WHY INVEST IN STOCKS?

Transcription

1 WHY INVEST IN STOCKS? Ken Kavula President Mid-Michigan Chapter Ann Cuneaz Education Program Manager BetterInvesting 1

2 Disclaimer: All stock references are meant to be used for educational purposes. No recommendation for purchase or sale is intended or implied. This presentation is being recorded for future use! 2 2

3 Goals for Tonight s Class Understand the importance of making financial goals and plans. 3 3

4 Tonight s Goals Become familiar with the concept of compounding. 4 4

5 Our Goals (cont.) Understand why a long-term view of investing minimizes risk. 5 5

6 Our Final Goal Understand why the BetterInvesting method is preferred for people that want to manage their own money. 6 6

7 FINANCIAL FREEDOM What does it mean? Some examples Travel anywhere, anytime Help the grandkids Eat steak and sip good martinis Not worry about emergencies 7 7

8 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 8 8

9 HOW WILL YOU REACH YOUR GOALS? Fully fund your 401K Move to Jamaica Create and fund an IRA Win the Powerball lottery Invest small sums regularly in stocks Stuff $100 in your mattress every payday Marry a wealthy widow(er) Buy US Savings Bonds Buy a bigger house Expand a collection 9 9

10 ARE YOU IN CONTROL? Lottery IRA 401K Inheritance Passbook Savings Account Savings/Corporate/Municipal Bonds Stock Portfolio 10 10

11 DO YOU HAVE A PLAN? An Oil Well A Written Budget Collectibles A Pension The Winning Numbers Investments Social Security Annuities A Combination of Strategies 11 11

12 WHATEVER YOUR PLAN, PAY YOURSELF FIRST! INVEST IN YOUR FUTURE! 12 12

13 THE POWER OF COMPOUNDING 13 13

14 Which would you take? A million dollars or one cent doubled each day for 30 days? 14 14

15 COMPOUNDING Day 1 $.01 Day 2 $.02 Day 3 $.04 Day 4 $.08 Day 5 $.16 Continue this pattern for 30 days 15 15

16 Day 29 $2,684,355 Day 30 $5,368,709 What was the growth rate? 100% compounded daily What kind of growth might be reasonable? How about doubling your money in five years? 16 16

17 Fifteen percent yearly growth over five years doubles your money! Take your calculators and start with $100. Interest $100 *.15 = $ 15 Principle $100 TOTAL $115 Multiply by 1.15 to see the value after one year at 15% annual compounded growth. Do this four more times to see the value at the end of five years! 17 17

18 HERE ARE THE NUMBERS! $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

19 WHAT ARE THE BEST INVESTMENTS? 19 19

20 WHAT GENERATES THE BEST RETURNS? Savings Account or CDs Bonds (Government, Corporate, etc.) Common Stocks Real Estate Gold Collectibles 20 20

21 Here s how some of the financial asset classes stack up. All asset classes begin in 1925 with a value of $1.00. Source: Morningstar 21 21

22 If commonstock is the best investment over the long term, what is the potential risk? 22 22

23 Yearly Returns (S&P 500) Since 1941 NEGATIVE RETURN POSITIVE RETURN to to to to 0 0 to to to to to to 60 Data source: 23

24 Five-Year Blocks of Time Since 1945, the majority of 5-year annualized returns have been between 0% and 20%. History suggests that we can expect better returns from a long-term perspective. NEGATIVE RETURN POSITIVE RETURN to -5-5 to 0 0 to 5 5 to to to to to

25 10-Year Blocks of Time There are only two negative numberson this chart! NEGATIVE RETURN POSITIVE RETURN to -5-5 to 0 0 to 5 5 to to to to to

26 INVESTING METHODS AND THE BETTERINVESTING WAY 26 26

27 CONVINCED? If stocks show the best return over time, then becoming an INVESTORis key to your financial freedom. What kind of INVESTORwill you become? 27 27

28 INVESTING METHODS Fundamental Technical Speculative People make money using all of these methods! 28 28

29 INVESTING ORIENTATION Value Income Growth People make money using all of these orientations! 29 29

30 KEYS TO SUCCESS Pick a method and an orientation Learn the discipline Practice Practice Practice Maintain the discipline Do not jump from style to style to style 30 30

31 BetterInvesting Educating investors since 1951 Fundamental Investing Buy high quality growth stocks at a fair price Goal oriented Aim to double your money every five years Long-term focus 31 31

32 BetterInvesting Method Sleep-at-Night Investing Long-term Generally, aim to hold a stock at least five years or as long as it s a good investment Conservative Purchase companies with consistent history of growth and quality 32 32

33 Measuring Success BetterInvesting 100 Index Created in January, 2008 Index made up of top 100 holdings of investment clubs Rebalanced at the beginning of every year BIXX 33 33

34 BetterInvesting Methods Work! BI Top 100 has outperformed the S&P 500, the Dow Jones Industrial Average and the Russell 2000 over the past 5 years! 34 34

35 PRINCIPLES OF BETTERINVESTING Invest Regularly Reinvest All Earnings Diversify Invest in Quality Growth Companies 35 35

36 BetterInvesting The BetterInvesting Stock Selection Guide (SSG) 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 36 36

37 BetterInvesting Believes in Investment Clubs Meet and invest together on a regular basis Share the responsibility for stock studies Provide support and education for investors at all levels of experience 37 37

38 Next Steps KEEP LEARNING 38 38

39 Learn How with BetterInvesting Open House: Sample Classes and Tools Online Tools and Tutorials Online Stock Selection Guide Trial Version Try it free! tools.betterinvesting.org/stockanalysis Chapter Classes National and Regional Conferences 39 39

40 The Next Introductory Session Understanding the Jargon(free) Introducing basic vocabulary and investing concepts This is a recommended prerequisite to the Introduction to the Stock Selection Guide series. Learn more at

41 Introduction to the Stock Selection Guide (SSG) A Series of Five Classes 1 Selecting the Best Companies 2 Determining a Fair Price 3 Estimating Future Growth 4 Estimating Future P/Es 5 Review and Practice Learn more at

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