Building Wealth Starting With Investing Basics



FOREWORD Thank you for your time and interest. This booklet was created as an educational guide with the intent to bring you greater clarity and understanding of the financial decisions you make. If you need more information on a subject discussed we welcome your email and will attempt to get you the answers you need. Please be mindful as you read this, everyone’s financial situation is different. So any product or solution must match your specific financial picture. We strongly recommend you consult with a highly-rated professional about every financial decision you make. Because, just as not all products are created equal, neither are all financial professionals, and the difference in knowledge and advice can be substantial from one advisor to another. Working with a highly knowledgeable, independent, well-rated professional can make all the difference when it comes to the results you achieve. If you are ready to explore your retirement options and want some help cutting through the clutter and jargon, visit for unbiased information and to connect with professionals who can answer all of your most pressing questions. If you ever have feedback related to this booklet or concerns about your retirement income and financial security, please email us at [email protected] we’re happy to help. CSM202101INVBASICS 3 [email protected]

Just like anything else that stands the test of time, building wealth starts with securing a safe and secure financial foundation – and that begins with learning and implementing investing basics. Even highly talented professional athletes continually go back to their sport’s ABCs because they know that it is impossible to move forward without refining these basic skills. WHERE TO START Sometimes the most challenging part of a task is getting started. But once you have the outline or key parameters in place, it can be much easier to narrow down the right tools for the job and implement them. Your investment and retirement plan’s overall success will largely depend on your answers to three crucial questions. These are: 1. What do you want to accomplish? 2. When do you need the money? 3. What is your tolerance for volatility and risk? What Do You Want to Accomplish? The first step in your safe money financial plan is defining what it is that you’d like to accomplish. For instance, do you want to ensure that you have a comfortable retirement, that a child or grandchild has the necessary funds to attend college, that you can purchase a second home in the future – or all of the above? Once you have nailed down your goals, the tools for helping you achieve those objectives will be easier to identify. These could encompass a mix of various financial vehicles that can allow you to attain growth, income, principal protection, or tax benefits. CSM202101INVBASICS 4 [email protected]

When do You Need the Money? Once you narrow down your goals, the next question is when do you need the money? This is a critical component of safe money investing basics because any fluctuations in the stock market or interest rates could significantly impact your goals. For example, for shorter-term financial objectives, going with a less risky strategy makes sense. That’s because you may not have the time necessary for recouping any losses you could incur in the market. Alternatively, if your investment goal(s) are longer-term, a growth-oriented plan (which can entail some amount of risk) could be the better alternative. Often, a combination of risk-based and safe money investments is the best solution. That way, you may be able to attain more growth in return for taking on some additional volatility. What is Your Tolerance to Volatility and Risk? This leads to the third important question that you need to answer regarding your tolerance to market volatility and risk. In this case, if you aren’t prepared to endure many sleepless nights worrying about the safety of your money, then an aggressive growth strategy might not be the best retirement plan for you. Likewise, you mustn’t make important financial decisions based solely on emotion, as this could cause you to make knee-jerk decisions – and possibly even to lock in losses on your investments. FIND THE BEST ADVISOR VISIT CSM202101INVBASICS 5 [email protected]

UNDERSTANDING FINANCIAL TOOLS AND HOW THEY WORK There is a myriad of investments to choose from in the market today. Some, or even all, of these can help you to accomplish your financial goals. Having a good understanding of how each of these financial tools works can allow you to understand whether or not they would be the right choice for you. Cash Although cash is not an investment per se, you must have at least a certain amount of money and other “liquid” assets that are easily accessible in case of an emergency. This can help to prevent you from having to sell stocks or other investments – possibly at a substantial loss – if you have a financial emergency. It can also help keep you from using high-interest credit to fund an emergency, like a car repair or a new air conditioner. Many of the best financial advisors recommend that you have an emergency fund in place that ideally contains between three and six months of living expenses. (But any amount is better than nothing.) These funds should be stored in a safe, nonrisky financial vehicle, such as a money market or savings account. But you should also make sure that the money is not “too easy” to access and use on wants (such as an expensive new pair of shoes) versus needs. Stocks Stock signifies ownership in a company. Therefore, if you own stock shares, you are a part-owner in the underlying business. Stock prices track the earnings of the underlying company. So, the stock price of a company that is doing well and earning a profit will typically go up, and vice versa. In addition, stock prices can also be based on the projected future earnings of the underlying company. This means that if a company is expected to do well in the future, its stock price is likely to become more valuable – and in turn, its price should rise. CSM202101INVBASICS 6 [email protected]

