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1. The value of investing
• Pursuing your goals
• Adding to savings
• Taking control
• Setting your direction
2. How much would your money
have grown?
Growth of $10,000 investment, 9/82–9/02
$250,000
$200,000
$150,000
$119,181
$100,000
$63,379
$50,000
$33,580
$0
9/82 9/84 9/86 9/88 9/90 9/92 9/94 9/96 9/98 9/00 9/02
Large cap stocks Government bonds Money market securities
3. Inflation-adjusted returns
Growth of hypothetical $10,000 investment over 20 years
$80,000
$73,281
$60,000
$40,574
$40,000
$33,102
$18,328 $18,208
$20,000
$10,081
$0
10% annual rate of return 6% annual rate of return 3% annual rate of return
on investment on investment on investment
Before inflation After inflation
4. Sound investing takes more than returns
into account
Risk and return, 9/30/82–9/30/02
20
15.56
15
13.19
9.67
10
5.80
4.82
5
0.57
0
Money market securities Government bonds Large cap stocks
Annualized total return (%) Annualized standard deviation (risk)
Sources:2005
5. Stocks
Common, preferred
Large cap, mid cap, small cap
Major types
Growth, value
International, domestic
High return potential
Reasons to choose May provide income
Long-term investment
Relative risk High
6. Understand and manage the risks
Why stock prices rise and fall
• Company fundamentals
• Industry trends
• General market movements
• Political or economic events
7. Balancing risk and reward:
Aggressive portfolio
1982–2001
Number of down years 3
Average loss in down years -4.51%
Worst 1-year loss -7.80%
Average annual total return 14.50%
Stocks: 80% Bonds: 20%
8. Balancing risk and reward:
Moderate portfolio
1982–2001
Number of down years 2
Average loss in down years -1.04%
Worst 1-year loss -2.06%
Average annual total return 12.79%
Stocks: 60% Bonds: 30% Cash: 10%
9. Avoid the high price of procrastination
Monthly investment required to meet $250,000 goal
$4,000
$3,402
Monthly investment
t
$3,000
$2,000
$1,367
$1,000
$424
$168
$0
5 10 20 30
Years from goal
10. Regular investing may lower your
average cost
Amount Shares
Month invested Price per share purchased
January $100 $10 10.0
February $100 $ 8 12.5
March $100 $ 5 20.0
April $100 $ 7 14.3
May $100 $ 8 12.5
June $100 $10 10.0
..
TOTAL $600 79.3
Average share price: $48 ÷ 6 = $8
Average share cost using
$600 ÷ 79.3 = $7.56
dollar-cost averaging:
Systematic investment plans do not assure a profit or protect against loss in a declining market. You should consider
your ability to make regular investments through periods of fluctuating price levels before choosing a regular
investment plan.
11. Pay yourself first
Painless ways to find money to invest Monthly investment
Invest the amount of your car loan
when you pay it off $200–$450
Bring lunch to work $90–$100
Invest your annual raise or bonus in
monthly installments $55–$100
Run in the park instead of on a
treadmill at the gym $45–$80
Drink regular coffee instead of a daily
mochaccino deluxe $25–$60
12. Don’t miss the best days
Annualized stock returns, 9/30/91–9/30/02
12%
9.1%
8%
4.6%
4%
Returns
1.3%
0%
-1.4%
-4%
-3.8%
-5.9%
-8%
-12%
All trading Missing Missing Missing Missing Missing
days 10 best 20 best 30 best 40 best 50 best
trading trading trading trading trading
days days days days days
Past performance is no guarantee of future results. Source: Ned Davis Research Inc. You cannot invest directly
in an index. Stocks are represented by the S&P 500 Index, 500 stocks chosen for market size, liquidity and industry
group representation.
13. No one knows what will happen next
Total return (%)
1997 1998 1999 2000 2001 2002
Stocks 33.36 28.58 21.04 -9.10 -11.89 -22.10
Government
9.59 9.85 -2.23 13.24 7.23 11.50
bonds
Money market
5.19 4.88 4.74 5.99 3.43 5.76
securities
Past performance is no guarantee of future results. You cannot invest directly in an index. Stocks are
represented by the S&P 500 Index, 500 stocks chosen for market size, liquidity and industry group representation.
Government bonds are represented by the Lehman Government Bond Index, comprised of U.S. government and
government agency securities (other than mortgage securities) with maturities of one year or more. Money market
securities are represented by the 3-Month Treasury Bill Index.
14. Develop an investment plan
1. Determine your goals and objectives
2. Develop an asset allocation strategy
3. Choose investments
4. Monitor and adjust your portfolio