Whats Investing

1
Whats Investing?

• Investing makes your money grow
• Investing capitalizes on economic growth
• Investing involves some level of risk
• Investing rewards patience
• Investing outpaces inflation

2
Investment Objectives

• Safety of principal
• You don't want to lose your initial investment
• Income
• The regular payment of money that is earned from
  the investment
• Growth
• An increase in the value of your investment
• Liquidity
• The ability to turn your investment into cash
  very quickly

3
Characteristics of an Investment

• Risk
• The uncertainty about the rate of return that
  youll earn from an investment
• Return
• The money made from an investment, including the
  income and capital gain
• Liquidity
• The ease and ability of selling your investment
  in the marketplace without losing money
• Term
• How long you are planning to hold onto your
  investment

4
Risk Factors

• Inflation risk
• Interest rate risk
• Default risk or business risk
• Liquidity risk
• Reinvestment risk

5
Risk-Return Spectrum
Risk

• Common stock
• Blue Chip common stock
• Preferred stock
• Corporate bonds
• Government bonds
• Short-term government T-bills

Safety
6
Risk and Stages of Life A Typical Scale

• Life Stage Risk Tolerance
• Early career High
• Middle career High
• Late career Moderate
• Early Retirement Moderate
• Late Retirement Low

7
The Capital Markets
Capital Markets Banks, Investment Dealers, etc.
Company needs money to expand
People have money to invest
People get return on investment through capital
appreciation and from interest or dividends
Company pays interest or dividends out of profits
Money raised through capital markets. Company
grows, creates new jobs
8
A Typical Business Cycle
Stock prices high Interest rates high
PEAK
Rising stock prices Rising interest rates
Falling stock prices Falling interest rates
CONTRACTION
CONTRACTION
EXPANSION
EXPANSION
TROUGH
Stock prices are low Interest rates low
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10
Treasury Bill Calculation

• Assume that you buy a 30 day Treasury bill at
  99.672. It matures to 100 in 30 days. The
  difference is your interest.
• Yield calculation
• 100 - 99.672 x 365 __________ or
  __________
• 99.672 30
• What is the cost of this T-Bill if it is
  denominated in 10,000? __________

11
Bonds

• Debentures
• No fixed assets pledged
• Based on creditworthiness
• Mostly corporate issuers

• Bonds
• Secured by assets (Except for government)

12
An Example of a Bond
Last interest payment and repayment of principal
13
WHEN INTEREST RATES FALL BOND PRICES RISE
BOND PRICESGo Up
INTEREST RATESGo Down
14
WHEN INTEREST RATES RISE BOND PRICES FALL
INTEREST RATESGo Up
BOND PRICESGo Down
15
TYPICAL BOND YIELD CURVE
Short and long term Government bonds

Years to Maturity
16
THE FURTHER AWAY A BONDS MATURITY DATE, THE MORE
VOLATILE ITS PRICE

Maturity


Bond PriceFluctuation

Time

17
PICKING YOUR BONDS ANDPREFERRED SHARES
Bond price fluctuations let you make money beyond
fixed interest - by selling your bonds for more
than you paid for them.
18
A BOND QUOTE
19
WHAT HAPPENS TO YOUR 1000 BONDS PRICE WHEN
INTEREST RATES CHANGE
Interest Rate
Interest Rate
20
YIELD TO CALL
The yield assuming the bond will be called in
before maturity.
21
Exercise 1

• From the bond table find the price of a 10
  coupon, if rates are 8 ________
• The 10,000 bond would cost ________.
• The yield to maturity (8 in this case) is a
  combination of the capital loss on the bond and
  the higher coupon rate. The capital loss results
  from the purchaser paying a premium of ________
  for the bond and receiving back only the face
  value of ________ at maturity.

22
Rate of Return

• The total annual return for an investor buying
  the bond for 11,359 is
• Interest 1,000.00 per year
• Less amortized capital loss 135.90 per year
• Average annual net proceeds 864.10 per year on
  a 11,359 investment

23
Approximate Yield to Maturity

• interest per year /- the capital gain or loss
  per year
• purchase price maturity value x 100
• 2
• 1,000 - 135.90
• 11,359 10,000 x 100
• 2
• 864.10
• 10,679.50

.809 8.09
24
Exercise 2

• From the bond table find the price of a 10 year
  bond with a 10 coupon if market rates are 12
  ________
• The 10,000 bond in our example would cost
  ________.
• The yield to maturity is ________.
• The capital ________ (gain or loss) results from
  the purchaser paying a ________ (premium or
  discount) of ________ and receiving back the
  face value of ________ at maturity.

