Econ. Chapter 12: How to Invest Your Money

Investing: Chapter 12.

“Do You Feel Lucky Punk, Well Do Ya?” Clint Eastwood, Dirty

Harry.

SAVINGS

“A penny saved is a penny earned.”Ben Franklin

Savings = Investments = Profits = Reinvestments =

Puritans? Because of their religion, Puritans saved most of their

money in banks.

This later provided the “Seed” money for the U.S. Industrial Revolution.

QuickTime™ and aTIFF (Uncompressed) decompressor

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Financial Markets. Savings and the Financial System.

1. CAPITAL FORMATION is creating financial assets. MONEY.

2. Savings = Investments = Profits = More Savings = More Reinvestment….and so on!

Futures

O.TC.

Individual Stocks.

Mutual Fund Stocks

Mutual Fund Bonds

Corporate Bonds

Government Bonds.

Cash-Savings-Insurance-Home-Retirement-525-529 Plans-

BANKS

Banks and Financial Intermediaries.

1. Banks receive money from those who have it and LOAN it to people who need it.

2. Financial intermediary = Money recycler.

3. With out banks the economy dies.

NO NOTES!

Non Bank Financial Intermediaries.

1. Finance companies.

2. Life Insurance co.

3. Mutual funds.

4. Pension funds.

5. Real Estate Investment Trusts.(REITS).

Start Saving Money Now!

Regular Bank

1. Pick a bank and start regular monthly savings.

2. Have a pre set amount taken out AUTOMATICLY.

3. Avoid debit cards for at least ONE account.

Credit Union

1. Join a C.U. over a regular bank!

2. C.U’s exist for the benefit of its members.

3. Much easier to get loans than from regular banks.

Why Don’t Americans Save Anymore?

Household Savings Rate and the Ratio of the S&P 500 to Nominal GDP

0

2

4

6

8

10

12

1970 1975 1980 1985 1990 1995 2000 2005

Ho

useh

old

Savin

gs R

ate

0

20

40

60

80

100

120

140

160

180

S&

P 5

00 t

o N

om

inal

GD

P R

ati

o (

1972=

100)

Household savings rate

S&P 500 / Nominal GDP

*Statistics current as of 1999.

Inflation And Your Money

Average New Car

Half Gallonof Milk

CollegeEducation

Loaf of Bread

Average New Home

1980

$1.09

$.52

$4,806

$7,571

$64,600

Current

$3.50

$3.55

$14,500

$35,000

$250,000

Inflation a Big Factor.

Source: Ibbotson Associates, 1999 Past Performance is no guarantee of future results.

10000

1000

100

10

1

S&P 500

U.S. LT Gvt

U.S. Inflation

U.S. 30 Day TBill

The Bite:

Assuming a 3% inflation rate, you would need more money each year to have the same buying power:

Year 1: $56,000

Year 2: $57,680

Year 3: $59,410

Year 4: $61,193

Your investment would need to earn more than 3% just to beat inflation

Why MUST You Understand Investing?

1. Banks pay so little INTEREST that you lose money because of inflation.

2. People are forced to invest in stocks/bonds to get ahead of inflation.

3. IF you ever want to retire, you need to understand the financial markets and tax advantaged retirement vehicles.

INVESTING:Putting money into something TODAY, in

the hopes that in some FUTURE date it’ll be worth more.

ALL investments have some or a lot of RISK.

RetirementDo you want to work until you

die?

Retirement1. Very few “Defined Benefit”

retirement programs.

2. The BEST retirement plans have a matching program that the workers invests in stocks or bonds..

3. IF the worker invests well, they can retire, if not….

RetirementDefined Program:

1. Based on a formula, a worker is guaranteed a set pension for the rest of their life.

2. The formula is age of retirement, years of work, and amount of money contributed.

3. The only “Defined” pensions now are gov’t workers.

Non Defined Programs:

1. Based on workers contributions and MAYBE the employer’s to a 401k or Roth IRA.

2. Retirement total based on amount invested.

3. Where and what it is invested.

4. How the market performs over a period of time?

5. A lot of LUCK is needed!

Tax Advantaged Retirement

401k:

1. Invest up to $5000.00 a year.

2. NO tax when you earn it.

3. NO tax while it’s invested.

NO tax on investment return.

