debt and credit cards. Simple Wealth Inevitable Wealth Nick Murray Reviews: 5.0 stars. Great advice with a simple plan. Income, limited Spending, limited Saving, plan Debt and Credit Cards, plan Investment Plan and Investing, detail, goals, expected returns, risk Investor Education Investment Strategies and Financial Advisor Value & Selection, asset allocation, asset class definition, mutual funds, stocks Behavioral Control The Only Guide You ll Ever Need for the Right Financial Plan, Managing Your Wealth, Risk and Investments Larry Swedroe Reviews: 4.5 stars. Common sense realistic information. Income, career stability, social security Spending, retirement Saving, IRAs, College Savings Debt and Credit Cards, limited Investment Plan and Investing, goals, expected returns, risk, Investor Education Investment Strategies and Financial Advisor Selection, asset allocation, asset class definitions, active and passive mutual funds, stocks, portfolio management, mutual fund selection, portfolio tax management Behavioral Control Mortgages, Estate Planning, Insurance Needs It s About More Than the Money Saly Glassman Reviews: 5.0 stars. Financial and life enhancing information. Income, limited Spending, limited Saving, limited Debt and Credit Cards, limited Investment Plan and Investing, Life Plan, creation Investor Education Investment Strategies and Financial Advisor Selection, asset allocation, active mutual funds Behavioral Control 16

17 Investor Terminology The Economy Economic Indicators show the inner workings of the economy and how they affect stock prices. Low inflation will allow the Federal Reserve to lower interest rates. Lower interest rates help fuel economic growth, which in turn fuels profits. Profits will drive stock prices higher if valuations are reasonable. Sentiment helps identify major tops and bottoms. Cycles and Seasonality show periods when stocks are more favorable. Economic Growth The consumer, business spending, manufacturing, and real estate markets are the drivers of the economy. Gross Domestic Product (GDP) is the key indicator of economic growth. The elements of GDP are exports, government spending, consumer spending, business spending and housing. Inflation Inflation is driven by wages, energy, commodities, services, home and healthcare prices. The global economy, outsourcing to low-cost regions, falling home prices, and higher productivity reduce inflation. The key inflation indicators are the Consumer Price Index and the Producer Price Index. Deflation occurs when the annual inflation rate falls below 0%. Monetary Interest rates and money supply are the key monetary indicators. The 10-Year Treasury bond is a good long term interest rate indicator and the Federal Funds Rate is a common short-term interest rate indicator. The M2 Money Supply is also a good indicator of monetary policy. Earnings Earnings drivers are revenue growth, productivity, stock buybacks and higher profit margins. The key earnings indicator is corporate profits. Valuation Valuations are driven by stock prices, expectations and earnings. The key indicators of valuations are the price-to-earnings ratio (PE) and the Fed Valuation Model. Price-to-earnings ratios are calculated using past or forward earnings expectations. The Shiller Cyclically Adjusted Price-Earnings Ratio (CAPE Ratio) is not a good valuation tool. Stock Price of S&P 500/Inflation-adjusted reported earnings from the previous 10 years. The average over the past 100 years has been around 16. Since 1990 the index has been over 16, even in the 2001 and 2007 bear markets. The CAPE uses earnings before adjustments that contain one-time non-reoccurring items. The index uses a 10-year period and the business cycle averages 6 years. The inflation adjustment does not consider CPI changes. The CAPE index can be distorted after bear markets. (Schwab) Sentiment Sentiment is driven by speculation. Some of the key sentiment indicators are investor intelligence, new highs/new lows, overbought/oversold, insider trading and volatility. Cycles and Seasonality The key cycle and seasonality indicators are the secular cycle, demographic cycle, decade cycle, election year, time of the year, the month and the January Indicator. Currency As a U.S. investor, when the U.S. Dollar rises and other currencies fall, demand for U.S. stocks rise and it becomes less expensive for up to travel and purchase goods from these countries. Our international investments fall and demand for our goods falls. 17