Bonds Bonds are considered to be debt instruments where investors “loan” money to an entity such as a company or even to the local, state, or federal government. The entity borrows these funds for a certain period of time at a fixed rate of interest – and that interest is then paid to the investor (i.e., the “lender” of the funds). Upon the bond’s maturity, the investor will receive back their principal. The time duration of bonds can range a great deal – from just a few days to thirty-plus years. For example, the three main categories of government debt securities are: - Bills – Bills mature in less than one year - Notes – Notes mature in one to ten years - Bonds – Bonds mature in ten or more years In some cases, the interest received on bonds is taxable, and in other cases, it is received tax-free by the investor. Bonds can rise and fall in value, too, based on the economy’s interest rates. For example, if interest rates rise, then the value of a bond’s principal will be worth less in the marketplace. The opposite is also true. Mutual Funds Mutual funds are a type of investment that holds many different assets, such as stocks and bonds. Your money is “pooled” with hundreds, or possibly even thousands, of other investors. These funds are professionally managed by professionals who buy and sell in the portfolio. Mutual funds will typically have a strategy, such as growth or income. There are several different categories of mutual funds, too, including: - Money Market Funds - Bond Funds - Stock Funds - Hybrid Funds (these mutual funds typically hold both stocks and bonds) Investing in mutual funds can allow you a way to own a well-diversified portfolio, but without having to purchase each investment individually. Some mutual funds will enable you to invest small sums of money – possibly even as little as $25 or $50. CSM202101INVBASICS 7 [email protected]

Exchange-Traded Funds (ETFs) An exchange-traded fund, or ETF, constitutes a collection of securities, such as stocks or bonds that often track an underlying market index. Unlike mutual funds, ETFs are listed on stock exchanges and trade throughout the day (whereas mutual funds are priced just once per day after stock market trading has stopped). There are many different types of ETFs, including: - Bond ETFs - Industry ETFs - Commodity ETFs - Currency ETFs Certificates of Deposit (CDs) Certificates of deposit, or CDs, provide an interest rate in exchange for investing a lump sum of money for a set time period, such as six months or two years. Typically, the longer you commit your money to a CD, the higher the interest rate you will earn. After the specified time period has ended, the CD will “mature,” and your principal will be returned. If you remove your money before the time of maturity, you will usually be penalized. Although CDs are considered safe money investments because they don’t lose value if the stock market falls, they are also known for paying low-interest rates that often won’t meet, much less beat, inflation. BUILDING WEALTH CONFIDENTLY GAIN KNOWLEDGE AND GUIDANCE FIND HIGHLY RATED PROFESSIONALS AT CERTIFIED SAFE MONEY CSM202101INVBASICS 8 [email protected]

Annuities With average life expectancy getting longer, one of the biggest concerns on retirees’ minds is outliving their assets and retirement income while they’re still needed. But an annuity can help to solve that problem. Annuities are designed for paying out a regular stream of guaranteed retirement income, either for a set period of time – such as ten or twenty years – or the rest of the annuitant’s (the income recipient’s) lifetime, regardless of how long that may be. Some annuities (immediate annuities) begin to pay income right away in return for a lump sum deposit. Other annuities (deferred annuities) can produce an income that starts at a time in the future. The . This means that there is no tax due on the gain until the time of withdrawal. This, in turn, can allow funds to grow and compound exponentially over time, especially compared to a taxable investment with all other factors being equal. Thousands $125 $105 $85 $65 $45 $25 5 10 15 20 25 YEARS Taxable vs. Tax-Deferred Growth TAX-DEFERRED TAXABLE CSM202101INVBASICS 9 [email protected]

