 Personal Finance PowerPoint Presentation, Investing, Overview. Prepare to get financially fit by practicing personal finance. Most of this information can be found at Investopedia. Figure out your investment goals, which you can find online. Take a look at the references, resources. Continue your research from there. This by Alan Fairley, updated October 28th, 2020. So clearly at some point in our lives, we would like to be able to free up some cash. We want to really invest that cash as we do. We want to have clear goals for our investment goals, and then set up strategies to implement that can help us to reach them. Our relationship with money starts at an early age when we notice family members exchanging coins or bills for all sorts of stuff we like. So obviously we learn early, money good. Money can be exchanged for other stuff that we want. So we would like to have some money so we can exchange it for stuff. Money's power and authority grow when we get our first allowance or paid chore. These early experiences foster habits and beliefs that last throughout your life. Its challenges multiply as we approach adulthood and are encouraged to take out loans to pay for college or buy a car. So when we think about the average kind of life cycle, then our experience with money will typically be, or an average will often be, that at certain parts in our lives, we might be taking on debt for things like the college, things like the car, things like a home, and then possibly later on in the life, we might be paying down those debts, for example, and then have more money, hopefully a nest egg or something like that, for retirement. So we can think about different stages in our lives as we age, and we can think about the general arc of, say, our relationship to money, our debts, and our investments to get some idea of our strategies that we want to be putting in place, taking into consideration the life cycle. Parental figures set the tone for investment goals early in life, teaching us to delay gratification until we can break the piggy bank, allowing those coins to buy video games, clothes, or equipment. So hopefully we kind of learn the idea that if we delay some gratification, we might be able to buy something bigger or spend the money possibly more wisely oftentimes, and that, of course, would be a good principle when we're thinking about time value of money concepts with regards to investments and saving for retirement, that kind of thing. So the intimate connection between investment and lifestyle grows more sophisticated as the years past. The culmination of your working life is either a comfortable retirement or struggle to make ends meet. So obviously at the point of retirement, you'd like to be at the side of a comfortable retirement, which means you probably did some delaying of the gratification and put some investments in place, set some goals. So how life and investment goals intersect? Investment goals spread into three branches depending on age, income, and outlook. Age can be further subdivided into three distinct segments, young and starting out, middle-aged and family-building, and old and self-directed. If you have an average kind of life cycle that people will be taking, then typically you're going to have different relationships with money, savings, debt, depending on where you are in the life cycle. There can, of course, be changes in people that life cycle is kind of outside the norm, but you can think about that normal kind of relationship as at least a baseline guide so that we can apply a strategy or start to build upon that baseline for our own personal strategies. These classifications often miss their marks at the appropriate age with middle-agers looking at investments for the first time and old folks forced to ridiculously budget exercising the discipline they lacked as young adults. So clearly when we think about this standard kind of life cycle, we want to be thinking about what's the appropriate time for us to start the investment process for retirement. And at retirement, if we haven't saved enough, then it's likely that you have these kind of budgeting restraints at the point of retirement that you're not going to be used to, of course, if you haven't basically built in those habits up until the point of retirement. So income provides the natural starting point for investment goals because you can't invest what you don't have. So clearly when we think about the investments, we got to think about it in relation to our overall budget and our balance sheet. We got to be thinking, okay, should I be paying down the liabilities that I have or should basically I be investing what's the appropriate time to be investing clearly? We need to be clearing at least our expenses generally and then considering our liabilities in relation to basically earnings possibly we can have with regards to the investment. So the first career job issues a wake-up call for many young people forcing decisions about 401k contributions, saving or money market accounts and lifestyle changes needed to balance growing affluence with delayed gratification. So clearly when you got the 401k in place, you look at the limits for the 401k and you're like, this is great except it takes a lot of money to put in. You got to have the cash flow to take advantage of the 401k which could be a significant lesser amount of cash that you would have on hand for spending at that point in time if you're going to really take advantage of some of those retirement plans. So it's common to experience setbacks during this period getting stuck in overpriced home rental or car payments forgetting that your guardians are no longer picking up the monthly credit card bill. Outlook describes the playing field on which we operate during our lifetimes and the choices we make that impact wealth management. Family planning resides at the top of the list for most people with couples deciding how many kids they want, their preferred neighborhoods and how many wage earners will be needed to match those goals. So clearly lifestyle, how large a family we want are just going to drive some of our decision-making process then we're going to need the reality of how much income, how much revenue is going to be needed in order to