- 1. TEN WAYS TO WEALTH Lon W. Broske, CFS
2. TEN WAYS TO WEALTH 1. Have a long-term plan to reach 2 your goals 2. Do not follow the crowd 3. Do not speculate 4. Do not buy stocks on rumor 5. Do not use margin 3. TEN WAYS TO WEALTH 6. Hire a professional financial advisor 7. Do not let emotion overrule logic 8. Own a diversified portfolio 9. Do not time the market 10.Update your plan every two years 4.
- Define Your Investment Objectives
- Build A Portfolio That Fits Your Objectives And Your Risk Tolerance
#1HAVE A LONG-TERM PLAN TO REACH MY FINANCIAL GOALS 5.
- #2 DO NOTFOLLOW THE CROWD
- Inflows of new cash into certain sectors are almost entirely driven by the mostrecentperformance of that sector.
- The most common mistake investors make is to pile into hot sectors that have become extremely overvalued.
Source: Morningstar, Inc. Past performance is no guarantee of future results. 6.
- The Morgan Stanley Hi-Tech Index returned 111% in 1999.
- In the first 3 months of 2000, investors poured nearly $34 billion into this sector.
- Result?For the 5 years ending 8-31-05, the Hi-Tech Index lost 89% of its value.
Source: Commodity Systems, Inc., Lipper Inc., Past performance is no guarantee of future results. The Morgan Stanley Technology Index is unmanaged and cannot be invested into directly. 1999 was a period of unusually high performance for the technology sector. 7. HAZARDS OF CHASING PAST PERFORMANCE: Source:Commodity Systems, Inc., NAREIT Booms and Busts Examples of large variances from year to year Gold/ Equity YearSilver REIT Hi-Tech EndIndex Index Index 1993 85% 1994 -17% 1997 13% 1998 -22% 1999 111% 2000 -27% The Philadelphia Stock Exchange Gold/Silver Index, the Nareit Equity Index, and the Morgan Stanley Technology Index are all unmanaged and cannot be invested into directly. 1999 was a period of unusually high performance for the technology sector.Past performance is no guarantee of future results. 8. #3DO NOT SPECULATE Everyone knows that most people who speculate or gamble in the market lose money at it in the end. The people who persist in trying it are either unintelligent orwilling to lose moneyfor the fun of thegameIn any case, they are not reallyinvestors at all. -- Benjamin Graham R W=Q+T+D 9. #4DO NOT BUY STOCKS ON RUMOR 10. #5DO NOT USE MARGIN Whats in Your Wallet? 11. #5DO NOT USE MARGIN Whats in Your Wallet?
- Borrowing money to buy stock dramatically increases your risk
- You have to pay interest on the money you borrow to buy the stock on margin
- A margin call could force you to sell your stock at a depressed price
- Assume that shortly after Berkshire Hathaway acquired General Re in April 1998, a friend told you that No one haseverlost money in Berkshire, and this is thebiggestbet that Warren Buffett has ever made.
A Margin Horror Story 13.
- You decide to buy 10 shares of Berkshire Class A on June 22, 1998 for $84,000 per share-- an $840,000 total investment.Feeling confident, you decide to use 50% margin.
- Unfortunately Berkshire declines to $40,800 by February of 2000.
- Unable to put up more margin, you are forced to sell. Your $420,000 investment is now worth ZERO.
- By the end of 2002, Berkshire recovers to $72,750, but unfortunately, you were forced out of your position.
14. #6Hire a Professional Financial Advisor 15. WHY HIRE A PROFESSIONALFINANCIAL ADVISOR?
- Quality advice can make a difference.
- To help you work toward financial security.
- To help you clarify your goals and identify your ability to withstand market fluctuations.
16. WHY HIRE A PROFESSIONALFINANCIAL ADVISOR?
- To develop and monitor a diversified portfolio designed to help you meet your goals.
- To help you remain on course with your long term objectives especially in those times when it is emotionally difficult to do so.
17. WHY HIRE A PROFESSIONALFINANCIAL ADVISOR?
- To help you get your financial matters in order so you are prepared for the unexpected.
- To help you maximize tax savings and take advantage of money saving opportunities.
- Our job is not to make you rich, but to save you from becoming poor.
