2. Deciding to Save
✤ Learning to save successfully requires a thought out plan
✤ Consider what you are saving for?
✤ How you will save (what kind of account/mattress)
✤ How much and how frequently
✤ The length of time you are willing to forego using that income
3. AccountTypes
✤ Savings account - is an interest earning account that has no “maturity date”
meaning that you can put money into the account and it will produce a return
infinitely. There are no penalties for withdrawals.
✤ Current rates are around .03%
✤ Money market deposit account - generally pays higher interest rates on your
deposit. You do have immediate access to funds. However, there is a minimum
amount of deposit required; usually at least 1,000 but often much higher.
✤ Current rates are around .40 - .56% (varies by deposit amount)
4. AccountTypes
✤ Time Deposits - often referred to as CDs or certificate of deposits, are savings
plans that require funds to be left alone in an account for a set period of time.
Timed deposits give the bank more investment flexibility and therefore they
generally offer higher rates of return. The longer the time period, the better the
rate, as banks can make more money on your deposit.
✤ Current rates around .24% to .64%
✤ Savings Bonds - is essentially a note given by the government (Fed., State and
Local) that collects money from a citizen in the present and requires a repayment
upon bond maturity. You are required to pay taxes on the interest earned, however,
the initial invest is only half the bond’s mature value. Ex: a $1000 bond note
requires only a $500 investment.
5. AccountTypes
✤ Stock - is a share or investment in a publicly
traded company that can provide tremendous
earnings potential depending on the growth
and profits of the company. Stock values are
determined by the market and therefore can
experience dramatic growth and decline.
✤ Speculation - when an investor buys a stock
with the belief the stock will eventually pay
off (dividend)
✤ Dividend - the return on investment (see
Amazon/Borders chart)
6.
7. AccountTypes
✤ Mutual Funds - is a pool of invested money run by a professional or group of
professionals who take the time to investigate and attempt to maximize the
investments.
✤ As a potential investor, you would buy shares of the fund. Mutual funds
generally have a variety of of stocks and bonds to minimize a catastrophic
loss if stocks plummet.
✤ The risk is less with a mutual fund than a stock although there are additional
costs due to the fund being professionally managed.
8. FDIC and risk
✤ Less risky
✤ Savings accounts, Insured Money Market Accounts, CDs
✤ All provide FDIC insurance up to $100,000 per account. Even if your financial
institution went bankrupt, your money would be insured by the federal government.
✤ Small to moderate risk
✤ Bonds and mutual funds
✤ Neither are insured by FDIC protection. However, bondholders are compensated
before stockholders if a company declares bankruptcy. Also, reviewing the credit
rating of a company (or gov’t body) prior to buying a bond mitigates most risk.
9. FDIC and risk
✤ Highest risk
✤ Stocks provide the highest rate of return and consequentially
the highest potential for loss. In general, over the past 100
years, the stock market has been a secure long-term investment.
Approaching it with a ‘get rich quick’ mentality is dangerous,
however, and fortunes have been lost as quickly as they were
gained.
✤ It is recommended that you consult with a financial advisor as
well as build a long-term diverse portfolio that includes and
combination of stocks, mutual funds and bonds.
10. Retirement AccountTypes
✤ Rule of 72 -
✤ A basic ‘rule of thumb’ to help you as an investor gauge the total growth of
your retirement fund.
✤ Consider the following, an investment of 10,000 at a 9 percent rate of return.
✤ Based on the rule of 72 (72 divided by 9 equals 8 years; the length in time it
takes for your investment to double in value).
✤ So....10,000 at 9 percent looks like this
11. Mr.Wellington’s retirement....in 40 years
✤ 1 year = 10,000
✤ 8 years = 20,000
✤ 16 years = 40,000
✤ 24 years = 80,000
✤ 32 years = 160,000
✤ 40 years = 320,000
Based on this at age 69 (current +40) I’d have
320,000k from a basic 10k investment at 9%
growth
Now consider the idea that at age 21 I was
smart enough to invest (instead of starting
now)
How much more is my 10k investment
worth at age 69?
12. Retirement AccountTypes
✤ Pension plan - a company (or gov’t) sponsored plan that provides retirement
income. A true company/gov’t sponsored pension provides benefits until the
death of both the primary recipient as well as the recipient's spouse.
✤ 401k - is a newer form of a pension, however it does in theory run out. A 401k is a
good investment as you can put money into it tax free (until you withdraw funds)
AND companies will match up to a certain amount your contributions. ALWAYS
put at least as much as the company will match - its free money.
✤ Also consider that with the money being removed from your check prior to
taxes, that your financial impact is minimal.
13. Retirement AccountTypes
✤ Also consider that with the money being removed from your check prior to
taxes, that your financial impact is minimal.
✤ Consider the following:
✤ 3000 check pre-tax
✤ Invest 10% to 401k (plus company matches 5%) you put 450 away per
month and your paycheck is taxed not on 3000 but on the 2700
✤ 3000 x 25% tax rate = 750 lost to taxes = 2250
✤ 2700 x 25% tax rate = 675 lost to taxes = 2025
14. Retirement AccountTypes
✤ IRA or Individual Retirement Accounts - can be started by anyone. They
can also be invested in pre-tax which is a plus. IRA contribution limits are
$5,500 if your under age 50 (IRS.gov) at $6500 over the age of 50.