4. Use it when 59.5 years of age.

Roth IRA:

1. $5000.00 a year.

2. Taxed when you EARN it.

3. No tax while it’s invested.

4. No tax when retired.

5. NO penalty if used before retirement.

403b and 457 Government/Non-Profit.$403b Non-Profit.

1.Shelter $7,000 a year.

2. Can borrow against it.

3. Access it at 59.5.

4. NOT taxed when earned and invested.

457-Gov’t Employees.

1. Same as 403b.

2. NO penalty for early withdrawal.

Taxable vs. Tax-Deferred EarningsTAXABLE ACCOUNT

TAX-DEFERRED ACCOUNT

Stock investment $100,000 $100,000

Annual 7% return $7,000 $7,000

Tax on realized gains or dividends (15% long-term capital gains tax)

-$1,050 -$0

Reinvested amount $105,950 $107,000

After 10 years* $189,000 $210,500

After 20 years* $336,600 $414,100

*

Buy a Home!1. As soon as you are “Settled” buy

a home.

2. Best tax advantage for average person.

3. Build equity over time.

Tips About Buying a Home 1. FHA loans for first time home buyers is %3

percent down instead of %20!

2. ONE extra payment(13 v. 12) a year will turn a 30 year mortgage into 23 years.

3. IF you pay %20 more a month, the 30 year mortgage turns into 15. For Example:

$2000 (30 years) a month v. $2400 (15 years.)

Life Insurance

Futures

O.TC.

Individual Stocks.

Mutual Fund Stocks

Mutual Fund Bonds

Corporate Bonds

Government Bonds.


Two Major Kinds of Life Insurance.

1. Whole Life.

2. Term Life.

3. Each one has its advantages and disadvantages.

4. All life insurance pay outs are tax free events.

5. Most couples need 6-8 years of their yearly income as an insurance pay out.

Whole Life-Advantages

1. W.L. meant to be kept for a WHOLE persons life.

2. Premium stays the some-Forever.

3. Equity is built up over time.

4. You can borrow against the equity.

5. At some point, maybe ten years, the equity will pay the month premium.

Whole Life Disadvantages. 1. Monthly premiums much higher than term

insurance.

2. Most people cash in insurance before five years. Temptation!

Term Life-Advantages

1. Much lower premiums than Whole Life earlier on.

2. You can get much more coverage.

Term Life-Disadvantages.1. No equity/No borrowing.

2. Most people forced out by higher premiums by early forties.

3. Most people never collect.

So Whole Life or Term?Maybe a combination of both:

1. $200,000 of Whole Life.

2. $800,000 of Term Life.

3. As you age and have fewer bills and responsibilities, you can slowly reduce your Term Life and reduce your monthly premiums.

Another Insurance Product

ANNUITIES:

1. Put an amount into an annuity now, and then get a much larger amount later.

2. Tax free payout.

3. A person can take a periodic pay out that will last the rest of their life.

4. Steve Young USFL.

Disability Insurance1. It will pay you if you become ill or

disabled.

2. It may pay you up to 75% of your wages/salary.

3. It’s also tax free!

4. This insurance has a fixed term. Usually one year.

525 and 529 Plans-Medical and Educational

Tax Breaks.525 Plan

No pre/post tax dollars spent for:

1. Medical Bills.

2. Child Care.

No tax when you make it and no tax when it’s spend it.

529 Plan1. No pre/post tax on

money spent on a child’s education.

2. Child can use it till they 45.

3. Left over money can be used on other children.

4. No tax when you make it and no tax when it’s spent.

Words of Advice!1. NEVER, EVER GIVE SOMEONE

THE POWER TO INVEST YOUR MONEY WITHOUT YOUR KNOWLEDGE AND PERMISSION!

How Much Risk?1. Investing is NOT savings!