WATCHING OUT FOR RISK There are several different types of risk to be mindful of when you are investing. So, if you don’t plan for various risks, it could end up throwing your overall financial plan off track. Some of the most common risks that you’ll find while investing can include the following: - Market volatility - Inflation - Healthcare/long-term care expenses - Order/sequence of returns - Taxes Market Volatility Over the past decade, the stock market has exhibited extreme volatility – in some cases, three- or even four-point daily swings, up or down – and sometimes large swings both ways on the same trading day! While keeping money in the stock market can certainly provide you with the opportunity for growth, it can also put your principal at significant risk. Therefore, your overall portfolio should ideally be designed with a good mix of growth-oriented and safe money retirement strategies. Inflation Inflation is an indicator of the rising prices of goods and services over time. During your time in the working world, it is likely that your income regularly increases to help compensate for price increases in the items and services you need, such as food, utilities, and fuel. When planning for retirement, you should also consider inflation. Otherwise, you could find that your income won’t keep up – possibly even forcing you to cut back on purchases as you get older. With an average inflation rate of 3.2%, it is estimated that it could cut your purchasing power in half in just twenty years. This means that if you are generating an income from your investments of $4,000 per month today, you would need $8,000 per month to stay on track with your current lifestyle twenty years from now. With life expectancy getting longer, spending twenty or more years in retirement is becoming more of the norm than the exception. Healthcare/Long-Term Care Expenses People tend to spend more on healthcare as they get older. But even retirees who have Medicare as their health insurance option must pay a myriad of out-of-pocket costs, including deductibles, copayments, and coinsurance charges. In fact, according to a recent study conducted by Fidelity, the average 65-year-old couple who retired in 2019 can anticipate spending roughly $285,000 in healthcare expenses – and that does not include the cost of longterm care. Just one month in a semi-private room in a skilled nursing home (in 2019) costs more than $7,500, equating to over $90,000 per year. On average, home health care costs less – but even at an average of $4,200 per month, a need for this type of care could still run $50,000 or more per year. CSM202101INVBASICS 10 [email protected]

Order/Sequence of Returns Order, or sequence, of returns, is another potential risk to look out for. During your working and investing years, getting a good “average” return is often the goal. But once you’ve retired, that all changes. One reason for this is because as you begin to take withdrawals from your portfolio, a negative return – even in just one year – can have a lasting impact, and it can even result in your portfolio being depleted much sooner. As an example, compare Portfolio #1 and Portfolio #2. Each of these starts with $100,000, and each will withdraw 9% per year over the next three years. Likewise, each of the portfolios generates an average return of 7% over three years. But because the order of the individual yearly returns differs in the two portfolios, one runs out of money six years before the other. In this case, Portfolio #1 experienced a negative return a year sooner than Portfolio #2 did – and even though Portfolio #1 attained a positive 27% return the following year, it still wasn’t enough to get it back on track. With that in mind, when you experience returns is just as important – if not more so – as the amount of return you generate, especially as you enter into retirement. Taxes Taxes are involved throughout most of our lives – and they don’t stop when you retire—because of that, having a solid strategy in place for reducing taxes can allow you to net more spendable income in your pocket versus putting it in Uncle Sam’s. The best retirement plans include many tax reduction or elimination strategies that can help you keep more of your own money. These can consist of investing in a Roth IRA (and a Roth 401(k), if your employer offers that option) that allows tax-free withdrawals, as well as using other insurance and investment tax-advantaged alternatives. Source: Government Accountability Office, 2011 Year 1 Year 2 Year 3 Avg. Return Years Until Depleted Portfolio 1 +7% -13% +27% +7% 18 Portfolio 2 +7% +27% -13% +7% 24 CSM202101INVBASICS 11 [email protected]

