An Introduction to Investing Your Money Source: CTAinvest.org

What does this mean? "How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case." –Robert G. Allen

“Safe Investments” Burying Your Money = 0% Return Hiding Money Under Your Mattress = 0% Return Piggy Bank = 0% Return Savings Account or 5 Year CD = Less Than 1% Return

Why a Savings Account Won’t Make You Rich Since 1914, the average rate of inflation is 3.24% per year. The average savings account earns about 0.01% interest each year. What this means is that prices are going up (inflation) at a higher rate than the interest you are earning in the bank. The result is that your dollar becomes worth less over time.

Average Investment Returns Stocks and Bonds Over a 20 Year Period Average Between 7% - 12% Annual Returns Time is your friend!

Source: The Truth About Retirement and IRAs by Ric Edelman Let it Ride During a 5 year period in the 2000’s, the average annual return on stocks and bonds was 10%. But, if you had taken your money out of the market for a certain 15 day period, your average annual return would have been 0%! Time is your friend! Source: The Truth About Retirement and IRAs by Ric Edelman

Terms to Know Contributions – the amount of money you put into investments Portfolio – a collection of your investments Investing – putting money into stocks, bonds, mutual funds, etc. to make money Stocks – shares in the ownership of companies Bonds – loans to a companies that earn you interest after a fixed amount of time Treasury Bills – Buy a bill for $9,800 and 13 weeks later it is worth $10,000

Terms to Know (Continued) Mutual Funds – a collection of stocks, bonds, and cash equivalents Cash equivalents – CDs, Treasury bonds, etc. that can easily be converted to cash Assets – what your investments are worth Diversification – investing in a variety of financial products (stocks, bonds, etc.) 401k – Retirement account where taxes are paid when you withdraw the money

Terms to Know (Continued) Roth IRA - Retirement account where taxes are paid when the money is put into your account Certificates of Deposit (CDs) – A short term loan to a bank that earns you money in interest. Money Market Account – like a large savings account with higher interest Futures – The purchase of assets at a future date and price (very risky)

Why Certificates of Deposits (CDs) are Not a Good Investment Interest on a Five Year CD 0.08% 30% Tax Rate -0.24% 0.56% Average Inflation -2.30% Annual Result (a loss) -1.74% x 20 Years 20 Year Result -34.8% 100,000 invested today would be worth only $65,200 in 20 years!

Time is Your Friend There’s a huge advantage to investing early. Let’s say you start investing $2,000 every year when you’re 18. You put it into an account that grows by 7% each year, and continue to invest the same amount for 10 years. Then you stop and just let that money sit for the next 38 years, where it continues to grow at 7% a year, until you’re 65 years old. Now say your sister decides not to invest until she turns 31. Then she puts $2,000 a year into an account that also earns 7% a year—and does it for the next 35 years, until she turns 65. Who will have more money? YOU will. You will have $84,944 more than your sister and you will have invested $50,000 less than your sister!

Want to be a Millionaire? A 20 year old who invests $3.00 per day can be a millionaire at retirement. Is that $3.00 a cup coffee each day worth a million dollars to you? or Time is your friend! Are your seeing a pattern yet?

Don’t Just Count on Social Security In 2013, the average social security benefit was $1,150 per month. The highest retirement income was $3,350 and you had to be at least 70 to receive that amount! Could you live on $1,150 per month? Source: The Truth About Retirement and IRAs by Ric Edelman

A 401k Can Save You On Taxes Now!

Three Types of Assets Cash Equivalents Bonds Stocks

Cash Equivalents

Bonds

Stocks

Performance of Stocks, Bonds, and Cash Equivalents 2014 Stocks generally earn more over time than bonds and cash equivalents.

Stock Market Indexes

Asset Allocation

Diversification

Portfolio Models

401(k) and 403(b) Plans 401(k) – A retirement savings plan that allows your to contribute before taxes are taken out. 403(b) – Similar to a 401(k), but for employees of schools and certain tax-exempt organizations Example: You contribute $200 to your 401(k) or 403(b) but only $160 is taken out of your pay check.

Many Baskets of Eggs Did your parents ever tell you not to put all your eggs in one basket? If so, they were actually trying to tell you to diversify your options. Diversification is reducing investment risk by putting money in several different types of investments. By spreading your money around, you’re reducing the impact that a drop in any one investment’s value can have on your overall investment portfolio. A mutual fund is an example of an investment that uses diversification. For instance, say you get $100 and decide to put $50 into both a money market account and a stock. Five years later, the stock company has collapsed from a scandal, and the stock you invested in is worthless. Yes, you’ve now lost $50. But you would have lost the entire $100 if you hadn’t split your investment between the money market account and the stock.

Pyramid of Investment Risk Futures Stocks Bonds Mutual Funds Real Estate Treasury Bills & Bonds Government Savings Bonds Savings Accounts Money Market Accounts Certificate of Deposit (CDs) Cash

On Your Own