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Introduction to Investing Preston D. McSwain Senior Vice President Neuberger Berman Private Asset Management (617) 619-4630 smartwomansecurities.

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Presentation on theme: "Introduction to Investing Preston D. McSwain Senior Vice President Neuberger Berman Private Asset Management (617) 619-4630 smartwomansecurities."— Presentation transcript:

1 Introduction to Investing Preston D. McSwain Senior Vice President Neuberger Berman Private Asset Management (617) 619-4630 pmcswain@nb.com smartwomansecurities 2006 Smart Woman Securities. All materials are for SWS members use only October 3, 2006 We would like to thank Neuberger Berman and Lehman Brothers for their generous offer to use of many of the firms slides and research in this presentation.

2 Why Do You Invest? Winning is reaching your goals… ….. not beating the neighbors Investing is a means to your ends… ….. Not a contest

3 Your Investing Enemies: Gut Instincts Intuition Friends & Family

4 Three Main Asset Classes One way to minimize the risks of investing in stocks is to educate yourself about them! Stocksgrowth Bondsincome Cashliquidity

5 Stocks (Primary Source for Growth) SizeMarket Cap –Large-cap$5 billion+ –Mid-cap$1-5 billion –Small-capbelow $1 billion Investment style –Value –Growth Domestic and International

6 Taxable fixed income –Bank CDs-safety and insurance –U.S. Treasuries-safety –Corporate-high/medium quality –High yield-lower quality (junk bonds) Tax-exempt –Municipal-federal, state, local Bonds (Primary Source for Income)

7 Checking Accounts with Interest Bank Money Market Funds Mutual Fund Money Market Funds –Taxable –Tax-exempt Short-Term Bonds (less than one year) –Treasury Bills Cash (Primary Source for Stability)

8 Allocate / Invest Funds to Match Your Specific Goals Diversify Among Various Investment Options / Asset Classes to Reduce Risk Be Disciplined – Stick to Your Plan Investment Plan Basics

9 1.Take a Long Term View 2.Stay Emotionally Balanced 3.Remain Diversified 4.Remember Taxes Four Step Plan

10 Source: Neuberger Berman and Standard & Poors. Please see Additional Disclosures page for complete index description. The data presented herein represents securities industry market data as of the dates specified. It does not represent Neuberger Berman performance nor does it reflect the fees and expenses associated with managing a portfolio. Indices are unmanaged, and the figures for the index shown do not reflect any fees or expenses. Investors cannot invest directly in an index. We strongly recommend that these factors be considered before an investment decision is made. Past performance is no guarantee of future results. Please note: This chart is presented in a logarithmic scale, which shows the indexs gains or losses on a percentage basis, for ease of comparison. (Log. Scale) S&P 500 Index – Month-End Values (January 1950 – December 2005) Escalation of Vietnam War; Kent State Shootings 1962 Market Panic; Cuban Missile Crisis Prime Rate Hits 21% Persian Gulf War 1987 Market Panic 9/11 Attacks Korean Conflict Heightens Dollar Hits All-Time Low Price Controls; Nixon Resigns; Oil Embargo War in Iraq 1.Take a Long Term View

11 Stocks Can Be Negative But …

12 Source: Standard & Poors, Neuberger Berman. Please see Additional Disclosures page for complete index description. The data presented herein represents securities industry market data as of the dates specified. It does not represent Neuberger Berman performance nor does it reflect the fees and expenses associated with managing a portfolio. Indices are unmanaged, and the figures for the index shown do not reflect any fees or expenses. Investors cannot invest directly in an index. We strongly recommend that these factors be considered before an investment decision is made. Past performance is no guarantee of future results. Best 10 Years: 20.08% 95th Percentile: 18.32% Median : 11.07% 5th Percentile: 01.50% Worst 10 Years: -00.85% S&P 500: 10-Year Rolling Returns Annualized, 1935-2005 … Make Money Over Time And...

13 $13,70612.7% $635.3% Ending Value Average Return $2,65710.4% $183.7% $113.0% Hypothetical value of $1 invested in 1926. Source: Ibbotson Associates, Neuberger Berman. Past performance is not indicative of future results. Small Company stocks represented by the fifth capitalization quintile of stocks on the NYSE for 1926-1981 and performance of the Dimensional Fund Advisors (DFA) Small Company Fund thereafter, Large Company Stocks represented by the S&P 500 Index which is an unmanaged group of securities and considered to be representative of the stock market in general; Government Bonds represented by 5-year US Government Bonds; Cash is represented by the 30-day U.S. Treasury Bill. Please note that indices are unmanaged and do not take into account any fees or expenses of investing in the individual securities that they track, and that individuals cannot invest directly in an index. Data about the performance of these indices is prepared or obtained by Neuberger Berman and includes reinvestment of all dividends and capital gain distributions. See Appendix for complete description of each index. 1926-2005 Over the Long Term Outperform

14 1.Avoid making rash investment decisions based on breaking news 2.Recipe for losing money: rushing into the bull market and pulling out of a bear market 2.Stay Emotionally Balanced

