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
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7. HAZARDS OF CHASING PAST PERFORMANCE: Source: Commodity Systems, Inc., NAREIT Booms and Busts Examples of large variances from year to year Gold/ Equity Year Silver REIT Hi-Tech End Index 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. #3 DO NOT SPECULATE โ 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 or willing to lose money for the fun of the gameโฆIn any case, they are not really investors at all.โ -- Benjamin Graham R W = Q + T + D
20. A Professional Advisorโs Most Important Job According to University of Nebraska Sports Psychologist, Dr. Jack Stark: โ Behavior management is probably the most important element in the service that a professional financial advisor can provide for his clients.โ
21. #7 DO NOT LET EMOTION OVERRULE 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 โ Average 37.9% 15.8% 14.0% Source: Thomson Financial - Past performance is no guarantee of future results. Returns shown are for the Standard & Poorโs 500 Index. The S&P 500 index is unmanaged and cannot be invested into directly. End date of Bear market 10 years later 5 years later 1 years later
24. S&P 500 vs โPanic Pointsโ 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, you knew what was coming 1929 - Stock Market crashes 1933 - U.S. banks closed, depression 1939 - World War II begins 1941 - Japan bombs Pearl Harbor 1950 - Korean War begins 1962 - 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 trials 2001 - Terrorist attacks on America
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27. If you answered โstocksโ, 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 wanted to seek preservation of principal?
29. T-BILLS MAY NOT BE THE BEST SOLUTIONโฆ.โ 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 wouldโve been reduced 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.
31. #8 OWN 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... By combining four non-correlated asset classes, you were actually able to obtain a portfolio return which is higher than any of the four individual asset classes in which you invested and with less risk! The โ25% of Eachโ 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 COMPANY ESTATE 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 14.6 -12.2 1993 10.1 18.9 19.7 32.6 1994 1.3 -1.8 3.2 7.8 1995 37.5 28.5 15.3 11.2 1996 23.0 16.5 35.3 6.1 1997 33.4 22.4 20.3 1.8 1998 28.6 -2.6 -17.5 20.0 1999 21.0 21.3 -4.6 27.0 2000 -9.1 -3.0 26.4 -14.0 2001 -11.9 2.5 13.9 -21.4 2002 -22.1 -20.5 3.9 -15.9
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37. #9 DO NOT TIME THE MARKET Warren Buffett offered some useful counsel on this subject: โWe make no attempt to predict how security markets will behave; successfully forecasting short-term stock price movements is something we think neither we, nor anyone else, can doโฆ Weโve long felt that the only value of stock market forecasters is to make fortune tellers look good.โ
38. #9 DO NOT TIME THE MARKET Market Prophecy is a Waste of Time Predicted Actual Margin Year S&P S&P of Gain Gain Error 1996 6.1% 26.0% 19.9% 1997 3.4% 31.0% 27.6% 1998 4.9% 26.7% 21.8% 1999 0.1% 19.5% 19.5% 2000 6.1% -10.1% 16.2% 2001 18.0% -12.1% 30.0% 2002 15.0% -22.1% 37.1% Source: Business Weekโs Consensus Yearend Forecast The S&P 500 index is unmanaged and cannot be invested into directly.
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40. Bear Market Building Dollar-Cost Averaging is a Potential Way to Build Wealth in Both Bull and Bear Markets
41. Bear Market Building Dollar-Cost Averaging is An Effective Way to Build Wealth in Both Bull and Bear Markets The above illustration is hypothetical; actual returns may vary in a different time period. Dollar cost averaging does not assure a profit or protect against a loss in a declining market. For the strategy to be effective, you must continue to purchases shares in both up and down markets. As such, an investor needs to consider his/her financial ability to continuously invest through periods of low price levels. It is not possible to invest directly in a stock market index. Past performance is no guarantee of future results.
