A Beginners Guide to Wealth BuildingWorkshop

Robert L. Woods, B.A., M.B.A.Author, Speaker, Investment Consultant

Part I. The Hard Part – Getting Started

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Investing Today For A Secure Tomorrow

Starting a Personal Investment Plan is an empowering step.•The Internal Revenue Service (IRS) has a great

savings program that allows you to :• Reduce taxable income (a Tax Shelter).• Saving money

•Contribute to a Defined Contribution Plan (DC Plan) with pre-tax dollars.

•Use a DC Plan to save money.• 25% (1 in 4) have no savings.• 40% of working families are not saving for retirement.

Importance of Tax Shelters

2016 Taxable Income Brackets and Rates (Estimate)

Rate Single Filers Married Joint Filers Head of Household Filers

10% $0 to $9,275 $0 to $18,550 $0 to $13,250

15% $9,275 to $37,650 $18,550 to $75,300 $13,250 to $50,400

25% $37,650 to $91,150 $75,300 to $151,900 $50,400 to $130,150

28% $91,150 to $190,150 $151,900 to $231,450 $130,150 to $210,800

33% $190,150 to $413,350 $231,450 to $413,350 $210,800 to $413,350

35% $413,350 to $415,050 $413,350 to $466,950 $413,350 to $441,000

39.6% $415,050+ $466,950+ $441,000+

Source: http://taxfoundation.org/article/2016-tax-brackets

Gauging Your Investment Attitude

What kind of investor are you?

Strongly

Agree Agree Disagree

1. I am confident in making my own investments decisions. 5 3 1

2. I favor the stock market (equities) over other investment options. 5 3 1

3. I am comfortable with the ups and downs in the market because 5 3 1

of my long-term investment horizon.

4. I am willing to take short term losses for the prospect of higher 5 3 1

gains over time.

5. When I consider investment options, I look at performance over 5 3 1

the last several years.

6. I prefer to limit my exposure to bonds because I am concerned 5 3 1

they could lower my overall investment returns.

7. I feel comfortable including international investments in my portfolio. 5 3 1

8. I think investing in emerging markets will diversify my portfolio 5 3 1

and increase my return potential.

9. I think I should adjust my portfolio annually, even if it means selling 5 3 1

some of my best performing assets.

10. I believe that investing at regular intervals, even in down markets, leads 5 3 1

to higher overall portfolio performance.

Total

Planning For The Rest Of Your Life Get Out Your Crystal Ball?

Will I be able to retire? Some people wait to retire only to find out they are

not ready or can’t.

What will my retirement be like? How will you live? What quality of life do you want or expect?

How much will I need? Aha, the magic question.

When will I have the time to think about all of this? Consider a Personal Retirement Retreat.

Getting Started

The Spending Personality Assessment (SPA)

Prepare a projected budget

Collect every bill and every receipt for 45 days.

Take an afternoon out and create an actual budget.

Revise budget based on expenses.

Buy the things you need.

Budget and Save for the things you want.

Sample Budget

MONTH: EXPENSES INCOME

MONTHLY INCOME

PAY CHECK -$

OTHER INCOME -$

-$

-$

-$

-$

TOTAL CASH INCOME -$

MONTHLY EXPENSES

HOUSE/RENT -$

FOOD -$

CLOTHS -$

SHOES -$

CELL PHONE -$

COMPUTER/INTERNET -$

CABLE/ SAT TV -$

RECREATION -$

MEDICAL/DENTAL -$

CAR/INSURANCE -$

PERSONAL ITEMS -$

TOTAL EXPENSES -$

NET CASH FLOW/OUTFLOW -$

MONTH: EXPENSES INCOME

MONTHLY INCOME

PAY CHECK 3,000.00$

OTHER INCOME -$

-$

-$

-$

-$

TOTAL CASH INCOME 3,000.00$

MONTHLY EXPENSES

HOUSE/RENT 1,000.00$

FOOD 300.00$

CLOTHS 75.00$

SHOES 75.00$

CELL PHONE 80.00$

COMPUTER/INTERNET 59.00$

CABLE/ SAT TV 90.00$

RECREATION 350.00$

MEDICAL/DENTAL 80.00$

CAR/INSURANCE 200.00$

PERSONAL ITEMS -$

TOTAL EXPENSES 2,309.00$

NET CASH FLOW/OUTFLOW 691.00$

Sample Budget

The Balance Sheet is an up-to-date listing of your: Assets (what you own) and your Liabilities (what you owe).

