An easy to understand guide to investing in securities like stocks, bonds and mutual funds for your financial future. This is material taken from chapter two of my book, "Figuring Out Wall Street".

1. Financial Services Industry Training
Why Invest in Securities?
Chapter Two – Figuring Out Wall Street
Your Guide to Savings and Investing
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2. Training from Saunders Learning Group
Saunders Learning Group provides a variety
of training programs, workshops and
seminars targeted to the financial services
industry.
Programs are available in a wide range of
topics, and we are specialists in developing
custom programs that are targeted to your
needs.
Contact the founder, Floyd Saunders at
316-680-6482 or at
floyd@floydsaunders.com for more
information.
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3. All About Figuring Out Wall Street ...
Everything has changed in the financial services industry and it effects your
financial well-being.
From bank failures, to record unemployment, home foreclosures and panic
around the world, Figuring Out Wall Street, is the concise guide to help
everyone from first time investors to veterans of banking understand what
to do to persevere and restore our faith in our financial systems.
The materials in this presentation is taken from Chapter 2 of Figuring Out Wall Street
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4. First Time Investing
 The first time you make a decision
you invest your hard earned money
you may not be sure of where to
start.
 Investing can be confusing and risky
 With an overview of how to get
started investing and understanding
the difference between savings and
investing will get you going in the
right direction.
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5. Investing vs. Savings
Investing Savings
 Money in a piggy bank does
 Higher earnings are possible with not earn interest.
investment products, but each
contain a degree of risk. The right  Safest investments - you know your
approach is a balance between rate of return.
savings and investing. —Money Market Funds
 Higher potential investments —Savings accounts and certificates of
include… deposit.
 Municipal bonds. —U.S. savings bonds.
 Corporate bonds.
—United States treasury bills.
 Preferred stocks, utility stocks
or common stocks. Right if you are not willing to take risk and
 Mutual funds. enjoy the assurance of federal protection for
 Real estate rental property. your money.
Bank savings account are insured by
the FDIC.
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6. How Taxes and Inflation Affect You
Simple assumptions:
• you have $100,000 to investment.
• real growth rate of the economy
over the last 35 years is 3% per year
(after discounting for inflation).
• Taxes take 25% of your earnings.
• Take 3% in real income, add 4.7% in
inflation for a total return of 7.7%,
or $7,700 in historical income and/or
asset appreciation.
• Take off 25% taxes of $1,925,
• Growth actually equals $1,075..
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7. How Taxes and Inflation Affect You
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8. Stocks Bonds or a Mix of Investments
Comparing returns from 1926 to 2010
 Average return if 100% invested in short-term savings and bonds
 Compared to a balanced mix of investments equals about 8%
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9. Personal Investing Steps
1. Determine where you are financially
2. Set your financial/investment goals
3. Develop a plan
4. Understand investment vehicles
5. Develop an investment strategy
6. Implement your strategy
7. Monitor your investments
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10. Step 1: Determine Where You Are Financially
Net worth = what’s left after you subtract your liabilities from your assets
Analyzing Your Cash Flow will:
• Indicate your ability to save
• Let you size up your standard of living
• Indicate if you're living within or
beyond your means
• Highlight problem areas
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11. How do you stack up?
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12. Performing a Financial Checkup
Work to balance your budget.
• Do you regularly spend more than you make?
Pay off high interest credit card debt first.
Obtain adequate insurance protection.
Start an emergency fund you can access quickly.
• Three to nine months of living expenses.
Have access to other sources of cash for emergencies.
• A line of credit is a short-term loan approved before the money is needed.
• Cash advance on your credit card.
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13. Step 2: Setting Investment Goals
 Financial goals should be specific and measurable.
 They should be tailored to your financial needs
and what you want to accomplish.
 To develop your goals ask yourself..
 What will you use the money for?
 How much will you need for your goals?
 How will you obtain the money?
 How long will it take you to obtain the money?
 How much risk are you willing to assume in an investment program?
 Considering your economic circumstances, are your investment goals
reasonable?
 Are you willing to make sacrifices such as reducing current consumption,
to insure you meet your investment goals?
 What will the consequences be if you don’t reach your investment goals?
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14. What are Your Goals?