2. U.S. banks and government bonds are the ONLY %100 safe investment.

3. Normally, RISK equals potential return.

4. Individuals have different acceptable levels of risk.

5. Can you sleep at night with your investments?

16%

15%

14%

13%

12%

11%

10%

9%

10% 11% 12% 13% 14% 15% 16% 17%

Minimum Risk Portfolio25% Stocks, 75% Bonds

Maximum Risk Portfolio100% Stocks

45% Stocks, 55 % Bonds



100 % Bonds

Portfolios of U.S. Stocks and Bonds

Ret

urn

Risk

Investment Considerations Have a Plan:

Assess your goals and risk tolerance. Start Early/Time:

Invest early to take advantage of compounding and tax-deferred interest.

K.I.S.S: Keep It Simple Stupid. Stick with It:

Contribute to your investments consistently using techniques such as dollar cost averaging and don’t try to time the market.

Dollar Cost Averaging: Invest something every month. Diversification of investments: Don’t put all your eggs in the same basket. Diversify

Use asset allocation and different types of investments to strengthen your portfolio.

Mutual Funds

1. Most people who invest in stocks or bonds do so with

mutual funds.

2. 2. Experts invest money for you.

How Can You Make Money From A Mutual Fund?

1. IF the value of the stock, bonds, or securities goes up, so does each share.

2. IF the fund has profits it is given to the fund holder.

3. IF investors start pouring money into a fund, the share price will go up EVEN IF its investments haven’t improved.

Supply and Demand!

NET ASSET VALUE: N.A.V.

BONDS

Futures

O.TC.

Individual Stocks.

Mutual Fund Stocks

Mutual Fund Bonds

Corporate Bonds

Government Bonds.


BondsA bond is issued by the

government OR a corporation in order to borrow money.

They pay a fixed amount of interest to the bondholder or

the buyer of the bond.At the end of the term, the

principle is given back.

Mutual Funds & Risk

page 58

Mutual Funds are invested in a variety of ways dependent on their objective. Risk also varies dependent on investment focus

MONEYMARKETFUNDS

MUNICIPALBONDFUNDS

TAXABLE BOND FUNDS

STOCK &BONDSFUNDS

STOCKFUNDS

GLOBALEQUITYFUNDS

Income Equity Global EquityConservative

Aggressive

Bonds1. Primary Market: Issued directly

from the government or corporation.

2. Secondary market: Resold from individual/ institution to another.

3. The price or “Par Value” may be less or more than the “Face” value.

4. Supply and Demand effects price.

Relationship Between Bond Prices and Yields

When yields increase, bond prices decrease.

Price and yield are based on indexes and are illustrative; they assume reinvestment of income and no transaction costs or taxes. Past performance is no guarantee of future results. Index source: Government Bond—20-year U.S. Government Bond. Direct investment cannot be made in an index. Used with permission. ©2003 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from the work of Roger G. Ibbotson and Rex Sinquefield.]

$0

$.20

$.40

$.60

$.80

$1.00

$1.20

$1.40

$1.60

1925 1935 1945 1955 1965 1975 1985 2003

0%

2%

4%

6%

8%

10%

12%

14%

16%

Bond yields (%)Bond prices ($)

1995

Bond Prices and Yield.1. Bond price: You may not pay the

“Face” value of the bond.

2. Yield: How much TOTAL money will the bond buyer realize at maturity?

Types of Bonds.1. Certificate of Deposit.

2. Corporate bonds.

3. Municipal bonds.

4. Federal gov’t bonds.

Muni’s

Four Kinds of Federal Bonds.1. U.S. Savings Bonds.

2. Treasury Notes. 2-10 years.

3. Treasury bonds. 10-30 years

4. Treasury Bills. 13 to 52 weeks.

Bonds. Bond Components:

1. Coupon.

2. Maturity.

3. Par-value.

4. Discount

anyone?

`

Bond Ratings.1. The better condition of a company, the better

rating.

2. Better ratings means the company can offer bonds at lower interest rates

3. Bad ratings mean that HIGHER interest rates must be offered.

4. JUNK BONDS.

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JUNK BONDS

1. HIGH RISK bonds.

2. These companies have a high risk of failing.

3. What about a mutual fund of JUNK bonds?

4. Maybe.

Bond Markets.Primary market.

Secondary market.

Bond Market Performance Bonds typically carry less risk, but on average have not performed

as well as stocks historically.