CREATING YOUR CUSTOMIZED FINANCIAL PLAN Having your goals narrowed down and a list of possible tools for accomplishing the job can move you towards creating a more customized investment portfolio. There are some additional strategies to keep in mind, though, as you move through this process, including: - Diversification – You’ve likely heard the old saying about not putting all of your eggs in one basket. The same holds with investing. To diversify, you will need to spread your investments around in a way that allows gains in one area to compensate for losses in another and vice versa. - Asset Allocation – Asset allocation is another essential strategy to use when working towards your financial goals, as it aims to balance risk and reward by appointing assets into different categories, such as safety, income, growth, and aggressive growth (while still diversifying assets within each of these categories). Asset Allocation Pyramid Aggressive Growth Growth & Income Fixed Investments Cash CSM202101INVBASICS 12 [email protected]

Typically, as you get older, the bulk of your assets and investments will move from growthoriented options to more conservative, safe money alternatives that will subject you to less risk, as you’ll have less time to recover from potential losses. Over time, the asset balances in your portfolio may shift. For instance, if your aggressive growth investments grow significantly in a given year, their percentage of your overall portfolio may increase. Because of that, it may be necessary to periodically “rebalance” your portfolio to get your asset allocation back in line with your goals. STRATEGIES FOR ENSURING THAT YOUR INVESTING STAYS ON TRACK One of the other biggest keys to financial success is consistency. With that in mind, you must make regular contributions to your employer-sponsored retirement plan or any personal accounts that you may have, such as IRAs (Individual Retirement Accounts) and personal savings accounts. A common technique for accomplishing this is through dollar-cost averaging. This is a basic investing technique that entails purchasing a fixed dollar amount of mutual fund shares or other investments over a long period. For example, let’s say that you automatically invest $200 per month into a mutual fund. If the share price in Month 1 is $50, you will end up with four shares. But if the share price in Month 2 is $40, you will obtain five shares. So, even though the price of the fund’s shares went down between Month 1 and Month 2, you were able to secure more during the second month. Over time, dollar-cost averaging can reduce the impact of volatility on your overall investment purchases. It can also remove much of the work involved in trying to “time the market” to buy shares at the best price. CSM202101INVBASICS 13 [email protected]

INVESTING BASICS – DON’T JUST SET IT AND FORGET IT. It is never “too early” or “too late” to start investing. But by getting started as soon as possible, your investments can begin – and continue – to pick up momentum. In any case, investing is an ongoing process that involves setting short- and long-term goals and then building a plan to achieve them. But your financial plan is not a “set it and forget it” project.” Instead, it must be regularly reviewed, and possibly even revised, based on changing objectives and/or various life changes that may occur, such as marriage or divorce, the birth or adoption of a child or grandchild, changing jobs, receiving an inheritance, and a whole host of other possible situations. It can help to have a guide along with you when you begin your investing journey and throughout the process. By working in conjunction with a highly-rated retirement advisor, you can better ensure that your investments align with your intended goals. Plus, your advisor can help you make various revisions to your portfolio over time based on your objectives rather than your emotions. If you’d like to set up a time to talk with an experienced financial advisor, please feel free to contact us at [email protected] We look forward to hearing from you. CSM202101INVBASICS 14 [email protected] All investments, retirement, and estate planning strategies (collectively “Strategies”) have inherent risks. Content is not personalized financial advice and should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author on the date of publication and may change in response to market conditions. Although the information has been gathered from sources believed to be reliable, we do not guarantee its accuracy or completeness. There can be no assurance that you will achieve your goals if you implement any of the Strategies discussed. 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