18. What do each of the following have in common? 19. ANSWER:THEY ALL HAVE PERSONAL COACHES 20. A ProfessionalAdvisors MostImportant Job According to University of Nebraska Sports Psychologist, Dr. Jack Stark: Behavior managementis probably the most important element in the service that a professional financial advisor can provide for his clients. 21. #7DO NOT LET EMOTIONOVERRULE LOGIC Do not let the news of the day distract you from your long-term plan. 22. The Cycle of Market Emotions Optimism Excitement Thrill Euphoria Anxiety Denial Fear Desperation Capitulation Panic Despondency Depression Hope Relief Optimism Point of Maximum Financial Opportunity - Investors Realize Investment Opportunity Point of Maximum Financial Risk - Investors Beware of Higther Investment Risk 23. Bear Markets May Provide Opportunity December 1957 43.4% 13.3% 12.8% June 1962 31.0% 14.2% 10.4% September 1966 30.5% 8.7% 6.9% June 1970 41.9% 9.3% 9.0% September 1974 38.1% 16.7% 15.6% July 1982 59.3% 29.6% 19.2% November 1987 23.3% 17.3% 18.7% October 1990 33.5% 17.3% 19.4% August 1998 39.8% 13.19 Average 37.9% 15.8% 14.0% Source: Thomson Financial - Past performance is no guarantee of future results.Returns shown are for the Standard & Poors 500 Index.The S&P 500 index is unmanaged and cannot be invested into directly. End date ofBear market 10 years later 5 years later 1 years later 24. S&P 500 vs Panic Points It is not possible to invest directly in a market index.Past performance is no guarantee of future performance. Since World War II 25. If, at December 31, 1925,youknewwhat was coming 1929 - Stock Market crashes 1933 - U.S. banks closed, depression 1939 - World War II begins1941 - Japan bombs Pearl Harbor1950 -Korean War begins1962 - Cuban Missile Crisis 1963 - Kennedy assassinated 1973 - OPEC oil embargo 1974 -Nixon Resigns, Watergate 1980 - Inflation rate rises to 14% 1982 - Worst recession in 50 years 1987 - Dow crashes 23 % in one day 1989 - S&L crisis, $500bn bailout 1990 - Persian Gulf War, recession 1997 - Asian financial crisis 1998 - Russian default 1999 - Clinton impeachment trials2001 - Terrorist attacks on America 26.
What wouldyou have invested in? 27. If you answered stocks,you would have been right: Ibbotson Associates cumulative total return indices for S&P 500 and 3-Month Treasury Bills.It is not possible to invest directly in an index.Past performance is no guarantee of future results. Stocks T-Bills Reflects the growth of $10,000 invested on Dec. 31, 1927 to Dec. 31, 2004 $174,400 $9,799,411 28. What if you wantedto seek preservation of principal? 29. T-BILLS MAY NOT BETHE BEST SOLUTION. After inflation and taxes, $10,000 continuously reinvested in 3-month T-bills was worth only$5,221 .Your after-tax, inflation-adjusted purchasing power wouldve beenreduced by 48%after having invested for 76 years ! Ibbotson Associates cumulative total return indices for 3-Month Treasury Bills adjusted for both inflation and taxes.Investment period from 12/31/25 - 12/31/01.It is not possible to invest directly in an index.Past performance is no guarantee of future results.Your results will vary.Taxes are based upon the top marginal personal income tax rate in the U.S. each year.Inflation is based upon the change in the Consumer Price Index. 30. How diversified are you really? 31. #8OWN A DIVERSIFIED PORTFOLIO Assume it is 12/31/71 and you are blessed with perfect foresight about these annual asset class returns over the next 29 years.How would you allocate your retirement plan? Indices used to represent asset classes depicted above are the S&P 500, the Morgan Stanley EAFE Index, the NAREIT Equity REITs Index and the Goldman Sachs Commodity Total Return Index, respectively.It is not possible to invest directly in a market index.Past performance is no guarantee of future performance. 32. AND THE WINNER IS... Bycombiningfour non-correlated asset classes, you were actually able to obtain a portfolio return which ishigherthan any of the four individual asset classes in which you invested and with less risk! The 25% of Each Portfolio was rebalanced on January 1 of each year, 1972-2000.Indices used to represent asset classes depicted above are the S&P 500, the Morgan Stanley EAFE Index, the NAREIT Equity REITs Index and the Goldman Sachs Commodity Total Return Index, respectively.It is not possible to invest directly in a market index.Past performance is no guarantee of future performance. 33. Why Diversify?Because Winners Rotate: The indices used for Large-cap, Small-cap, Real Estate, and Foreign Stocks are the S&P 500, Russell 2000, NAREIT Equity REITs Index, and the Morgan Stanley EAFE Index, respectively.One cannot invest directly in an index.Past performance does not guarantee future results.LARGE- SMALL- REAL YEAR COMPANY COMPANYESTATE FOREIGN STOCKS STOCKS STOCKS STOCKS 1982 21.6 25.0 21.6 -1.9 1983 22.6 29.1 30.6 23.7 1984 6.3 -7.3 20.9 7.4 1985 31.7 31.1 19.1 56.2 1986 18.7 5.7 19.2 69.4 1987 5.3 -8.8 -3.6 24.6 1988 16.6 25.0 13.5 28.3 1989 31.6 16.3 8.8 10.5 1990 -3.1 -19.5 -15.4 -23.5 1991 30.4 46.0 35.7 12.1 1992 7.6 18.4