1925–2003

AverageReturn

EndingWealth

Hypothetical value of $1 invested at year-end 1925. Results shown are based on indexes and are illustrative; they assume reinvestment of income and no transaction costs or taxes. Past performance is no guarantee of future results. Index sources: Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and is considered to be representative of the stock market in general; Corporate Bonds—Salomon Brothers Long-Term High-Grade Corporate Bond Index; Government Bonds—20-year U.S. Government Bond; Municipal Bonds—1926–1984, 20-year prime issues from Salomon Brothers’ Analytical Record of Yields and Yield Spreads and Moody’s Bond Record thereafter; Cash—30-day U.S. Treasury Bill. Direct investment cannot be made in an index. Used with permission. ©2003 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from the work of Roger G. Ibbotson and Rex Sinquefield.]

$.10

$1

$10

$100

$1,000

$10,000

1925 1935 1945 1955 1965 1975 1985 2003

3.7%$17.66

Treasury bills

1995

4.4%$27.71

Municipal bonds

5.4%$60.56

Government bonds

5.9%$86.82

Corporate bonds10.4%$2,285

Stocks

WAR BONDS

War Bonds

Drag picture to placeholder or click icon to add

War Bonds

Stock Market &Stocks.

Futures

O.TC.

Individual Stocks.

Mutual Fund Stocks

Mutual Fund Bonds

Corporate Bonds

Government Bonds.


Determining Your Risk Tolerance

Cash Equivalents

Cash Equivalents

BondsBonds

StocksStocks

Ret

urn

Ret

urn

RiskRisk

Mount Calvary Baptist Church

Equities/Stocks

Equities: These are stocks owned that represents a percent of ownership of a company. Every share you own is one vote!

What is a Stock?1. One share of a stock purchased

is part ownership of that company.

2. If you have 100 shares of KO (Coke), then you get 100 votes.

3. KO must pay you a share of its quarterly profits.

4. If the share price of KO goes up in value, you can sell it for a profit.

Stock Classification. A. Micro stock-Tiny co.

B. Small Cap. C. Medium Cap.

D. Large Cap. E. Growth v. Value?

F. Foreign/International or domestic?

How are Stocks Priced? 1. Book Barf: Efficient Market

Hypothesis.

2. Mr. King’s Barf: Supply and Demand, period!

3. Two biggest emotional stock buying/selling motivators? Greed and fear!

4. This can make the market CRAZY!

Is a Stock Expensive?1. Look at its Price to Earnings ratio.

Besides Price and P.E. What Else is Important?

1. YIELD: How much, in a percentage form, does the stock or bond make over a period of time?

How Can You Make Money From Stocks?

1. If the value of the stock goes up, it can be sold at a profit.

2. Many stocks pay a quarterly “Dividend.” This is your share of the profit.

3. Many invertors roll the dividend into buying more stock.

Stocks Offer Greater Investment Returns.

Historical Average is 11%


10000

1000

100

10

1

S&P 500

U.S. LT Gvt

U.S. Inflation

U.S. 30 Day TBill

Going PublicI.P.O.

1. Initial Public Offering. I.P.O.

2. Why sell shares of a company?

3. Creates cash for a company to grow.

4. Can make founders VERY rich!

Secondary Market

1. Once the stock is sold, it can/will be resold many times.

2. The company receives NO more money after I.P.O.

3. It can, however, sell more shares.

4. Vernon Davis 49ers? 4 million!

Hostile Take Over?1. Once a corporation has sold stock of itself, it

can be taken over by another corporation OR person.

2. The “Corporate Raider” has to buy %51 of the of the company to control it.

3. They can then run the company OR break it up and sell the pieces.

4. The parts might be worth more than the whole.

5. The C.R. may also be “Green Mailing” the company.

Levi’s went back to private ownership!

Remember Investment 101?

1. Set investment goals.

2. Know thy risk and reward.

3. K.I.S.S.

4. Dollar-Cost averaging.

5. Diversify..

6. Start Early.

Futures

O.TC.

Individual Stocks.

Mutual Fund Stocks

Mutual Fund Bonds

Corporate Bonds

Government Bonds.