25
Approximate Yield to Maturity

• capital gain/year 114.70
• interest/year 1,000
• approximate yield to maturity (YTM)

1,000 114.70 1,114.70
.1182 11.82 8,853 10,000
9,426.50 2
26
BOND FEATURES

• Extendible
• Retractable
• Convertible
• Floating rate
• Callable
• Sinking fund feature
• Currency feature

27
WHO BENEFITS FROM BOND FEATURES
28
Bond Ratings Moodys Standard and Poors

• Aaa Prime quality
• Aa High grade
• A Upper medium grade
• Baa Medium grade
• Ba Lower medium or speculative
• B Speculative
• Caa From very speculative
• Ca to near or in default
• C Lowest grade

• AAA Bank investment quality
• AA
• A
• BBB
• BB Speculative
• CCC
• CC
• C
• C In default

29
Risks of Bonds

• Interest rate risk
• reinvestment risk
• default risk (credit risk)
• purchasing power risk (inflation risk)
• maturity risk
• call risk
• liquidity risk
• call risk
• foreign exchange risk
• event risk

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DECIDING WHEN TO BUY AND SELL BONDS/FIXED-INCOME
SECURITIES
Buy If interest rates high and you expect them
to fall to make a capital gain Sell If you
believe interest rates are set to increase to
avoid a capital loss Try to read and interpret
the yield curve. Dont buy bonds trading at a
premium close to maturity date.
31
BOND TRADING STRATEGIES

• Reading the yield curve
• Using strip bonds to lock in a set known interest
  rate when rates are attractive
• Building a bond ladder
• Buying high-yield or junk bonds
• Switching bonds
• Buying convertible bonds
• Buying bonds on margin

32
YOUR BOND LADDER

• Buy a one year government bond in June 1999When
  it matures in June 2000, use proceeds to buy a
  5-year bond.
• Buy a 2-year bond in June 1999When it comes due
  in June 2000, use proceeds to buy a 5-year bond.
• Do the same for the other three years of your
  ladder.

33
Accrued Interest

• You buy a 10 10,000 bond, maturing September 1,
  1999. Interest payment dates are Sept. 1 and
  March 1, six months apart. You buy this bond on
  Sept. 20, and it is settled on Sept. 23. Next
  March 1, you will receive the entire six months
  of interest from Sept. 1 to March 1 because you
  only owned the bond as of Sept. 23. Therefore you
  would pay the seller the accrued interest from
  Sept. 1 to Sept. 22

Sept. 1 to Sept. 22 is 22 days
10,000 x .10 x 22 60.27 365
34
PREFERRED SHARE FEATURES

• Cumulative feature
• Non cumulative
• Voting privileges
• Purchase fund
• Sinking fund
• Redemption feature
• Retractable

35
PREFERRED SHARE PROTECTIVE PROVISIONS

• Working capital maintenance clause
• Maintaining purchase or sinking fund requirements
• Right to vote in event of arrears
• Restrictions on further preferred issues
• Restriction on sale of assets
• Restrictions on change of terms

36
YOUR FOUR-STEP PREFERRED SHARE CHECK LIST
1. Preferred dividend coverage 2. Record of
continuous dividend payments 3. Equity (or book
value) per preferred share 4. An independent
credit assessment
37
Advantages of Incorporation

• Limited liability of shareholders
• Continuity
• Transfer of ownership
• Ease of raising capital
• Legal entity
• Professional management

38
Rights and Privileges of a Shareholder

• The privilege to share in the companys earnings
  through dividends
• The right to control through election of
  directors
• The right to information

39
Types of stocks

• Blue Chips (Income)
• safety established, dominant company
• income from dividends is prime goal large payout
  ratio
• steady growth in stock price
• liquidity
• Growth
• capital growth is main goal
• earnings expected to increase
• expect above-average returns
• reinvest most of their earnings

40
Types of stocks...

• Cyclicals
• rapid growth in good economic conditions
• falling price in poor economic conditions
• example commodities, mines, resources
• Defensive
• largely unaffected by economy
• lower-than average risk
• retail food and utilities are examples

41
Types of Stocks

• Speculative
• turnarounds
• takeover candidates
• new ventures
• Penny stocks
• low probability of large profits
• potential for large profits quickly, large losses

42
How Mutual Funds Work

Fund manager uses pooled money to buy securities



Mutual Fund Company
Gold
Successful investments make fund worth more
Investors get distribution
43
Net Asset Value Per Share

• As of today, a mutual fund has four million
  shares outstanding. The assets are common stocks
  with a market value of 102,000,000. The fund's
  liabilities amount to 2,000,000.

