WHY INVEST IN STOCKS? Ken Kavula President Mid-Michigan Chapter Ann Cuneaz Education Program Manager BetterInvesting 1
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
Goals for Tonight s Class Understand the importance of making financial goals and plans. 3 3
Tonight s Goals Become familiar with the concept of compounding. 4 4
Our Goals (cont.) Understand why a long-term view of investing minimizes risk. 5 5
Our Final Goal Understand why the BetterInvesting method is preferred for people that want to manage their own money. 6 6
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
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
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
ARE YOU IN CONTROL? Lottery IRA 401K Inheritance Passbook Savings Account Savings/Corporate/Municipal Bonds Stock Portfolio 10 10
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
WHATEVER YOUR PLAN, PAY YOURSELF FIRST! INVEST IN YOUR FUTURE! 12 12
THE POWER OF COMPOUNDING 13 13
Which would you take? A million dollars or one cent doubled each day for 30 days? 14 14
COMPOUNDING Day 1 $.01 Day 2 $.02 Day 3 $.04 Day 4 $.08 Day 5 $.16 Continue this pattern for 30 days 15 15
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
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
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 5 18 18
WHAT ARE THE BEST INVESTMENTS? 19 19
WHAT GENERATES THE BEST RETURNS? Savings Account or CDs Bonds (Government, Corporate, etc.) Common Stocks Real Estate Gold Collectibles 20 20
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
If commonstock is the best investment over the long term, what is the potential risk? 22 22
Yearly Returns (S&P 500) Since 1941 NEGATIVE RETURN 23 2012 2009 2010 2003 2006 1999 2004 1998 2011 1993 1996 2007 1988 1983 2000 2005 1986 1982 1990 1994 1979 1976 1997 1981 1992 1971 1972 1995 1977 1987 1968 1967 1991 1969 1984 1965 1963 1989 1962 1978 1964 1961 1985 2001 1960 1970 1959 1955 1980 1973 1957 1956 1952 1951 1975 2002 1966 1953 1948 1949 1943 1950 POSITIVE RETURN 2008 1974 1946 1941 1947 1944 1942 1945 1958 1954-40 to -30-30 to -20-20 to -10-10 to 0 0 to 10 10 to 20 20 to 30 30 to 40 40 to 50 50 to 60 Data source: http://www.moneychimp.com/features/market_cagr.htm 23
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 2007 2001 1993 1990 1985 1984 1982 2000 1980 1996 1979 1995 2012 2006 1968 1992 2010 1994 1967 1991 2009 1981 1965 1988 1998 2011 2005 1972 1964 1987 1997 2008 1978 1971 1962 1983 1989 2004 1976 1966 1961 1953 1986 2003 1975 1963 1959 1952 1958 2002 1973 1960 1957 1951 1956 1977 1970 1950 1948 1946 1955 1974 1969 1949 1947 1945 1954 1999-10 to -5-5 to 0 0 to 5 5 to 10 10 to 15 15 to 20 20 to 25 25 to 30 24 24
10-Year Blocks of Time There are only two negative numberson this chart! NEGATIVE RETURN POSITIVE RETURN 2000 1999 1998 1997 1996 2012 1995 2007 1993 2006 2004 1992 2005 2003 1991 2002 2001 1989 1982 1994 1988 1981 1990 1987 1980 1986 1963 1979 1985 1961 1976 1984 1960 1973 1983 1959 2011 1972 1967 1957 2010 1971 1965 1956 1978 1970 1964 1955 1977 1969 1962 1954 2009 1975 1968 1953 1952 2008 1974 1966 1950 1951 1958-10 to -5-5 to 0 0 to 5 5 to 10 10 to 15 15 to 20 20 to 25 25 to 30 25 25
INVESTING METHODS AND THE BETTERINVESTING WAY 26 26
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
INVESTING METHODS Fundamental Technical Speculative People make money using all of these methods! 28 28
INVESTING ORIENTATION Value Income Growth People make money using all of these orientations! 29 29
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
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
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
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
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
PRINCIPLES OF BETTERINVESTING Invest Regularly Reinvest All Earnings Diversify Invest in Quality Growth Companies 35 35
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
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
Next Steps KEEP LEARNING 38 38
Learn How with BetterInvesting Open House: Sample Classes and Tools www.betterinvesting.org/openhouse 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
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 www.betterinvesting.org/introssg 40 40
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 www.betterinvesting.org/introssg 41 41
kkavula1@comcast.net annc@betterinvesting.org 42 42