Cash-

Savings

-Insurance-Home-Retirement-525

-529 Plans-

Inflation must be a factor.Growth of a Dollar


10000

1000

100

10

1

S&P 500

U.S. LT Gvt

U.S. Inflation

U.S. 30 Day TBill

Organized Stock Exchanges.

1. New York

2. American.

3. Over-The-Counter markets. (OTC.)

4. NASDAQ.

Measuring the Stock Market.1. Dow-Jones Industrial. (DOW.)

2. Standard and Poor’s. (S&P 500)

3. NASDAQ.

4. Russell 5000.

5. There’s more….

Make Up of the S&P 500

Index FundsThe Way to G0?

Futures

O.TC.

Individual Stocks.

Mutual Fund Stocks

Mutual Fund Bonds

Corporate Bonds

Government Bonds.

Cash-

Savings


-529 Plans-

Standard & Poor’s 500 Index.

This mutual fund index beats 80% of all mutual

funds every year.Very low annual fees.This would be a great

mutual fund for a beginner to start their investment

program.

Warren Buffets Will1. The “Oracle of Omaha” is one of

the most successful investors in world history.

2. Berkshire-Hathaway mutual fund. Stock price in 1967: $20.15 a share. NOW: $167,000 a share!

3. His Will instructed his aide to put %20 percent in bonds and the rest in an index fund for his wife.

TimeTime is ONLY on the side of the

young!

Fully Taxable Account

Fully Taxable Account

Tax-Deferred Account After

Taxes Paid

Tax-Deferred Account After

Taxes Paid

Tax-Deferred Account Before

Taxes Paid

Tax-Deferred Account Before

Taxes Paid

$74,695$74,695

$108,957$108,957

$157,900$157,900

Start Early

Tax Advantaged Investing

Time Equals Money. Start Early for Retirement!

Scenario A: $200 per month for 40 years

Scenario B: $400 per month for 20 years

Total investment are the same: $96,000 at 7% annual interest

Accumulated investment in Scenario A: $513,000

Accumulated investment in Scenario B: $210,500

Difference in results is effect of compounding over time

Time: Stay Invested.

Don’t Try Market Timing!

Stay Invested Reguardless of Events

page 119

Over the last few decades, there have been countless economic, social and political events that affected the market. Many experts believe that investment success requires commitment—not timing.

1970sVietnam WarNixon Devalues DollarWatergate Break-inAgnew ResignsOPEC Oil EmbargoNixon ResignsGas RationingThree Mile IslandIran Hostage Crisis

1980sPresident ShotAIDS Virus IdentifiedU.S. Becomes Debtor NationChallenger DisasterInsider-trading ScandalS&L BailoutIran-Contra HearingsExxon Valdez DisasterSan Francisco EarthquakeU.S. Invades Panama

1975 1980 1985 19901970

$10,000

$439,634

Growth of $10,000 Invested in Stocks (1970–2000)

Events Along the Way…

1995

100,000

200,000

300,000

400,000

$500,000

–

–

–

–

–

2000 (12/31/00)

1990sGulf WarL.A. RiotsOrange County DefaultOklahoma City BombingGovernment ShutdownAsian Economic CrisisImpeachment TrialEl NiñoRussian Bond Default

Compound 15.6% 13.9% 11.7% 9.9% 8.3%Return

$13,566

Missed theTop 5 Days

$6,603

Missed theTop 25 Days

Time in, Not Timing

20-Year Period (1/1/81–12/31/00)

Stay Invested—Trading in and out can be costly. (Hypothetical $1,000 investment)

No one can accurately predict market performance. Trying to do so by moving in and out of the market can be very costly.

$18,079

StayedInvested

$9,176

Missed theTop 15 Days $4,969

Bonds

If You…

62 Green 21 Red

Dollar Cost AveragingThis Helps Time To Be On YOUR Side!

Dollar Cost Averaging

Month Investment SharePrice

No. ofShares

1 $100 $10.00 10

2 $100 $ 9.00 11.11

3 $100 $ 8.50 11.76

4 $100 $ 9.50 10.53

5 $100 $10.00 10

Total $500 $9.36 (average) 53.4

Market Price

Time

Dollar Cost Averaging

$100 at $5/share =

20 shares (=20)

$100 at $10/share = 10 shares

(=30)


(=80)


(=90)

$100 at $20/share =

5 shares (=95)


(=105)

$100 at $33/share =

3 shares (=108)

Sold 108 shares @

$30/share = $3,240

$700 investment

yields $3,240

When did you buy the most shares?