102,000,000 minus 2,000,000 4,000,000 25
per share/unit
44
Open-end vs. Closed-end

• Open-end funds
• Continuously sells to public
• Redeems units directly
• Fund size fluctuates
• Sells at NAVPs

• Closed-end funds
• Trades on exchange
• Shares sold on exchange
• Liquidity varies
• Stays stable

45
The Prospectus Should Include

• the investment objectives of the fund
• the name of the company issuing the fund and its
  directors and managers
• fees and expenses
• how the fund is sold, as well as where and by
  whom
• risks
• how to purchase and redeem fund units
• the fund's audited financial statements

46
Advantages of Mutual Funds

• Professional management
• Diversification (including global access)
• Lower commission charges
• Liquidity
• Record keeping
• Flexibility of amounts

47
Disadvantages of Mutual Funds

• High cost for short-term investment
• No guarantee of good performance
• Not usually covered by insurance

48
Money Market Fund

• Objective Safety of principal with modest
  returns.

49
Typical Income Fund

• Objective Safety of principal and high income
  from bond interest and dividends from preferred
  and high-yield common stock.

50
Asset Allocation Fund
Year 1
Year 2

• Objective Obtain higher returns by switching
  between asset classes as market changes.

51
Bond Fund

• Objective Varies. Stability and steady interest
  income and capital gains, or blend of both.

52
International Bond Fund

• Objective Capital gains and income by targeting
  bonds in high inflation/high interest-rate
  countries. Also aim to capitalize on weaker
  Canadian dollar.

53
Example of a Equity Fund

• Objective Capital appreciation through increases
  in stock values with some income from dividends.

54
Top Down and Bottom Up

• Bottom Up
• Look at company first
• Use detailed company analysis
• Look for earnings momentum
• Will pay higher price if growth potential warrants

• Top Down
• Look at economy first
• Then for growth sectors
• Then for growth companies
• Often in international funds

55
MANAGER STYLES

• EQUITY
• Growth managers
• Sector Rotator
• Value managers

• FIXED-INCOME
• Short term
• Mid term
• Long term
• Interest rate anticipators
• Spread traders

56
Value vs. Growth vs. Sector Rotators

• Growth
• Focused on earnings
• Growth stocks
• Hold medium-term
• Higher P/E
• Many holdings
• Higher costs
• Market timing

• Sector Rotators
• Top-down
• Look for trends
• Select growth sectors
• Large-cap stocks
• Many holdings
• High costs
• Market timing

• Value
• Bottom-up
• Research intensive
• Out-of-favour stocks
• Longer-term holdings
• Low P/E
• Lower costs
• Higher dividend yield

57
GROWTH EQUITY MANAGERS

• Tend to buy stocks with high P/E ratios

58
SECTOR ROTATOR EQUITY MANAGERS

• They stress market timing

59
TOP 10 HOLDINGS OF A TYPICAL SECTOR ROTATION
EQUITY MUTUAL FUND
Altamira Equity Fund Canadian Imperial Bank of
Commerce Government of Canada Bond Inco
Limited Alcan Aluminum Limited Placer Dome
Inc. Wascana Energy Inc. Teck Corporation Brascan
Limited Rogers Communications Inc. Anderson
Exploration Ltd. At Dec. 31, 1996. Gold,
precious minerals, oil and gas, metals and
minerals represented 54.5 of total holdings.
60
VALUE EQUITY MANAGERS

• Tend to buy stock with low P/E ratios

61
WAYS TO DIVERSIFY

• By asset type
• By managers style
• By capitalization
• large cap funds
• small cap funds
• By sector
• By geography

62
MUTUAL FUND CORRELATION
Return
Time
The two mutual funds that move up and down
together are correlated. The mutual fund with the
dashed line is not correlated to the others.
63
DIVERSIFIED MUTUAL FUND PORTFOLIOS

• International equity fund mixed with a mortgage
  fund
• Or.....
• An equity fund twinned with a fixed-income fund
• Based on historic returns