42. Have your goals changed? Were the assumptions made two years ago still valid today? Do you need to adjustโฆ Time, Risk Level, Amount Saved, Retirement Date, Desired Standard of Living at Retirement? #10 - UPDATE YOUR PLAN EVERY 2-YEARS
43. ๏ YEAR 1 HAVE A LONG-TERM PLAN TO REACH MY FINANCIAL GOALS STARTING POINT
44. ๏ YEAR 1 YEAR 2 HAVE A LONG-TERM PLAN TO REACH MY FINANCIAL GOALS STARTING POINT
45. ๏ YEAR 1 YEAR 2 HAVE A LONG-TERM PLAN TO REACH MY FINANCIAL GOALS STARTING POINT
46. Time is on your side Source: Thomson Financial as of 12/31/02 Past performance is no guarantee of future results. The Standard & Poorโs 500 Index is an unmanaged group of large-company stocks. It is not available for direct investment. During the periods shown, a number of index stocks could have had significantly negative performance. It is possible for index performance to be positively or negatively influenced by a relatively small number of stocks. Stocks have offered positive performance more often than not โ 02 โ 22.1% Time is on your side Source: Thomson Financial as of 12/31/02 Past performance is no guarantee of future results. The Standard & Poorโs 500 Index is an unmanaged group of large-company stocks. It is not available for direct investment. During the periods shown, a number of index stocks could have had significantly negative performance. It is possible for index performance to be positively or negatively influenced by a relatively small number of stocks. 1954 52.6% โ 58 43.4 โ 95 37.6 โ 75 37.3 โ 97 33.4 โ 80 32.5 โ 85 31.7 โ 89 31.7 โ 55 31.6 โ 91 30.5 โ 72 18.9% โ 98 28.6 โ86 18.7 โ 61 26.8 โ79 18.5 โ 51 24.0 โ52 18.4 โ 92 7.6% โ 67 24.0 โ88 16.6 โ56 6.6 1953 โ 1.0% โ 76 23.6 โ64 16.4 โ78 6.5 โ90 โ 3.1 โ 96 23.0 โ71 14.3 โ84 6.3 โ81 โ 5.0 โ 63 22.7 โ65 12.4 โ87 5.3 โ77 โ 7.4 โ66 โ 10.1% โ 83 22.6 โ59 12.0 โ70 4.0 โ69 โ 8.5 โ57 โ 10.8 โ 82 21.6 โ68 11.1 โ94 1.3 โ62 โ 8.8 โ01 โ 11.9 โ02 โ 22.1% โ 99 21.1 โ93 10.1 โ60 0.5 โ00 โ 9.1 โ73 โ 14.8 โ74 โ 26.9 Positive Returns Negative Returns 50-year 25-year 10-year 5-year 1-year S&P 500 Index 11.08% 12.60% 8.99% โ1.62% โ20.47% Average annual total returns through 9/30/02 > 20% 10% to 20% 0% to 10% -10% to 0% -20% to 0% < - 20% Stocks have offered positive performance more often than not 1954 52.6% โ 58 43.4 โ 95 37.6 โ 75 37.3 โ 97 33.4 โ 80 32.5 โ 85 31.7 โ 89 31.7 โ 55 31.6 โ 91 30.5 โ72 18.9% โ 98 28.6 โ86 18.7 โ 61 26.8 โ79 18.5 โ 51 24.0 โ52 18.4 โ92 7.6% โ 67 24.0 โ88 16.6 โ56 6.6 1953 โ 1.0% โ 76 23.6 โ64 16.4 โ78 6.5 โ90 โ 3.1 โ 96 23.0 โ71 14.3 โ84 6.3 โ81 โ 5.0 โ 63 22.7 โ65 12.4 โ87 5.3 โ77 โ 7.4 โ66 โ 10.1% โ 83 22.6 โ59 12.0 โ70 4.0 โ69 โ 8.5 โ57 โ 10.8 โ 82 21.6 โ68 11.1 โ94 1.3 โ62 โ 8.8 โ01 โ 11.9 โ 02 โ 22.1 % โ 99 21.1 โ93 10.1 โ60 0.5 โ00 โ 9.1 โ73 โ 14.8 โ74 โ 26.9 Positive returns Negative returns >20% 10% to 20% 0% to 10% โ 10% to 0% โ 20% to โ10% <โ20% 50-year 25-year 10-year 5-year 1-year S&P 500 Index 11.08% 12.60% 8.99% โ1.62% โ20.47% Average annual total returns through 9/30/02
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49. POSITIVES FOR 2005 Economy Earnings Inflation Productivity Interest Rates Cash Federal Reserve
Mandatory script: Okay, you understand that historically stocks have offered better returns. But arenโt they pretty volatile? Yes, they can be, and weโre seeing that right now. But the fact remains, if you look at the long term, stocks have offered positive performance more often than not.