When did you buy the least shares?

OK, Buyers? What is your tolerance for

risk in a down

market?

Bull v. Bear Market.1. Bull Market: Indexes and stocks trending UP for a

longer period of time.

2. Bear Market: Indexes and stocks headed DOWN for a longer period of time.

Investment Psychology Bull Market

1. As stocks rise it draws in more and more investors.

2. Even though many companies have the same fundamentals as BEFORE the B.M., more investors push up the price.

3. Supply and Demand.

4. A flood of investors push up the N.A.V., EVEN if their investments do nothing!

5. Another reason of Index Funds!

Bear Market

1. As stocks trend downward investors sell.

2. The sell off makes the market plunge.

3. Many investors end up buying high and selling low.

4. The BEST time to buy is in a BEAR market.

5. BUY LOW and SELL HIGH!

Bear Market: Bust or Stagnation.

How Long Can a Bull or Bear Market Last?

1. There is no set time.

2. The Worst Bear Market lasted from 1966-1982!

3. The LONGEST Bull Market lasted from 1982-2000!

Bull v. Bear.Q. When is the best time for a

long term investor to buy stocks/mutual funds?

A. During a Bear market!

Buy low and sell high!

Diversified Portfolios and Bear Markets

Mid-1970s Recession

$1,149

$1,014

Jun1976

$500

$1,000

$1,500

Dec1972

Dec1973

Dec1974

Diversified portfolio

Stocks

Diversified portfolios historically perform better through recessions.

1987 Market Crash

Dec1990

$500

$1,000

$1,500

Jun1987

Jun1988

Jun1989

$1,324

$1,227


Stocks

Diversified portfolios also historically perform better through bear markets.

Mid-1970s Recession: December 1972 through June 1976. 1987 Market Crash: June 1987 through December 1990. Diversified Portfolio: 35% stocks, 40% bonds, 25% cash. Hypothetical value of $1,000 invested at month-end December 1972 and June 1987, respectively. Diversification does not eliminate risk of experiencing investment losses. Results shown are based on indexes and are illustrative; they assume reinvestment of income and no transaction costs or taxes. Past performance is no guarantee of future results. Index sources: Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general; Bonds—20-year U.S. Government Bond; Cash—30-day U.S. Treasury Bill. Direct investment cannot be made in an index. Used with permission. ©2003 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from the work of Roger G. Ibbotson and Rex Sinquefield.]

Investment Bubbles 1. Tulip Bulb Craze. 1634-

1637.

2. South Seas Bubble. 1711.

3.Florida Real Estate Frenzy. 1926.

4. Stock Market Crash. 1929.

5. Stock Market Crash 1987.

6. Asian Crisis of 1969.

7. Dot Com Crash. 2005.

8. Real Estate/Bank Crisis of 2006.

Diversification and Asset Allocation

Every Dog Has Its Day!

Futures

O.TC.

Individual Stocks.

Mutual Fund Stocks

Mutual Fund Bonds

Corporate Bonds

Government Bonds.

Cash-

Savings


-529 Plans-

•Investing Begins with the Basics:

Diversification And Asset Allocation.

Diversified Portfolios and Bear Markets

Mid-1970s Recession

$1,149

$1,014

Jun1976

$500

$1,000

$1,500

Dec1972

Dec1973

Dec1974


Stocks

Diversified portfolios historically perform better through recessions.

1987 Market Crash

Dec1990

$500

$1,000

$1,500

Jun1987

Jun1988

Jun1989

$1,324

$1,227


Stocks

Diversified portfolios also historically perform better through bear markets.

Mid-1970s Recession: December 1972 through June 1976. 1987 Market Crash: June 1987 through December 1990. Diversified Portfolio: 35% stocks, 40% bonds, 25% cash. Hypothetical value of $1,000 invested at month-end December 1972 and June 1987, respectively. Diversification does not eliminate risk of experiencing investment losses. Results shown are based on indexes and are illustrative; they assume reinvestment of income and no transaction costs or taxes. Past performance is no guarantee of future results. Index sources: Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general; Bonds—20-year U.S. Government Bond; Cash—30-day U.S. Treasury Bill. Direct investment cannot be made in an index. Used with permission. ©2003 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from the work of Roger G. Ibbotson and Rex Sinquefield.]