meet some of those goals. Career expectations dovetail into these calculations with the highly educated ramping into their years of increased earnings power while others are stuck in dead-end jobs forced to cut back to make ends meet. So clearly the reality of how much money we can earn based on different circumstances, some under our control some possibly not under our control are going to factor into the decision-making process. Investment goals become moving targets for many individuals with carefully laid out plans running into roadblocks and the form of layoffs, unplanned pregnancies, health issues and the need to care for aging parents. So oftentimes we might say hey I had an investment plan or at least a general investment plan in place and then life happens and we have some circumstances that can derail us at those times we want to basically try to get a goal back set up in place and possibly set up our plans that can be more encompassing so that some of these life events won't kind of completely throw us off the rails. Those unexpected challenges demand a dose of realism when choosing a 401k allocations or deciding how to spend a year in bonus with the old axiom quote saving for a rainy day in quote ignored by many folks until it's too late. So clearly oftentimes this puts us off the rails for our savings plan but it doesn't really stop us from doing the spending which means we might be putting less money into our savings for something like a 401k plan and the 401k if you have access to it through your employer is one of the biggest kind of benefits that they can provide so you really would like to if you have the cash flow to take advantage of the 401k plan. Fortunately it's never too late to become an investor you may be in your 40s before realizing that life is moving more quickly than expected requiring contemplation about retirement. Fear can dominate your thinking if you wait this long to set investment goals but that's okay if it adds a sense of urgency to wealth management so clearly if you're getting older and you're saying hey I could see retirement kind of down the road more and more clearly here then that might be a motivating factor to start to save for it to start setting goals for it. So all investment starts with the first dollar set aside for that purpose whatever your age income or outlook so it's just like Uncle Scrooge earned that first dime and then invested it and so on. So of course those investing for decades hold a major advantage while their growing wealth allows them to enjoy the fruits of their saving habits. So clearly the earlier we start the investment process if we have the cash flow to do that the better because of the time value of money because of the accumulation of wealth over time that can happen. Set up an investment goals workflow investment goals address three major themes regarding money and money management first they intersect with a life plan that engages our thought process in unexpected ways second they generate accountability forcing us to review progress on a periodic basis evoking discipline when needed to stay on track third they generate motivation that impacts our non-financial cells in positive ways that can improve health and mental outlook. Once established the investment plan forces you to think about sacrifices that need to be made and budgets that need to be balanced understanding that delay or failure will have a direct and immediate impact on your wealth and lifestyle. So once we basically look at this in more detail then we can start to see in better perspective what the delay is going to cause us and what that delayed gratification can gain us if we start our investment goals earlier. This process includes long range thinking and planning allowing you to abandon a hand to month approach and set a priority list for the things in life you truly value. And this is something that we're not good at naturally we're good at the day-to-day decisions when you think about just trusting your gut or training your habits that's actually a really good thing for the day-to-day decisions but when we get into those decisions for the long term those are the areas where we want the more formal planning process in place so we can get a better perspective of what is really going on. So use monthly or quarterly statements to review progress and recommit to your chosen life plan making small adjustments rather than big changes when the money flow improves or deteriorates. So often times when we have like a raise that takes place so we get some kind of windfall cash or something like that then we end up just increasing our spending to go along with it but it'd be nice if we can think of our overall budgeting strategy and then use that money accordingly in alignment with our overall strategies and goals review your annual returns periodically and enjoy seeing your wealth grow without direct intervention or a holiday check from a relative learn to deal with losing periods in a mature manner in other words your investments will go down sometimes and you don't want to panic when the investments go down because you're in the long term, you're in it for the long term and that's something you have to kind of train yourself and be able to be comfortable with as the stock market goes up and down if you have a good solid plan in place then you've got to be comfortable that you're going to ride out on the long term in general. So using the red ink to build patience while reexamining how your decision making may have impacted those negative returns. The Australian Investor Association recommends using the SMART in SMART format when setting investment goals here are the elements so here's one kind of strategy a framework that you could use to help you with your investment goals specific, make each goal clear and specific and this is appropriate for basically goal setting just in general when we set goals we often have vague language and you know it's kind of like when you ask someone if you imagine asking a politician what are you going to do and they say we're going to make life better for you well that's not a major you know you're not very specific how exactly is that going to be the case what do you want in retirement I want to live well in