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