Long Term Investing

1. Long Term Investing 401K’s, IRA’s, Mutual Funds

2. Financial Literacy • Bank Accounts • Credit Cards • Brokerage Accounts • Stocks • Bonds • Student Loans • Real Estate

3. Historical Performance • Performance is the sum of 2 components: • Income (dividends or interest) • Capital Gains (price rising) • Minus any fees paid to invest & taxes owed on gains/interest These return #’s do not account for taxes paid

4. Real Estate Bonds Cash Account Stocks I think I’m brilliant Asset Allocation Process of picking sectors to invest in no risk med. risk high risk very high risk $300,000 to invest ? ? ? ????

5. Mutual Funds • professionally managed collective investment vehicle that pools money from investors to purchase securities • Some funds can buy only stocks oronly bonds • Some funds can buy a combination of investments Professional Managers Invest your money. They are paid a yearly management fee Money Pooled in a specific fund

6. Hidden Fees on Mutual Funds • Funds have yearly management fees • You should not pay more than .75% per year • Some funds have loads(1-time fee) to buy the fund • Often these “loads” are hidden from investors • Do not buy any fund with a load!

7. ETF’s • ETF’s = exchange traded funds • Similar to mutual funds, except they trade in the form of a stock. • Fees are typically lower than mutual funds • You can trade these during any trading day (very liquid) • Examples:SPY (sp500), XLK (technology), GLD (gold)

8. Pick your own mutual fund • Reading:

9. Brokerage Accounts • Most financial institutions offer brokerage accounts • allow you to invest in stocks, bonds, mutual funds, commodities, etc…. • Beware:many of these firms have high fees and sell load mutual funds!

10. Banks vs. Brokerage Firms Brokerage Firm Specialize in accounts for stocks, bonds, mutual funds Banks Checking & Savings accounts, credit cards, loans, & brokerage accounts

11. Types of Brokerage Accounts There are many types of brokerage accounts: 1) Retirement: Tax deferred => no taxes until you take money out! 2) Specific 3) Taxable 529 (college savings) Regular brokerage 401-K IRA Roth IRA

12. Retirement Gamble PBS Video 2013 PBS special on retirement investment dangers…. http://video.pbs.org/video/2365000843/?starttime=3131000 Play 19 minutes => end day 1 block period

13. Brokerage Accounts are used to save money in stocks, bonds, etc… Mutual funds are efficient ways to diversify your savings Mutual funds range from: - low fee, index funds - high fee, load, leveraged funds Types of accounts for retirement: IRA, Roth IRA, 401-K or Taxable Regular Savings account

14. Purpose of Your Stock Portfolio? YOUR PORTFOLIO OF STOCKS SP500 INDEX

15. Active Investing SP500 Market Return Buy & Hold Investing Actively manage stocks to “beat market” Often “market time” (get in, get out) Pay higher fees, taxes, trading costs Take more risk, often underperform market Passively manage stocks Never “market time” (get in, get out) Pay lower fees, taxes, trading costs Take less risk, match market return

16. Reading:Just How Dumb are Investors?

17. Continued: Retirement Gamble PBS Video 2013 PBS special on retirement investment dangers…. http://video.pbs.org/video/2365000843/?starttime=3131000 Play part 2: start 19 minutes in => end day 2 regular period

18. Reading:Mistrust Your Financial Instincts System 1 System 2

19. Investment Wrap-up Financial Advisors are not required to act in your “best interest” (unless a fiduciary) System 1(fast thinking) is dangerous when making investment decisions Confirmation Bias causes people to not learn from mistakes BUT! Cognitive dissonance is trying to help you learn! • research shows most people don’t!

20. . . . When confronted with new information, most people seek to preserve their current understanding of the world by rejecting, explaining away or avoiding the information

21. Warren Buffet Advice

22. Rule of 70 Money Doubles in in nominal terms 70/20% = 3.5 years 70/ 10% = 7 years 70/ 5% = 14 years

23. The Power of Compounding