Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of...

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Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403b’s IRA’s Investing Options

Transcript of Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of...

Page 1: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.

Saving and Investing to Build Wealth

• Steps to Financial Freedom• Savings Plan and Methods• Power of Compound Interest• Saving for Retirement• 401ks, 403b’s• IRA’s• Investing Options

Page 2: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.

Building wealth is like building a brick wall.

• Set realistic goals.• Work to accomplish each

step-• Prior to moving to the next

step.

One brick on top of the other;Make sure the wall is solid;Add another brick.

Page 3: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.

Dream Your Goals

• “A goal without a plan is just a wish.”• This activity will help you put an

approximate price tag on your financial goals. (worksheet)– How much for a wedding?– How much for a down payment on a car? – What will the financing cost?– How much to pay for college in five years?– New heater, head gasket on car, etc.?

Page 5: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.

Good Debt and Bad Debt• Good Debt:

– Car loan and home – Save to buy special wanted items– Things I need and can afford

• Bad Debt– Things I want, not need– Things that make me feel good (conspicuous spending) – Have no long term value or growth potential

• Borrow strategically will help you meet long term goals

• “What Is My Worth?” – (handout)

Page 6: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.

SAVING -

Diversification not putting all financial

“eggs” in one basket.

Page 7: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.

COMMODITIES

PENNY

STOCK

SPECULATIVESTOCKS/BONDS/

MUTUAL FUNDS

COLLECT-IBLES

FINANCIAL

PLANNING

PYRAMID

Highest Risk/

Highest Earnings

Lowest Risk/

Lowest Earnings

BLUE CHIP COMMON

STOCK

REAL ESTATE

GROWTH MUTUAL FUNDS

BALANCED MUTUA L FUNDS

HIGH-GRADE PREFERRED

STOCK

HIGH-GRADE CONVERTIBLE

BONDS

MONEY MARKET

ACCOUNTS or MUTAL FUNDS

HIGH-GRADE MUNICIPAL BONDS or

MUTUAL FUNDS

HIGH-GRADE CORPORATE

BONDS or MUTUAL FUNDS

INSURED SAVINGS/

CHECKING ACCOUNTS

U.S. SAVINGS BONDS

CERTIFICATES OF DEPOSIT

TREASURY ISSUES

AUTOMOBILE INSURANCE

HOMEOWNERS OR RENTERS

INSURANCE

LIFE INSURANCE

MEDICAL/ DISABILITY INSURANCE

LIABILITY INSURANCE

Page 8: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.

The Rule of 72……states that 72 divided by the interest rate will result in the number of years it will take your investment to double…...

Page 9: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.
Page 10: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.
Page 11: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.

Three Questions:Every Financial Advisor Should Ask.

• How much do you want to invest?

• For how long do you want to invest?

• How’s your risk tolerance (stomach)?– Can you handle volatility over the long period

of investing?– Is this money you need or money you want!

Page 12: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.

Savings Accounts• Savings accounts are accounts at financial

institutions designed to keep your money safe and help it grow.– Low interest rate– Provides liquidity– Losing growth to inflation

• Guaranteed by FDIC up to $250,000• You can make deposits and withdrawals as needed• Initial deposit varies with the bank. From $1 to as

much as $1,000

Page 13: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.

Insured v. Uninsured Accounts

• Savings accounts and bank CDs that are insured by the FDIC offer a smaller return because they are safer.

• Stocks, bonds and mutual funds are not insured or offer guarantees.

• There is not a single investment that gives you high return, low risk, and ease of access (liquidity).

Page 14: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.

CDs, or Time Deposits

• Certificates of deposit (CD’s) are a safe way to make your money grow.

• The longer you leave your money on deposit, the higher interest rate you’ll earn.

• Length of deposit varies form 1 month to 5 years.

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U.S. Treasury Investments• Include Savings Bonds and Treasury Bills.

• When you buy treasury securities you are making a loan to the government.

• Interest varies, but you are always guaranteed a minimum return

• Low risk, low return

• Interests and principal payments are backed by the federal government

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Treasury Bills

• T-Bills are sold for less than their face value.

• Your profit is the difference between the purchase price and the face value.

• T-Bills pay you back with interest in one year or less from their issue date.

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U.S. Savings Bonds• Interest can vary, but you are always guaranteed a

minimum return.

• Dominations ranging from $50 to $10,000.

• Maximum purchase in one year is $5,000.

• Redeemable only to the person to whom they are registered.

• Earnings on savings are not tax deductible.

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Stock Market Risk

• No guarantee that stock prices will go up or that you will make money on stocks.

• Banks now sell all types of investment products which are NOT insured.

• BE AWARE! Volatility can be bad and good!

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Bonds• U.S. Government Bonds (Treasuries):

– Exempt from state and local taxes. – U.S. Treasury bills -- maturities from 90 days to one year – U.S. Treasury notes (coupons) -- maturities from two to 10 years – U.S. Treasury bonds -- maturities from 10 to 30 years

• Municipal Bonds– Many muni’s are safe from city, state and federal taxes.

• Corporate Bonds– Riskiest fixed-income securities.– Susceptible to economic problems, mismanagement and

competition.– Pan Am and Chrysler bankruptcies of 1979 come to mind.

Page 20: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.

Mutual Funds• Are a portfolio of stocks, bonds, and other

securities.

• Run by a fund manager who gets a commission.

• Each investor in a fund shares in the fund’s gains, losses and expenses.

• A way to “diversify” or spread out your risk.

Page 21: Saving and Investing to Build Wealth Steps to Financial Freedom Savings Plan and Methods Power of Compound Interest Saving for Retirement 401ks, 403bs.

Saving for Education

• There are a number of special accounts that can help you save for your children’s college educations.– Unified Gift to Minors Act (UGMA’s – Age 18)– 529 College Savings Plans– IRA’s can be used for educational expenses

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Traditional v. Roth IRA

Traditional Roth IRA

Who May Contribute Under age 70 ½ No age limit - MAGI Single below $116,000Married below $169,000

2008 Contribution Limit Individual: $5,000Married (jointly): $10,000Age 50+:$1,000 catch up

Individual: $5,000Married (jointly): $10,000Age 50+:$1,000 catch up

Federal Income Tax Deductible

Deductible if part of employee plan

No income tax deduction

Tax-Advantaged Growth (5 year hold)

No taxes on distributions until you withdraw

Tax free growth and withdraws after age 59 ½

Required Distributions April 1st of the year after turning 70 ½

No mandatory age for taking distributions.