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15. Matching goals to investments
Here are some typical investments suitable for three sample goals
Contingency or College funding for College funding for
emergency fund: a 16-year-old: A a 2-year-old:
money market fund mix of stocks (20- common stock
30% and bonds (70- portfolio
80%) maturing in 2-
6 years
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16. Your Time Investment Horizon
The length of time that you have to reach your goal is considered by many advisors as the most
important factor in determining which type of investment is best suited to meet that goal.
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17. Step 3: A Personal Investment Plan
Create your
personal
investment
profile
Continue to evaluate
your investment Getting Money to
program. Start Investing
List different
Choose at least investments you
two different want to
investments. evaluate.
Reduce possible Evaluate risk
investments to a and potential
reasonable return for each.
number.
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18. Your Personal Investment Profile
Shaped by:
Your age and the stage in your career
Your need for liquidity
The size of your portfolio
Your cash flow needs
Your income tax bracket
Your required rate of return
Your risk tolerance
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19. Getting Money to Start Investing
 Pay yourself first.
 Take advantage of employer-
sponsored
retirement programs.
 Participate in elective savings
programs.
 Payroll deduction or electronic
transfer.
 Make extra effort to save one or two
months each year.
 Take advantage of gifts, inheritances,
and windfalls.
 Consider a second job
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20. Start Early With Compound Interest
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21. Five Components of Risk
Inflation risk Interest rate Business Market risk - Global
- during risk - you failure risk - prices investment
periods of may invest in affects stocks fluctuate risk - changes
high inflation a bond at a and because of in currency
your lower rate, corporate behaviors of affect the
investment and then bonds. investors. return on
return may interest rates your
not keep go up. investment.
pace with
the inflation
rate.
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22. Step 4: Understand Investment Vehicle
Cash
Bonds
Stocks
Mutual Funds
Rental Property
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23. Cash is not an Investment
 Money in a piggy bank does not earn interest.
 Safest investments - you know your rate of return.
 Savings accounts and certificates of deposit.
 U.S. savings bonds.
 United States treasury bills.
 Suitable for short-term needs and emergency funds
 Higher potential income investments include…
 Municipal bonds.
 Corporate bonds.
 Preferred stocks, utility stocks
or common stocks.
 Mutual funds.
 Real estate rental property.
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24. Investing in Stock
 Stock or equity financing.
 Equity capital is provided by
stockholders, who buy shares of a
company’s stock.
 Stockholders are owners and share in
the success of the company.
 A corporation is not required to repay
the money obtained from the sale of
stock.
 They are under no legal obligation to
pay dividends to stockholders. They
may instead retain all or part of
earnings.
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25. Classification of Stock Investments
Blue chip stock
• Generally attracts conservative investors.
• Strongest and most respected companies, such as General Electric.
Income stock
• Pays higher than average dividends from a steady source of income, such as a
utility stock.
Growth stocks
• Earn profits above the average profits of all firms in the economy.
• Less than 30% of profits are paid out as dividends, with rest reinvested in the company.
Stock value, and price, should go up.
Cyclical stock
• Follows the business cycle of advances and declines in the economy.
• ex. automobiles, heavy manufacturing, paper, and steel.
Defensive stock
• Remains stable during declines in the economy, and have a history of stable earnings.
Johnson and Johnson and utility stocks are examples.
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26. Classification of Stock Investments (continued)
Large cap stocks Mid cap stocks Small cap Penny stocks
• Issued by a • Issued by a stocks. • New or erratic
corporation that corporation that • Company has companies whose
has a large amount has capitalization capitalization of stock typically sells
of stock between $1 billion $500 million or for less than $1 per
outstanding and a and $5 billion. less. share. Speculative,
large amount of expect to lose
capitalization (5 money as often as
billion +). you make money.
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27. Investing in Bonds
 Corporate and government bonds.
 A bond is a loan to a corporation, the
federal government, or a municipality.
 Bondholders receive periodic interest
payments, and the principal they lent is
repaid at maturity (1-30 years).
 Bondholders can keep the bond until
maturity or sell it to another investor
before maturity.
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28. Bonds Types
U.S.
Corporate
government
bonds
securities
Mortgage-
Municipal
backed
bonds
securities
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29. Bond Rating Guide
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30. Investing Mutual Funds
 Investors’ money is pooled and invested by a professional
fund manager.