Potential Asset Allocation for Your 20s and 30s.

Emphasis on long-term growth with stocks.

•Potential Asset Allocation for Your 40s and 50s:

Start moving your stock investments into bonds.

•Potential Asset Allocation for Your 60s and 70s:

Emphasis on capital preservation: providing income, avoiding loss/ Limited to moderate investment in stock to offset inflation.

$201,209.29

Asset Allocation at Work

Are foreign stocks too risky? Will bonds hold back your investment portfolio? Good questions. And one way to hedge these possibilities is asset allocation.

Growth of $10,000 over 30 Years (12/31/70–12/31/00)

Conservative

Bonds Foreign Stocks Stocks Commodities

10%

60%

30%

10%

40%45%

5%10%

15%70%

5%

Moderate Aggressive

$347,626.67$271,034.24

Conservative Retirement

Diversification

’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00

Large-Cap Growth Mid-Cap Small-Cap

Large-Cap Value International S&P 500

WORST

BEST

This table is for informational purposes only and is not meant to represent the performance of any Phoenix Investment Partners investment. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio, or that diversification among different asset classes will reduce risk.

-0.3 46.1 18.4 32.6 7.8 38.4 23.1 35.2 38.7 33.2 8.25

-3.1 41.5 16.3 18.9 2.7 37.5 23.0 33.4 28.6 27.3 7.01

-8.1 41.2 13.8 18.1 1.3 37.2 21.6 30.5 20.0 21.3 -3.02

-11.5 30.5 7.6 14.3 -1.8 34.5 19.0 29.0 15.0 21.0 -10.10

-19.5 24.6 5.0 10.1 -2.0 28.4 16.5 22.4 10.1 18.2 -13.96

-23.5 12.1 -12.2 2.9 -2.1 11.2 6.1 1.8 -2.6 7.4 -22.42


Diversification

’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00

Large-Cap Growth Mid-Cap Small-Cap Large-Cap Value International S&P 500

WORST

BEST

This table is for informational purposes only and is not meant to represent the performance of any Phoenix Investment Partners investment. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio, or that diversification among different asset classes will reduce risk.

-0.3 46.1 18.4 32.6 7.8 38.4 23.1 35.2 38.7 33.2 8.25

-3.1 41.5 16.3 18.9 2.7 37.5 23.0 33.4 28.6 27.3 7.01

-8.1 41.2 13.8 18.1 1.3 37.2 21.6 30.5 20.0 21.3 -3.02

-11.5 30.5 7.6 14.3 -1.8 34.5 19.0 29.0 15.0 21.0 -10.10

-19.5 24.6 5.0 10.1 -2.0 28.4 16.5 22.4 10.1 18.2 -13.96

-23.5 12.1 -12.2 2.9 -2.1 11.2 6.1 1.8 -2.6 7.4 -22.42


Asset Class Winners and Losers.

Highest return

Lowest return

Illustration of the annual performance of various asset classes in relation to one another. This chart is for illustrative purposes only. It does not reflect the performance of any specific investment. Results shown are based on indexes and are illustrative; they assume reinvestment of income and no transaction costs or taxes. Past performance is no guarantee of future results. Index sources: Small Company Stocks—Dimensional Fund Advisors, Inc. (DFA) U.S. Micro Cap Portfolio thereafter; Large Company Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general; International Stocks—Morgan Stanley Capital International Europe, Australasia, and Far East (EAFE®) Index; Government Bonds—20-year U.S. Government Bond; Treasury Bills—30-day U.S. Treasury Bill. Indexes are unmanaged. Direct investment cannot be made in an index. Used with permission. ©2003 Ibbotson Associates, Inc. All rights reserved. [Certain portions of this work were derived from the work of Roger G. Ibbotson and Rex Sinquefield.]