retirement okay well what does that really mean you know you got to be more specific measurable frame each goal so that you know when you have achieved it so this is kind of close to specific right we want a specific goal and measuring it would mean it would be even more specific meaning I don't want to just be able to describe what I'm getting to but if I can actually put some numbers to it and then I have some track record along the way some goals I want to hit along the way that makes it a lot easier for me to see what is going on to track performance achievable you need to take practical action to achieve a goal so obviously when we set a goal often times you hear people saying well what you should do with a goal is you should shoot for the moon and even if you don't hit the moon you'll still go far you know you'll still have a good shot at it you know but often times if we set a goal that's too far what's going to happen is if we don't achieve it then it's not like we achieved something that's still great we might just not achieve anything at that point right so you want to have the goal achievable because you want to be able to feel that it's something that you can get to and therefore it's a motivating thing and this is clear with any goal that we're going to set if you're setting goals as a supervisor or you're setting goals basically for yourself there's always this problem of well if I set the goal too far out then it's going to be demotivating because people know that they can't hit it and so that's going to be a problem if you set the goal not out far enough then people clear it quite easily and it doesn't give you any sense of satisfaction if you clear a goal that was too easy relevant determine whether your goals relate to your life and are realistic so clearly you like to set goals that are going to be relevant goals to you time-based, assign a time frame to each goal so you can track progress so when we think about a goal we want to live well at some point in the future well you need to know how far out is that how I want to be financially secure at some point in the future I want to have this much money to be financially secure in the future well that's got to be measured in terms of something measurable which would be time measurement possibly and as well as basically time measurement how long it's going to take so start by writing a document or journal that lists each investment goal and how you'll measure progress so we want to think about our investment goals we can list them out and then think about how we can measure how we're doing to get to them list as much detail as possible considering both short-term and long-term objectives so you might then kind of think about your goals for retirement goals for example and then you might have your short-term goals you might even go more breakout than that you might say these are my five-year goals or maybe one year, five year, ten year and then retirement goals or something along those lines let's say you want to save for retirement but also plan to own a home in a safe neighborhood with enough cash left over for an occasional vacation now review your current financial situation noting how well you've handled money to this point and the steps you're willing to take to achieve that list of goals so clearly if we're talking about retirement we're talking about a long-term goal towards retirement if we're talking about saving then for a home that goal's probably somewhere into the five-year kind of goal type of thing and so we've got to tailor our needs our saving and investment needs to those specific goals so it may be premature to consider the practical action required or time frames needed to mark progress if your investment goals are unrealistic, outlandish or don't match your current or expected earnings power so you might be like I want to live in a mansion in retirement or something like that and you might be looking at it and say well now you have an unrealistic goal so you obviously want to get the goals in that range of not being too easy but not being too out of range, too outlandish so that then you can make your strategy towards those goals and everything will kind of make a bit more sense in that case so you can dream about fulfilling life's desires but investment planning requires a brutal reality check before executing the needed action plan so clearly when you're setting these goals and you're looking at them and you're actually starting to map them out that gives you a bit more of a reality check which is good because we want to live in reality and try to figure something out that we can actually achieve with satisfaction hopefully of either achieving it or putting our best effort towards doing something that is doable Simply stated, if the plan doesn't match your reality or your goals, throw it away and start over concentrate on baby steps rather than the broad brush daydreams so again the broad brush daydreams might be those kinds of goals that aren't measurable aren't grounded in time and so you want to get those kind of things that are going to be measurable that are grounded it's kind of like any other thing you do if you're working out or something like that then if you just set the goal that I want to be really big or run this far or something like that then that's not something the more measurable that you can get it you can measure the gains and you can get satisfaction from the process of the gains which is the point of life we should be enjoying the process so a small 401k contribution may be all that's needed to get the investment plan on track during its infancy employers sometimes match your contribution to a certain level which allows you to evaluate to eventually think about more sophisticated planning so clearly the 401k is a huge tool if you have access to it if you don't you might have access to an IRA for example but the fact that you get a tax benefit from it is huge although you got to be careful with that your cash planning strategy because it's kind of locked under that umbrella of the 401k plan there might be a matching if it's a 401k plan so that's clearly a place where a lot of people will start their retirement planning at least financial advisors recommend you allocate the