15 How could I have been so wrong? Temporary set back - Im a long-term investor. Wow, am I smart. Point of Maximum Financial Opportunity - Investors Realize Investment Opportunity Point of Maximum Financial Risk - Investors Beware of Higher Investment Risk The Cycle Can Be Difficult

16 ________________ Source: Strategic Insight. Indices are unmanaged, and the figures for the index shown include reinvestment of all dividends and capital gain distributions and do not reflect any fees or expenses. Investors cannot invest directly in an index. We strongly recommend that these factors be considered before an investment decision is made. The data presented herein represents securities industry market data as of the date specified. It does not represent Neuberger Berman performance nor does it reflect the fees and expenses associated with managing a portfolio. Past performance is not indicative of future results. Mutual Fund Flows – Tech / Telecom –At the height of the technology market bubble, investors flocked to tech funds at precisely the wrong moment ($ billions) March 13, 2000: NASDAQ peaks at 5049 Dont Follow the Herd

17 Source: Standard & Poors, Neu berger Berman Please see Additional Disclosures page for complete index description. The data presented herein represents securities industry market data as of the dates specified. It does not represent Neuberger Berman performance nor does it reflect the fees and expenses associated with managing a portfolio. Indices are unmanaged, and the figures for the index shown do not reflect any fees or expenses. Investors cannot invest directly in an index. We strongly recommend that these factors be considered before an investment decision is made. Past performance is no guarantee of future results. S&P 500 Index Average Annualized Returns Annualized Return 10 Years Ending December 31, 2005 Avoid Market Timing

18 Start with $1,000, earning 10% each year and add $1,000 every year Time is On Your Side

19 *Invested from 1986-1995. From 1995-2004 investment grew. This is for illustrative purposes only and not indicative of any investment. Past performance is no guarantee of future results. Source: Ibbotson Associates. The hypothetical results presented herein are based on historical index returns of the S&P 500. The results do not represent the performance of any Neuberger Berman managed account or product and do not reflect the fees and expenses associated with managing a portfolio. These returns are used for discussion purposes only. They are not intended to represent, and should not be construed to represent a prediction of future rates of return. See Appendix for complete description of each index. Results are on a pre-tax basis. Investment is made at the beginning of each year. The data presented herein represents securities industry market data as of the dates specified. It does not represent Neuberger Berman performance nor does it reflect the fees and expenses associated with managing a portfolio. The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Indices are unmanaged, and the figures for the index shown include reinvestment of all dividends and capital gain distributions and do not reflect any fees or expenses. Investors cannot invest directly in an index. We strongly recommend that these factors be considered before an investment decision is made. Investor AInvestor BInvestor C Years Contributing:201010* Annual Amount Contributed:$2,000$4,000$2,000 1996-2005 1986-2005 Power of Compounding

20 Invest Based Upon Your Risk Profile No One Allocation of Any Type of Investments is Correct for Everyone Diversify Among Stocks, Bonds and Cash Have a Mix of Various Types of Stocks (Growth, Value, Large, Mid, Small, Across Sectors) If you continue with SWS into the spring semester, please note that we are currently investing only in stocks. However, we recognize that a successful investment portfolio is one that is diversified. We hope that by learning about how to pick stocks in which to invest, students will gain knowledge about evaluating other asset classes as well. In the spring, we anticipate having additional classes on bonds, derivatives, and other more complicated investment tools as well. 3.Remain Diversified

21 Annual Percentage Returns (1986-2005) Source: Standard & Poors, Frank Russell Co., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Callan Associates. This is for illustrative purposes only and not indicative of any investment. The data presented herein represents securities industry market data as of the dates specified. It does not represent Neuberger Berman performance nor does it reflect the fees and expenses associated with managing a portfolio. The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. This material is not intended to be a formal research report and should not be construed as an offer to sell or the solicitation of an offer to buy any security. Indices are unmanaged and the figures for the indices presented herein include reinvestment of all dividends and capital gain distributions and do not reflect any fees or expenses. Investors cannot invest directly in a index. Past performance is not indicative of future results. See Market Index Descriptions in the disclosures at the end of this presentation. No Asset Class Leads Every Year

22 Risks of No Diversification - Large Cap Growth Stocks-22.42% -Small Cap Growth-22.43% Rewards of Prudent Diversification - Small Cap Value Stocks 22.43% -Bonds - Fixed Income11.85% -Large Cap Value 7.01% 1 Year Returns – Period Ending 12/31/00 Source: Frank Russell Co., and Lehman Brothers Holdings Inc. Large Cap Growth - Russell 1000 Growth, Large Cap Value - Russell 1000 Value, Small Cap Value Russell 2000 Value, Fixed Income - Lehman Govt. Corp This is for illustrative purposes only and not indicative of any investment. The data presented herein represents securities industry market data as of the dates specified. It does not represent Neuberger Berman performance nor does it reflect the fees and expenses associated with managing a portfolio. The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. This material is not intended to be a formal research report and should not be construed as an offer to sell or the solicitation of an offer to buy any security. Indices are unmanaged and the figures for the indices presented herein include reinvestment of all dividends and capital gain distributions and do not reflect any fees or expenses. Investors cannot invest directly in a index. Past performance is not indicative of future results. See Market Index Descriptions in the disclosures at the end of this presentation. Risks & Rewards of Diversification

