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WHY Learn to Save and Invest?

Christon “The TRUTH” Jones

13 years old!

Started investing and writing book at age 8.

Professional Day Trader! Trains People to Invest!

Wrote a book about motivation and sales.

Recently made $18,000 in 3 days by creating an investment course!

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Basic Finances for Teens - 3 M’s

Mindset

Money

Management

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Would you like to be a millionaire?

I know the secret….

High School Graduate $1,486,000

College Graduate $2,557,000

Spend less than you make!

Income is not the key…saving is.

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What is Wealth?

Most of us define wealth as the dollar value of the assets that we own. To determine our wealth we add up all that we own and subtract all that we owe – that equals our net worth.�
Simply put:

Own – Owe = Wealth

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Budgeting

Budgeting (controlling your spending) will allow you to increase your wealth.

3 M’s of budgeting

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Budgeting Tips

Pay yourself first.

Be honest with yourself.

Don’t give up.

Other people don’t budget and they are fine. Really?

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Savings

Difficult to do.
Allows us to set money aside for emergencies.
Allows you to have the freedom to make choices.

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Types of Accounts

Do Your Research

Banks accounts are insured for up to $250,000.

Bank account features vary from bank to bank.

CHECKING / SAVINGS / Money Market / CD

The Greater the RISK, The Greater the RETURN!

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Stocks, Bonds, Mutual Funds

Each of these items is a way to invest the money that you have earned.
Stocks = you become one of the owners of a corporation. You can receive dividends, vote for the board of directors, and sell your stock.
Bonds = you make a loan to a company or government entity. They agree to pay you back over time at a set rate of interest.
Mutual Funds = a bundle of these assets used to diversify risk

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Credit vs Debit

DEBIT CARDS

A debit card gives you electronic access to your account.
If you are overdrawn you will be charged a fee.

Consumers who shop with debit cards tend to spend about 30% more than those shopping with cash.

CREDIT CARDS�

Credit card is a pre-approved loan
You will pay interest each month if you don’t pay it off in full
Credit card companies are highly regulated about marketing to those under 21
If you spent $1500 when you were 18 on a credit card with 18% interest rate and paid the minimum amount it would take until you were 26 to pay off the balance.

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Investing Topics

What are stocks? What is the stock market?

How do we make money off investing in stocks?

Why should I invest?

Why stocks or mutual funds? Why not just save?

How should I invest?

Understanding yourself to determine your financial goals
Finding what you can do and what you want to do

Where do I start?

What resources are out there? How can I learn more?
How do I start investing?

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Stock Basics�(What are stocks?)

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What is a stock?

Common stock – most “common” type
Gives you a “share” of ownership of a publicly traded company

Claim on its assets and earnings (dividends)

Also something called “preferred stock”

Fixed dividend payments

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What is a stock?

Ticker symbols

Set of letters that represent a security traded on an exchange
Ex. MSFT, GS, AAPL, MA, BUD, LUV

What are capital gains?

Increase in value relative to the purchase price
Not realized until asset is actually sold

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The Markets

Exchanges

Lists stocks and sets policies for how stocks are traded

Major exchanges

New York Stock Exchange (NYSE)
American Stock Exchange (AMEX)
NASDAQ

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The Indices (index)

Imaginary collection of stocks that is supposed to represent the stock market

S&P 500

(500 largest companies on US stock Market)

Dow Jones

(30 most significant stocks in the stock market)

Nasdaq Composite

(index representing all the stocks on the Nasdaq(tech))

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What Causes Stock Prices to Change?

Supply and Demand
Earnings (expectations)
Sentiments, attitudes, & sense of greed
Economic Indicators
Follow the leader
Manipulation
LOTS of different theories

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Why invest? Why stocks?�(What about my savings account?)

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What is this course about?

	1976-2000
Investment	Average Annual Return
S&P 500		11%
Small-Company Stocks		12%
U.S. Treasury Bonds (short-term)		4%
U.S. Treasury Bonds (long-term)		5%
Savings Interest Rate		1-3%
Inflation		2-3%
Source: The Motley Fool Guide: How to Start Investing

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136% Gain in less than 1 year

NASDAQ (1999-2001)

+50% loss in 1 year

You can make good money…

(But don’t forget, you can lose a lot of it too)

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Apple Computers (+750% in 24 months)

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Urban Outfitters (+330% in 23 months)

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Determining Your Financial Goals

How should I start investing?

(What kind of investor am I?)

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Determining Your Financial Goals

Investing is a long car trip. There needs to be a lot of planning that goes into it.

How much money do you want to make? By when?
Will you need to live off your investments in future years?
What will you be using your money for?

Having a good understanding of yourself will allow you to align your risk tolerance with various strategies
Think about your risk tolerance, time horizons for your investments, and your time commitment

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The Risk / Return Tradeoff

“principle that potential return rises with an increase in risk”

Low risk with lower returns, high risk with high returns

Important to know your personal risk tolerance when choosing investments

Balance between risk and reward

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What is Your Risk Tolerance?

Source: Investopedia. “Determining Risk and The Risk Pyramid.” May 2 2003

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Source: Investopedia. “Determining Risk and The Risk Pyramid.” May 2 2003

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Commitment and Interest

It all comes down to one question

Do you want to actively choose or be a part of the decision to determine which companies to invest in?
Do you want your investments to determined by some third-party?

Is it interesting to you? Can you commit the time and effort to keep up with the market news?

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Active versus Passive Management

Active management

Managing your own portfolio, determining which stocks to own and when to buy/sell
Discussing with your broker what stocks you might want him to invest for you
Choosing between different mutual funds

Passive management

Choose one mutual fund and forgetting about it for the next 10 years
Buying an index fund or having your portfolio match the index fund at all times

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Where and how do I start?�(Starting an account, resources for learning)

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Keep learning!

Make sure you understand the basics

Investopedia (www.investopedia.com)
Motley Fool (www.fool.com)
Investor Guide (www.investorguide.com)
These sites also have introductions to certain investing strategies

Books (learn from the greatest investors)

How to Make Money in Stocks (William O’Neil)
Beating the Street (Peter Lynch)
Lessons from the Great Stock Traders of All Time (John Boik)
The Warren Buffet Way (Robert Hagstrom)

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Brokerages

Need a medium to trade through (brokerages)

Choosing a broker

full service vs. discount

Fees (Commission)
Services
Minimum balance

http://www.investingonline.org/gso/broker_ratings.html

http://www.consumersearch.com/www/internet/online-brokers/reviews.html

http://www.stockbrokerguide.com/

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Mutual Funds

Funds in which investment professionals manage your money and decide on the investments

These funds often amount to millions and billions of dollars and come in a variety of types

Advantages

Simplicity / Professional Management / Diversification / Liquidity / Usually Low Risk

Disadvantages

Fees (and lots of them)

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Opening an Account

Not a hard process- most of it just some paperwork and mail

Sign-up online and download forms
Mail checks, forms, and copy of ID
Accounts created within a couple of days

Cash accounts usually never turned down

Margin accounts might be a problem if you have pretty bad credit history

To start investing, won’t need much else other than a computer, some money, and investing know-how

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Virtual Simulation

When you first start out, learn and try out your strategies on a virtual simulation

Allows to set up an imaginary account and trade virtual money on the real market with real-time updates

Thought not completely the same as real money, it will give you an idea of how the market works and how you will want to approach investing

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Final Thoughts

Learn the basics!

Can’t learn to run an offense without knowing how to bounce a ball and score

Figure out yourself and how you want to invest

Have some specific financial goals and match that with a strategy

Keep learning and starting doing

Best way to learn is to actually try investing