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401K THE BEST VEHICLE FOR WEALTH ACCUMULATION
401K THE BEST VEHICLE FOR WEALTH ACCUMULATION
Benefits of 401K
Free Money Company Matching
Money grows tax-deferred
Reduces taxable income
Investment Choices
Best way to invest for retirement (see handouts for Soc. Sec. and baby boomers)
CONTRIBUTE TILL IT HURTS
Before 5% After 15%Gross Income $4,000 $4,000Contribution 5% $200 $600 (Max 15%)Taxable Income $3,800 $3,400Tax (18%) -$684 -$612Net Income $3,116 $2,788Bi-Monthly $1,558 $1,394Difference - $164 per pay check
Time Value of Money
Rule of 72
72 divided by rate of return = Years for money to double Example: 72 divided by 12% = 6 years for money to double. Example: 72 divided by 3% = 24 years for money to double.
See hand out
Rule of 72
http://www.moneychimp.com/features/rule72.htm
FINANCIAL PLANNING
Individuals dont plan to fail, they fail to plan
Ira Calculators http://www.21stcenturyinvestoreducation.com/public/IRATool.aspx
http://www.agedwards.com/public/content/fcgi/calcs/retplan.fcgi
http://www.oprah.com/money/jeanchatzky/groups/guide/guide_parents_e.jhtml
http://www.moneychimp.com/calculator/retirement_calculator.htm
BACKGROUND INFO AND SOC. SEC.
See Soc. Sec. handout
BACKGROUND INFO AND SOC. SEC. Contd
Basics of Investing
Loaner of Money Bonds, money markets collect interest, considered conservative. Risks- issuer, time, inflation
Owner of assets Real estate, gold, company stock
The 2006 Florida Land Value Survey results indicated that the value of all types of agricultural land increased between 2005 and 2006. Increases in land values were higher in both the northern and southern regions of the state and for all types of land, but the rate of increase between 2005 and 2006 was lower than the previous year. The percentage increase ranged between 2.8% and 13.5% across the state. The survey results from land sales professionals indicate that the average value of agricultural land ranges from approximately $4,100 per acre for unimproved pasture in the northern region to just over $7,000 for irrigated cropland in the southern region of the state.
The St. Joe Company, symbol JOEThe company has approximately 850,000 acres of land concentrated primarily in northwest Florida, as well as approximately 346,000 acres within 10 miles of the coast of the Gulf of Mexico. $2.89 billion market cap divided by 1,196,000 acres = $2,400 an acre
Stock was $80 in 2005.
Anadarko Petroleum (APC)
What Is a Mutual Fund
Portfolio of marketable securities (stocks, bonds, money markets).
The portfolio is actively managed and does change.
Professionally managed by highly qualified investment professionals.
Can be monitored and is priced at the end of the day.
How Do You Make Money in Mutual Funds?
Capital appreciation ( fund price increase)
Short and long-term gain distributions
Dividends
Reinvest, more shares
How to Select a Mutual Fund
Morningstar - Mutual fund research
Performance
Management tenure
Risk
Portfolio Management - Style, methodology, investment philosophy
See Spreadsheet, Handout
Bear Markets and Recessions Problem or Opportunity?
Bear Markets and Recessions Problem or Opportunity?
Bear Markets and Recessions Problem or Opportunity?
Bear Markets
The traditional definition of a bear market is a 20% decline from a previous peak with a combination of a broad-based market deterioration, with a negative backdrop of psychology, economic and corporate performance.
Since 1929 we have had 14 bear markets.
Average decline = 31.27% (smallest = 21.2% in 1990, largest 47.9% 1929)
Average time to trough = 11 to 13 months ( quickest = .75 years 1990, longest 25.2 years 1929)
Most bear market are associated with a recession. By the time a recession is official much of the damage to stocks has already been done.Recession
Old definition 2 quarters of declining GDP
Definition according to NBER - A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion.
http://www.nber.org/cycles/recessions.html
Most business recessions last 10.9 months.
ANNUITY VS. LIVING OFF CAPITAL
Annuity - Lifetime income, deplete capital, nothing for posterity
Living off Capital Posterity
Example - $1,000,000 @ 6% (bonds)$60,000 plus Soc. Sec $18,000$1,000,000 intact goes to heirs, favorite charity.
SUMMARY
401K Best Vehicle to Accumulate Wealth
Rule of 72, Power of Compounding
Dont Fail to Plan Use Retirement Tools
Changing Global Demographics Suggest Need to Plan and Invest Globally
Know How to Analyze and Choose Mutual Fund Morningstar
Legacy vs. Annuity