1. Key Investment Concepts
(that everyone should know)

2. This program is provided through a grant from the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation and the American Library Association (ALA). The grant is distributed as part of the library® initiative, an ALA program. This project is in its sixth year of educational partnership with libraries across Colorado and the country.
Marsha Yelick CFA(retired)
Financial Programs Consultant
Ext 831

3. Common Sense Diversification Simplicity Impulse in your enemy.
Major Themes du jour
Impulse in your enemy.
Time is your friend.

4. Who’s in control? It is, after all, your money!
Where do you want to go?
How long do you have to spend in the car?
How much risk will you take?
Are you headed where you want to go?
What if circumstances change?
How much do you want to be charged?
It is, after all, your money!

5. To be in control! ELEVEN Investment Terms... you need to understand
Allocation
Return
Yield
Inflation
To be in control!
Risk
Compounding
Volatility
Tax Deferral
Fees
Liquidity
Dollar Cost Averaging

6. Annualized total rate of return
Term 1: RETURN
Measuring dollars is not enough!
Simple return? (too simple)
Total return? (better)
Rate of return? (allows comparison)
Annualized total rate of return
...a valid measure, excellent for evaluation and comparison purposes
Return

7. Historic Returns What returns can be expected?
“A page of history is worth a volume of logic.”
Oliver Wendell Holmes
1926 – 1996 Average annual rates of return
Small stock %
Real Estate %
Large stock %
Bonds (long) %
Treasury bills (1-yr.) 3.7%
Inflation %
Historic Returns
...and what is the RISK???

8. annual total rate of return?
According to history,
what is a reasonable
annual total rate of return?
50% stocks (~10%) +
50% bonds (~5%) =
~7.5%
7.5% - 3.0% inflation =
REAL RETURN of ~4.5%
A FAIR rate of return

9. What is return? To review return Simple return – in dollars
Total return – including all costs & income
Rate of return – stated in percentage
Annualized total rate of return – full picture
Fair annualized total rate of return = 7.5%
REAL Return - after inflation takes its bite.
What is return?

10. TERM 2: YIELD
Money you collect annually from the investment you make.
(Annual total rate of return
is still the most important)
Yield

11. Types of Yield…
Types of yield

12. (manage by diversification)
TERM 3: RISK
…usually implies downside risk (loss), meaning the uncertainty of a positive return and the potential for financial loss.
Risk
Non systematic
(manage by diversification)
Systematic
(manage with secure financial base)

13. Investment risk planning
The PYRAMID…
Highest Risk/
Highest Earnings
Investment risk planning
Lowest Risk/
Lowest Earnings

14. Risk avoidance The BIGGEST RISK is to take NO RISK…

15. Volatility TERM 4: VOLATILITY
…. the standard deviation of the continuously compounded returns of a financial instrument within a specific time horizon.
Volatility
The more volatile an investment is, the more it can potentially lose or gain value in the short-term.

16. Liquidity TERM 5: LIQUIDITY Cash whenever you want it!
Cash only when someone agrees!

17. TERM 6: COMPOUNDING Mathematical magic…

18. TERM 7: INFLATION
Inflation also COMPOUNDS over time!
Inflation

19. Dollar Cost Averaging Example
TERM 8: DOLLAR COST AVERAGING
Invest at VARIOUS times at VARIOUS prices. You buy more shares when prices are lower, less when prices are higher.
(unless you KNOW what the market is going to do).
Dollar cost averaging
Dollar Cost Averaging Example
Month Amount Invested Cost per Share No. of Shares
March $100 $
April $100 $
May $100 $
June $100 $
Average cost per share $

20. Tax-defer (legally) TERM 9: TAX-DEFERRED SAVINGS 401(k)
(Paying unnecessary funds to Uncle Sam
is not conducive to nest egg growth!)
401(k)
Traditional IRA
Roth IRA
Annuities
Limit trading
Tax-defer (legally)

21. Fees TERM 10: FEES Mutual funds - use no-load
Mutual funds - find low annual expense
Avoid frequent trading
Buy for the long term

22. Allocation/Diversification
TERM 11: ALLOCATION
Allocation/Diversification
From:

23. Rule of thumb Rules of thumb...(not really rules, just suggestion)
For retirement monies…
The percentage of fixed income = your age
(cash counts as part of fixed income)
60 years old: 60% bonds, 40% stock
50 years old: 50% bonds, 50% stock
40 years old: 40% bonds, 60% stock …
Rule of thumb

24. Apply the terms! Check list for Investment Concepts What you do today
does make a
difference in
what you have
tomorrow.
Apply the terms!

25. Be money smart for life