A Simple Addition/Subtraction Process:+Assets (what you own)-Liabilities (what you owe) = Net Worth

Over the years, your Net Worth will grow as you become more successful in managing your money and investments, while paying off your debts.

The Balance Sheet

A Balance SheetAssets Liabilities

Cash and Cash Equivalents Credit Card Balances -$

Checking Accounts -$ Personal Loans -$

Savings Accounts -$ Student Loans -$

Money Market Accounts -$ Automobiles -$

Certificates of Deposits (CD's) -$ 401(k) Loans -$

Investments -$ Investment Loans -$

Stocks -$ Residential Mortgage Loans -$

Bonds -$ Home Equity Lines of Credit -$

Mutual Funds -$ Alimony -$

Real Estate -$ Child Support -$

Defined Contribution Plan Investments -$ Life Insurance Policy Loans -$

Other Investments (Trusts & Etc) -$ Projected Taxable Income -$

Total -$ Other Liabilities -$

Personal Assets -$ Total Liabilities -$

Primary Residence -$

Automobiles -$

Home Furnishings -$

Furs and Jewelry -$

Other Valued Assets -$

Total Assets -$

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Start The Savings Habit

• Start The Savings Habit• DC Plans, you are in as a long term investor (20-

30 years).

• 401(k)…403(b)…457, Thrift Savings Plan (TSP) are Employer Based Defined Contribution Plans named after the IRS Code that regulates them.

• myRA is a new U.S. Department of the Treasury sponsored, ROTH IRA type program for investors who do not qualify for the standard DC Plans.

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Start The Savings Habit

• Rule of Thumb: Pay yourself first & live off what’ s left of your take home pay.

• If you are saving less than 10% do a SPA to find ways to save more. If you are saving 10% save more!

• Save and invest pretax dollars.

Saving Goal $312 Each Month

Salary $3,120

Tax Bracket 25%

Saving After Taxation

Pre tax 25% Adjusted Take

Saving Tax Income After Tax Home

$3,120 $0 $780 $3,120 $312 $2,028

Pre-Taxation Saving

$3,120 $312 $702 $2,808 $0 $2,808

$3,120 $412 $677 $2,708 $0 $2,708

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What Percent Of My Income Should I Save?Contribution/Mo. Future Value Future Value @8%

Present Value 360 mos./30 yrs. 324 mos./27 yrs. Difference of 3 Years

$100.00 $149,035.00 $ 114,138.00 $34,897.00

$125.00 $186,294.00 $ 142,673.00 $43,621.00

$150.00 $223,553.00 $ 171,207.00 $52,346.00

$200.00 $298,071.00 $ 228,276.00 $69,795.00

$250.00 $372,589.00 $ 285,345.00 $87,244.00

$300.00 $447,108.00 $ 342,414.00 $104,694.00

324 mos/27 yrs

360 mos/30 yrs $-

$500,000.00

5 yrs10 yrs

15 yrs20 yrs

25 yrs30 yrs

Part IIInvestment Vehicles That Drive Your

Investment Portfolio

Investment Vehicles That Drive Your Investment Portfolio

The Stock (Equities) MarketGlobal Stock Market Cap.: $54 Trillion

U.S. Stock Market Cap.: $21 Trillion

$70.00

$20.00

2013 Value of $1.00invested in 1926

$3,992.00

T-Bills Bonds Stocks

The Stock (Equities) Market

What is a Stock? A stock is a security that gives you:

Types of Stocks

Growth

Value

Core

Emerging Market

Developing Markets

Alternative Investments: Real Estate, Derivative Securities

The Stock (Equities) Market

Types of Stocks (Terminology) Market Capitalization: The market value of a

corporation. Computed by multiplying the # of Shares outstanding by the current share price.