19981990 1991

1992

1993

1994

1995 1996 1997 1999 2000 2001 2002

1989

Internat’lstocks

Large stocks

LT gov’t bonds

Large stocks

LT gov’t bonds

Large stocks

LT gov’t bonds

Large stocks

LT gov’t bonds

LT gov’t bonds

Internat’lstocks

LT gov’t bonds

Large stocks

Internat’lstocks

Large stocks

Internat’lstocks

LT gov’t bonds

30 dayT-bills

30 dayT-bills

30 dayT-bills

30 dayT-bills

30 dayT-bills

30 dayT-bills

LT gov’t bonds

Internat’lstocks

Small stocks

Small stocks

Small stocks

Small stocks

Small stocks

Small stocks

LT gov’t bonds

Large stocks

Internat’lstocks

Small stocks

2003

Smallstocks

Largestocks

LT gov’t bonds

30 dayT-bills

Internat’lstocks

Internat’lstocks

30 dayT-bills

LT gov’tbonds

Smallstocks

Internat’lstocks

Small stocks

Large stocks

LT gov’tbonds

Internat’lstocks

30 dayT-bills

LT gov’tbonds

Smallstocks

Internat’lstocks

Large stocks

30 dayT-bills

Internat’lstocks

Cover Your Bases

What performs well today may not perform well tomorrow. Because you’ll never know exactly where the market is going, it may be wise to cover your bases with investments in every major asset class.

Average Annual Total Returns (%)

’70s ’80s ’90s 2000

COMMODITIES 21.76% 10.53% 4.58% 49.47%

FOREIGN STOCKS 6.21 18.91 4.58 –15.21

U.S. STOCKS 6.46 16.59 17.44 –9.11

BONDS 7.52 10.55 6.65 5.97

1993 Germany U.S.

1994 Japan U.K.

1995 U.S. Japan

1996 U.K. Japan

1997 U.S. Japan

1998 Germany Japan

1999 Japan U.K.

2000 U.S. Japan

The Best and Worst Performing Developed Markets (1985–2000)1

page 160

Best WorstWhile the U.S. stock markets have demonstrated strong growth, overseas markets also offer excellent growth potential.

Best Worst

1985 Germany U.S.

1986 Japan U.S.

1987 Japan Germany

1988 Japan U.K.

1989 Germany Japan

1990 U.K. Japan

1991 U.S. Germany

1992 U.S. Japan

What About International?

Futures

O.TC.

Individual Stocks.

Mutual Fund Stocks

Mutual Fund Bonds

Corporate Bonds

Government Bonds.

Cash-

Savings


-529 Plans-

Trading in the Future. High Risk!

1.Spot Market: Sale is in present time.

2.Futures Contract: An agreement to buy or sell at a set price in the FUTURE.

3.Many Ag products are sold this way and aviation fuel.

Option Markets. High Risk.1. Options give you the RIGHT to

buy or sell in the future.

2. Call Option: Right to BUY a stock or commodity in the future.

3.Put Option: The right to SELL a stock or commodity in the future.

Over The Counter Stocks. High Risk!

HIGH RISK stocks that can be called “micro” stocks.

Companies just getting started that are very small and are a very

risky investment.

O.T.C. and Futures.

1. These are very risky.

2. What about a mutual fund of O.T.C and future contracts?

3. Maybe!

Gold and Silver

Gold and Silver Bugs1. They are waiting for

economic collapse.

2. Don’t believe in FIAT money or banks.

3. Believe that Fort Knox is empty.

4. They buy gold coins and bars.

5. A lot of it is buried in their back yard.

Should You Own Gold/Silver?

1. Yes!

2. It is a great hedge against inflation AND a bad BEAR market.

3. Investing in gold mining stock is probably better than physically owning gold coins or Bars.

4. Some experts say that %5 to %10 of your portfolio should be in gold/silver stock.

5. There is an inverse relationship between Gold and the S&P 500.

International Crisis! 1. When the world turns into a mess, investors

run home to momma: GOLD/Silver!

2. 1970’s had stagflation, energy shortages, wars and the threat of war drove gold/silver prices sky high.

3. 2008 world-wide meltdown of real estate, stock market, banks, insurance companies, and auto industry sent gold to record highs.

Constant Dollars Gold Prices v.

Current Dollars Gold Prices.