✤ IRAs do not receive employer contributions so they are solely dependent
on individual contribution.
✤ Traditional IRAs tax your money at age 59.5 (when you withdraw the
funds)
✤ Roth IRAs tax your money up front (can’t deduct contributions from
taxes). However, the money earned is tax free.....Forever
✤ Lowering your taxable income is always a good thing. You want to keep as
much of your money as possible. Don’t be so willing to give it away to gov’t!
15. Real Estate as an Investment
✤ Should you consider buying a house?
✤ 1. Don’t buy if you plan to move within 5-7 years
✤ Housing costs are expensive and most homeowners do not recoup the
benefits of purchasing a house until at least year 5 or 6.
✤ Also consider the costs associated with moving, selling (realtor fees are
usually 6% of sale price) plus taxes associated with income made on house
✤ 2. Don’t view buying a home as a quick investment. Buying a house should be
viewed as a long term investment but also as a way to build a life within the
community.
16. Real Estate as an Investment
✤ How much house can you afford?
✤ Standard amounts vary by region but payment-to-income ratios should be no
higher than 28%-33%
✤ So a total combined monthly income of $9,000 dollars would allow for a
housing payment of $3,000
✤ Also, standard down payments are 20%. However, in areas with high home
prices, less than 20% is possible, although, a PMI or mortgage insurance will
most likely be charged.
17. Real Estate as an Investment
✤ Location, location, location!
✤ Home prices vary based on property demand.
✤ While housing supply is certain a reason for increased home prices, more often
than not, it is the location of the property.
✤ Consider buying the ‘ugly’ house on the street. Buying the cheap house on a
nicely maintained block will provide the biggest financial turnover. Just be
careful not to buy the ‘money pit’
✤ Consider all components to the community before buying. Safety, schools,
politics, walkable streets, etc.
18.
19.
20.
21.
22. ✤ San Francisco,
California
Listing price: $1,250,000
Bedrooms: 3
Bathrooms: 2 full
Size of home: 1567 square
feet
$1 million+ market
Homes for sale: 2,697
Median size: 3,180
Median time on market: 51
days
23. ✤ New York, New York
Listing price: $1,225,000
Bedrooms: 2
Bathrooms: 2
Size of home/lot: approx.
1000 sqft
$1 million+ market
Homes for sale: 16,803
Median size: 3,308
Median time on market: 63
days
24. ✤ Honolulu, Hawaii
Listing price: $1,085,000
Bedrooms: 4
Bathrooms: 3
Size of home/lot: 2148/7155 square
feet
$1 million+ market
Homes for sale: 654
Median size: 2,880 square feet
Median time on market: 61 days
25. ✤ Portland, Oregon
Listing price: $1,195,000
Bedrooms: 6
Bathrooms: 4.1
Size of home/lot: 5,771 square
feet/ .83 acres
$1 million+ market
Homes for sale: 478
Median size: 4,805 square feet
Median time on market: 71 days
26. ✤ Phoenix, Arizona
Listing price: $1,249,000
Bedrooms: 5
Bathrooms: 6
Size of home/lot: 5,843/
39,413
$1 million+ market
Homes for sale: 1996
Median size: 5,425 square
feet
Median time on market: 78
days
27. ✤ St. Louis, Missouri
Listing price: $1,150,000
Bedrooms: 4
Bathrooms: 3
Size of home/lot: 4,000
square feet/ approx .5 acre
$1 million+ market
Homes for sale: 472
Median size: 5,003 square
feet
Median time on market: 77
days
28. ✤ Seattle, Washington
Listing price: $999,000
Bedrooms: 3
Bathrooms: 4 full, 1 half
Size of home: 3,790 square
feet
$1 million+ market
Homes for sale: 1,401
Median size: 4,284 square feet
Median time on market: 78
days
29. ✤ Las Vegas, Nevada
Listing price: $1,245,000
Bedrooms: 5
Bathrooms: 5 full, 2 half
Size of home/lot: 5,702/ 13,068
square feet
$1 million+ market
Homes for sale: 568
Median size: 6,401
Median time on market: 78 days
30. ✤ Omaha, Nebraska
Listing price: $1,045,000
Bedrooms: 4
Bathrooms: 5
Size of home/lot: 5184 square
feet
$1 million+ market
Homes for sale: 81
Median size: 6,135 square feet
Median time on market: 56
31. ✤ Anchorage, Alaska
Listing price: $998,000
Bedrooms: 6
Bathrooms: 3 full, 1 half
Size of home/lot: 5,818/22,609
square feet
$1 million+ market
Homes for sale: 106
Median size: 6,190 square feet
Median time on market: 87.5
days
32. ✤ Dallas, Texas
Listing price: $1,195,000
Bedrooms: 5
Bathrooms: 5.1
Size of home/lot: 5,686 square
feet/ .36 acre
$1 million+ market
Homes for sale: 1,814
Median size: 5,869 square feet
Median time on market: 80 days