18 Stock Orders When you buy or sell a stock, you will have to specify the type of order you want. Market Order Fill the order now with the best price you can get. Limit Order Fill the order when the price reaches the limit price. You are selling high and buying low. A sell limit order for $50/share means, sell the stock when the stock rises to $50/share. A buy limit order for $30/share means, buy the stock when the stock falls to $30/share. Stop Order Fill the order when the price reaches the stop price. You are buying high and selling low. This is based on buying on strength and selling on weakness around the resistance and support lines. A sell stop order for $30/share means, sell the stock when the stock falls below $30/share. A buy stop order for $50/share means, buy the stock when the stock rises above $50/share. Stop orders are getting more risky with the flash crashes from computerized trading glitches becoming more common. Stop Limit Order A stop limit order is a combination of a limit and stop order defining a limited range to buy and sell in. In a stop-limit order the sale will be at or below the limit price and above the stop price. This is the only order that may save you in a flash crash. Benchmarks There is a sector fund and ETFs for almost every benchmark. Large Cap Stocks S&P 500 Mid Cap Stocks S&P 400 Small Cap Stocks S&P 600 World MSCI World Dollar-Cost Averaging A strategy to invest fixed amounts of money in securities at regular intervals, regardless of the market s movements. 18

19 Taxes on Investments For tax information on the sale of your investments, see your accountant. Long-term capital gains, investments held for one year or longer, are taxed at a 15% capital gains rate. Short-term capital gains, investments held less-than one year, are taxed at your ordinary income rate. Wash-Sale Rule If you sell a mutual fund or stock for less than the purchase price, you have a capital loss, and you can usually report this as a loss and subtract it from your income. However, if you sold the shares and then bought them right back, or bought new shares and then immediately sold the old shares, the IRS will rule that you did not really sell them, and will not allow you to deduct the loss at that time. IRS definition Here is the official definition from IRS Publication 550, Investment Income and Expenses [1] : A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you. Buy back on day Buy substantially identical stock or securities, 2. Acquire substantially identical stock or securities in a fully taxable trade, 3. Acquire a contract or option to buy substantially identical stock or securities, or 4. Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. [2] If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale. Selling in your taxable account and buying in your IRA counts. If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold. Substantially identical The IRS does not have a clear definition of substantially identical; it is determined by all the facts and circumstances in a particular case. Two share classes of the same fund, such as a mutual fund and a corresponding ETF, are probably substantially identical. There is no ruling on whether two funds operated by different companies tracking the same index are substantially identical; tax experts have differing opinions. Two funds tracking different indexes, or an index fund and an actively managed fund in the same asset class, should not be substantially identical, though there is no definitive IRS ruling. Scottrade only flags identical ticker symbols in all securities (stocks, ETF s, active funds,..) Consequences If you have a wash sale, you do not deduct the loss immediately, but you add the loss to your basis in the new shares, so that you can deduct the loss when you sell those shares. It is still better to take the loss earlier, as it produces an immediate benefit; in addition, a wash sale negates the value of tax loss harvesting. For example, you bought 100 shares of a mutual fund at $40. On March 1, you sold 100 shares at $30. On March 10, you bought 100 shares at $35. Your sale on March 1 was a wash sale, so you could not deduct the $1,000 loss at the time, but your basis in the March 10 shares is $4,500, not $3,500, so you will reduce your capital gains or increase your losses when you sell those shares. If you have a wash sale and the replacement shares are a tax-sheltered account such as an IRA, Roth IRA, or 401(k), you will lose all benefit from the capital loss, because you do not pay tax on capital gains in the tax-sheltered account. 19

20 Cyber Security Steps you should be taking with your personal information and accounts Make sure your computer, router and phone are secured with a password. Make sure your computers are running virus protection software and are always updating. Enhance and change your passwords on a regular basis. (Letters small and large case, numbers and symbols) Never access accounts or make purchases from a laptop or phone when on a public unsecured Wi-Fi. Review your bank, credit card and brokerage accounts online and your statements on a regular basis. Transactions are monitored for suspicious activity and data base breaches, then you are notified if suspected. Run a free credit report annually. Sign up for free credit monitor services each time you are notified of a compromise from your institution. Identity protection services monitor reported fraud data bases and notify you if needed. Also insurance and repair services. Do not respond with personal information to any popup on your computer, mail, or phone request. Always call your contact at your institution before you give information. Go to the Apple and Microsoft website and call their support number. Do not open any attachments or click on any links of suspicious s or s without an unsubscribe option. Never send an with personal information in the title or body content. Only enter your personal information on secure websites that start with https and not http. Never send money or information to solicitations from outside the country unless verified reputable. Use Google as a source to help verify scams. 20