maximum allowed whenever possible although that's unrealistic for many young people just starting out in their careers so clearly if you could max out the 401k that would be good because that would mean you're putting money in for retirement you're getting a huge deferral if you're able to actually put it in there for retirement but that requires a significant amount of cash flow in order to do that more cash flow than a lot of people might have to max out their 401k at least in their early years so this is especially true with the enormous burden of student loans incurred by people born after 1990 so a lot of the process of kind of subsidizing education has actually increased the cost I would say leading to higher student loans causing people problems there managing time frames break investment goals into short intermediate and long term segments whenever possible matching the natural life stages of youth middle age and post retirement years so you can kind of think about the arc of someone's life so it's normal for people to kind of be in debt and they're trying to grow the family they got college debt possibly and they got a mortgage possibly at that time that's not unusual doesn't mean you're kind of behind the curve at that point because that's usually what happens often times and then of course later at a later point in time you're hoping to pay down the debt pay down the student loans and then being a point where you've got you know pay down the liabilities and you have a set amount of assets normal kind of life structure in play and then thinking about your short term intermediate long term you might break it down more than that you might call it a one year a five year a ten year a retirement goal for example and break out your goals in those categories aligning bank and brokerage accounts to short and intermediate terms also makes sense while retirement accounts focus exclusively on the long term stiff penalties are incurred when accessing those funds prematurely so if you put one into a retirement account a 401k or an IRA then it's under the umbrella of this retirement account you got a tax benefit to put it in there and you basically promised you're going to use it for retirement that's why you got the tax benefit if you take it out early it's going to be a problem but you get a huge deferral which is great so if you can put the money in there and lock it in there until retirement that would be good but there could be penalties and paying tax on it obviously the shorter term goals you might use some of the same investment tools like stocks bonds, mutual funds and what not but you're going to want to basically have them in an account that's not under the umbrella of an IRA or a 401k so that you can use them to do whatever you want to do like purchase a house or something like that in fact there's no good reason to tap into IRA's scp steps in retirement accounts unless dire circumstances offer viable alternatives so once it's in the IRA you really want to keep it in there unless you have to take it out for an emergency short and intermediate term goals assist the acronym SMART planning as well allowing a quick review to gauge savings progress for a home automobile vacation or family obligation intermediate term planning can also include a more generalized account donating capital set aside for the inevitable quote rainy day end quote something like an emergency fund for example that is not under the umbrella of something like an IRA or a 401k plan so that when we have that rainy day when we have that emergency hopefully we have the capital we have the cash necessary to deal with it without needing to tap in to the IRA or the 401k plan which can be expensive so this emergency fund allocation will serve as a firewall between life's surprises and the much larger retirement account allowing that capital to be left untouched set to fulfill its intended purpose meaning we want to keep the 401k plan in there for retirement rather than tapping into it when we have an emergency by setting up an emergency fund to it in order to deal with those life's emergency don't despair if you've reached middle age without investment planning because major benefits accrue quickly when the task is first engaged so even if you're in middle age and you're saying hey I should have started this process earlier well we are where we are at at this point in time and we're going to start here and move forward of course plan catch up will be required if your finances are flashing red ink necessitating lifestyle changes until your income matches or exceeds expenses so clearly if we're living kind of outside of our means we need to basically have a wake up call at some point in time and start to get within our means so that we can also start to have the cash flow necessary to plan for retirement debt management will be needed to get on the right track because it makes no sense to earn 5% or 10% annually in an investment account when multiple credit cards have hit their limits at 18%, 20% or 25% interest rates so this is where we have to have our balance with regards to our liability and our assets or our investment planning if we have some liabilities on the books such as credit cards that have really large interest payments that we are making then we're negating the gains that we would be having by putting money into the investment you can make arguments for certain types of loans you might say well I have a mortgage but my mortgage rate is reasonable and so then the question would be well would your money be better spent paying down more of the mortgage but if the rate is low enough and you get like a tax benefit maybe you can make the argument then to be putting the money into the investment instead because you're hoping that you're going to make a return larger than the money that you would save by paying off say the mortgage but if you have debt that has high costs to it say the interest rates are quite high then you would like to basically do something about that kind of debt possibly roll it in to consolidate it or something like that to get a more reasonable rate and or pay off the debt so that you can then use the money beyond that for investments we might talk more about that in future presentations