Large Capitalization Stocks (Large Cap Stocks)

Mid Capitalization Stocks (Mid Cap Stocks)

Small Capitalization Stocks (Small Cap Stocks)

The Stock (Equities) Market

Management Styles

Active Management

Passive Management

Types of Equity (Stock) Management Styles

Growth Managers

Value Managers

Top Down Sector Rotator Managers

Bottom Up Sector Rotator Managers

Quantitative Managers

Technical Managers

Types of Equity (stock) Management Styles

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Equities Exchange Markets/Indexes

• The Dow Jones Industrial Average (the DJIA or the DOW).

• Standard & Poor’s 500 (S&P 500)

• NASDAQ (National Association of Securities Dealers Automated Quotation).

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Other Exchange Markets/Indexes

• The Wilshire 5,000 total market index contains more than 6,500 stocks and is the largest index in the U.S.

• The Russell 2,000 index measures the performance of small caps that often get left out of the other big indexes.

• Index Funds have lower expense ratios than other mutual funds and allows investors to get that markets’ return.

• There are literally thousands of other indexes, tracking various regions and industries.

Investment Vehicles That Drive Your Investment Portfolio

The Bond (Fixed Income) MarketGlobal Bond Market: $93 TrillionU.S. Stock Market Cap.: $37 Trillion

$70.00

$20.00

2013 Value of $1.00invested in 1926

$3,992.00

T-Bills Bonds Stocks

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Fixed Income (Bonds)

• What is a Bond? A Bond is a fixed income security because it has:• A fixed interest rate• A fixed payment period• A fixed period of time to maturity

• Bonds are:• Debt instruments (basically a loan to a company).• Bonds have fixed cash flows.• Bonds Diversify your portfolio.• Bonds are issued by governments and corporations.

• Bonds are purchased:• At Par = 100%• At a Discount – (less than 100%) = 98%• At a Premium – (more than 100%) = 102%

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Fixed Income (Bonds)

• Types of Bonds

• Government Bonds

• Zero-Coupon Bonds

• Corporate Bonds

• Asset and Mortgage Back Securities (MBS)

• Municipal Bonds.

• High Yield Bonds (also known as Junk Bonds).• High risk/high reward instruments used by private equity

firms.

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Bond Rating

Moody'sS&P/Fitch

Investment Grade

InvestmentGrade

Aaa AAA Investment Highest Quality

Aa AA Investment High Quality

A A Investment Strong

Baa BBB Investment Medium Grade

Ba, B BB, B Junk Speculative

Caa/Ca/C CCC/CC/C Junk Highly Speculative

C D Junk In Default

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Fixed Income (Bonds)

• Now you know the basics of bonds. Not too complicated, is it? Here is a recap of what we discussed:

• Bonds are just like IOUs.

• Stocks are equity; bonds are debt.

• The key reason to purchase bonds is to diversify your portfolio.

• The issuers of bonds are governments and corporations.

• A bond is characterized by its face value, coupon rate, maturity and issuer.

• Yield is the rate of return you get on a bond.

• Bond Funds are actively traded and may act like stocks

Investment Vehicles That Drive Your Investment Portfolio

The Mutual Fund MarketOver 7, 900 Funds

$15.8 Trillion

$70.00

$20.00

2013 Value of $1.00invested in 1926 $3,992.00

T-Bills Bonds Stocks

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Mutual Funds (MF)

A MF is like an Index Fund where individual companies are pooled into one security.

• Advantages of a MF are:• Offers Asset Allocation

• Diversification

• Managed by Investment professionals

• Research capabilities

• Mutual Funds invest in:• Stocks • Bonds • Derivative Securities• Money Market Securities

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Types of Mutual Funds

• Aggressive Growth

• Asset Allocation

• Balanced Funds

• Exchange Trade Funds (ETF’s).

• Fixed Income Funds

• Income or Growth and Income

• Index Funds

• International, Global, Emerging and Developing markets

• Large, Medium and Small Capitalization Funds

• Life Cycle/Target Date Funds

• Private Equity

• Real Estate Investment Trusts (REIT’s).

• Tax Exempt

• Total return

• U.S. Government Securities (Notes and Bonds).

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Next SeminarPart III - Investment Tips From the Pros