 You buy shares in the fund.
 Provides diversification to reduce risk .
 Funds range from conservative
to extremely speculative.
 Match your needs with
a fund’s objective.
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31. Investing in Real Estate
 The goal of a real estate investment is to buy a
property and sell it at a profit.
 In addition to income
from rentals, investors
can deduct deprecation
and other business
expenses
 Location, location, location is important.
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32. Speculative investments
A speculative investment is a high-risk investment made in the hope
of earning a relatively large profit in a short time. Confine your
speculative investing to a small percent of your overall investments
will help reduce risks.
Typical speculative investments
include:
• Antiques and collectibles.
• Call and put options.
• Derivatives.
• Commodities.
• Coins and stamps.
• Precious metals and
gemstones.
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33. Step 5: Develop an Investment Strategy
Your age is one of the most important aspects of creating an investment strategy.
The longer the investment horizon the more time you have to balance positive and negative returns.
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34. Portfolio Management and Asset Allocation
 How do you choose the right investment for you? You balance your desired returns vs. risk taken to
get that return.
 Over the past 50 years average returns for stocks are 11% a year, T-bills 5% & bonds 4%.
You should compare your returns to the averages.
 Asset allocation is the process of spreading your assets among several different types of
investments, usually by percentage, to lessen risk. What asset classes do you want in your portfolio,
and in what combination?
 Determine what percent you want in stock, bonds, CDs, and mutual funds based on your time frame
and tolerance for risk.
 The asset classes should be as many as possible based on your investment profile.
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35. Step 6: Implement Your Strategy
• Implementing your strategy
involves three issues :
• How to Buy - Advisors
• What to buy - Fundamentals
• When to Buy – Technical Analysis
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36. Your Five Options When Buying
Investments
Through an investment advisor or financial planner
Through broker (either full-service or discount)
Through a professional money manager
Through mutual fund
Through an insurance company
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37. When to Buy
You can use dollar cost averaging strategy to decide when to buy
Let’s say you have $ 2,000 to invest. Using dollar cost averaging, you do
not invest all your money at once; instead, you invest $500 per month for
four months.
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38. Advantage of Dollar Cost Averaging
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39. Step 7: Monitor Your Progress
• Here are the general questions to ask:
• Have your financial goals stayed the same?
• Are you meeting your budget?
• Are you earning the investment rates of return you anticipated?
• To what degree is inflation affecting your finances?
• Has your tax situation changed?
Once you implemented your investment strategy, you need to monitor your investment
ensure that they remain appropriate for your financial goals. While you should generally try
to avoid frequent changes to your investments, you should at least annually assess your
investment’s performance to see that it meets your expectations.
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40. Questions
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41. Summary of Book
Figuring Out Wall Street Consumer’s Guide
To Financial Markets
By Floyd Saunders
Publisher: Saunders Learning Group
ISBN: 978-0-9824019-0-3
available from Amazon, B&N, and
http://www.figuringout wallstreet.com
or www.floydsaunders.com
Author Contact
email: floyd@floydsaunders.com
Blog: www/money/floydsaunders.com
Twitter @floydsaunders
Facebook: Figuring Out Wall Street
Sideshare: http://www.slideshare.net/FloydSaunders
Book summary: From bank failures to home foreclosures and panic around the
world, Figuring Out Wall Street, is the concise guide to help everyone understand
how this latest crisis happened, who was responsible and what to do now to
restore our financial systems. Written in an easy to understand manner, even the
most complex financial concepts are easy to digest. This book provides help to
monitor investments with a review of investment products, financial regulators
and economic indicators. Learn how the stock market exchanges work and the
world of investment banking, hedge funds, venture capital and private equity.
Every chapter includes action plans for investing.
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42. About the Author
 Floyd Saunders has worked on Wall
Street with both Bank of America and
JPMorgan, where is was a vice
president in global financial systems.
He has worked across the industry in
retail, commercial, and investment
banking.
 He has taught courses in Money and
Banking and extensively for the
American Institute of Banking and
various colleges.
 As a consultant, he developed and
taught a wide range of banking and
investing courses.
 He authored three programs for the
American Bankers Association: Banking
on Mutual Funds and Annuities,
Introduction to Securities Markets and
Investing in Securities.
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