23 Source: Ibbotson Associates. Selected years shown represent all calendar years from 1929 to 2005 in which the S&P 500 Index had a negative total return.U.S. Long-Term Government Bonds are represented by the 20-year U.S. Government Bond and U.S. Long-Term Corporate Bonds are represented by the Citigroup U.S. Broad Investment Grade Index.Past performance is not indicative of future results. Please note that indices are unmanaged and do not take into account any fees or expenses of investing in the individual securities that they track, and that individuals cannot invest directly in an index. Data about the performance of these indices are prepared or obtained by Neuberger Berman and include reinvestment of all dividends and capital gain distributions. See Appendix for complete description of each index. The data presented herein represents securities industry market data as of the dates specified. It does not represent Neuberger Berman performance nor does it reflect the fees and expenses associated with managing a portfolio. The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. This material is not intended to be a formal research report and should not be construed as an offer to sell or the solicitation of an offer to buy any security. A bonds value may fluctuate based on interest rates, market conditions, credit quality and other factors. You may have a gain or loss if you sell your bonds prior to maturity. Of course, bonds are subject to the credit risk of the issuer. Government bonds and Treasury Bills are backed by the full faith and credit of the United States Government as to the timely payment of principal and interest. When Stocks Are Negative Bonds Tend to Be Positive

24 Bond Prices Interest Rates Bonds Dont Always Appreciate

25 MATURITY As of June 30, 2004 Source: Bloomberg. The data presented herein represents securities industry market data as of the date specified. It does not represent the performance of any Neuberger Berman account or product nor does it reflect the fees and expenses associated with managing a portfolio. See Additional Disclosure page. POTENTIAL YIELD (%) Longer Term Bonds Tend to Pay Higher Interest Rates to Investors

26 But Long Term Bonds Have Greater Risk % PRINCIPAL GAIN % PRINCIPAL LOSS Rates Down 1% Rates Up 1% 5-Year 10-Year 30-Year *Based on current 5-year ( 3 7/8% 5/15/09), 10-year (4 3/4% 05/15/14), 30-year (5 3/8% 02/15/31) U.S. Treasury Bonds. Source: CMS BondEdge, Bloomberg. CMS BondEdge simulation assumes instantaneous effect of 100 basis point parallel shift up or down the entire yield curve across all maturities. There can be no assurance the price gains indicated above will actually occur. A bonds value may fluctuate based on interest rates, market conditions, credit quality and other factors. You may have a gain or loss if you sell your bonds prior to maturity. Of course, bonds are subject to the credit risk of the issuer. Portfolio characteristics are subject to change without notice. Please see Market Index Descriptions and Additional Disclosures page. As of June 30, 2004

27 Total Return: Calendar Years 1950-2002 One Year Returns

28 Total Return: Calendar Years 1950-2002 Five Year Returns

29 Total Return: Calendar Years 1950-2002 Ten Year Returns

30 Income Tax Rate35.0% Short-Term Capital Gain Rate35.0% Long-Term Capital Gain Rate15.0% Unrealized Capital Gain Rate 0.0% 4.Remember Taxes

31 Source: Ibbotson Associates. Hypothetical value of $10,000 investment returning 8% annually with a 35% marginal tax rate. The taxable account is taxed every year, while the tax-deferred account is not taxed. Tax-deferred accounts are typically subject to taxation at ordinary income rates upon withdrawal. Estimates are not guaranteed. Past performance is no guarantee of future results. The hypothetical results presented herein are based on historical index data. The results do not represent the performance of any Neuberger Berman managed account or product and do not reflect the fees and expenses associated with managing a portfolio. These returns are used for discussion purposes only. They are not intended to represent, and should not be construed to represent a prediction of future rates of return. Value at End of Period Number of Years Elapsed Benefits of Tax Deferral

32 Strive to Optimize Portfolios to Achieve Risk-Adjusted, Tax-Efficient Returns Higher Risk Lower Risk Tax-InefficientTax-Efficient Private Equity High Turnover Equity Management High Yield Bonds Hedge Funds High Grade Bonds Equity Indexing Municipal Bonds Low Turnover Equity Management STRATEGIC CORE PORTFOLIO Asset Classes Based Upon Various Tax, Return and Risk Characteristics Review Tax Efficiency of Investments

33 Determine Your Investment Objectives: -Current Holdings -Long-Term Goals -Time Horizons Seriously Gauge Your Personal Risk Tolerance Construct Proper Asset Allocations Based Upon Your Goals Prescriptions for Success

34 Diversify, Diversify, Diversify -Stocks, Bonds, Cash -Large Cap, Mid Cap, Small Cap -Growth and Value Avoid Emotional Pulls of Short- Term Volatility Dont Market Time – Time is On Your Side Review, Revise, Rebalance Based Upon Life Changes Prescriptions for Success

35 Q&A


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