64
ALTERNATIVES TO MUTUAL FUNDS

• Index participation units
• Segregated funds
• Stock index-linked GICs

65
Mutual Fund Cost

• Direct
• Sales Fees (front-end, back-end, both or no
  load). 0 to 9
• RRSP set-up fee
• Switching fee
• Transfer fee

• Indirect
• Management fee 1.5 to 3
• Operating expenses ½

66
Management Expense Ratio (MER)
MER fees plus expenses x 100 average net
assets
67
Example of a Front-end Load

• Suppose you invest 10,000 in a fund with a 4
  front-end sales charge, and assume the NAVPS is
  10.00.

Purchase price/share NAVPS 10
10.42 1 - fee 1 - .04
Shares purchased gross investment
10,000 960 shares or units purchase
price/share 10.42/share
68
Example of a No-load Fund

• Suppose you invest 10,000 in a no-load fund with
  a NAVPS of 10.00.

Shares purchased gross investment
10,000 1,000 shares or units purchase
price/share 10.00/share
69
Example of a Sliding scale on a Back-end Load

• The longer you hold the fund, the less you will
  be charged.

Percentage of selling price sold in the first
year 6 second year 5 third year 4 fourth
year 3 fifth year 2 sixth year 1 seventh year
etc. 0
70
OPTION BASICS
CALLS let you BUY shares at a set price up to a
certain date. PUTS allow you to SELL shares at
a set price up to a certain date. BULLISH
STRATEGIES BUY a CALL or SELL a PUT BEARISH
STRATEGIES BUY a PUT or SELL a CALL
71
HOW TO PICK AN EXPIRATION MONTH - CALLS
Strategy Advantage Disadvantage Buy a near-term
call More leverage and less Limited time value
they money at risk expire quickly referred
to as rapid time decay. Buy a long-term
call More time for rally to You have more money
at happen risk. All other things being
equal, long-term call will cost more than
the short-term call.
72
DECIDING ON A STRIKE PRICE - CALLS
Strategy Advantage Disadvantage Buy
out-of-the-money Cost less and more Need big
move in stock calls leverage price Buy
in-the-money calls Better chance of making You
have more money at a profit risk
You pay a charge called a premium when you buy
an option. The premium reflects intrinsic and
time values. In the case of a call option, if the
market price of the stock is less than the strike
or exercise price, the premium would be made up
of just time value and referred to as
out-of-the-money. But if the stocks price
rises to above the strike price before
expiration, your call option would also have
intrinsic value and would therefore be
in-the-money.
73
PROFIT CHART FOR BUYING A CALL OPTION
Current stock price at 40.00Buy October 40 call
at 2.00
Net Profit Per Share
Break Even 42.00
Stock Price at Expiration
25 30 35 40 45 50 55 60
Stock Price at Expiration
Profit per Share
-2 -2 -2 -2 3 8 13 18
74
PROFIT CHART FOR WRITING A CALL OPTION
Current stock price at 40.00Sell October 40
call option at 2.00
Net Profit Per Share
Break Even 42.00
Stock Price at Expiration
25 30 35 40 45 50 55 60
Stock Price at Expiration
Profit per Share
2 2 2 2 -3 -8 -13 -18
75
HOW TO PICK AN EXPIRATION MONTH - PUTS
Strategy Advantage Disadvantage Buy a near-term
put Leverage and less money Rapid time decay at
risk Buy a long-term put More time for decline
to You have more money occur at risk
76
HOW TO CHOOSE A STRIKE PRICE - PUTS
Strategy Advantage Disadvantage Buy
out-of-the-money Lower cost and more Need big
move in stock puts leverage price Buy
in-the-money-puts Better chance to make a You
have more money at profit risk
77
PROFIT CHART FOR WRITING A PUT OPTION
Current stock price at 40.00Write October 40
put at 3.00
Net Profit Per Share
Break Even 37.00
Stock Price at Expiration
25 30 35 40 45 50 55 60
Stock Price at Expiration
Profit per Share
-12 -7 -2 3 3 3 3 3
78
PROFIT CHART FOR BUYING A PUT OPTION
Current stock price at 40.00Buy October 40 put
option at 3.00
Net Profit Per Share
Break Even 37.00
Stock Price at Expiration
25 30 35 40 45 50 55 60
Stock Price at Expiration
Profit per Share
12 7 2 -3 -3 -3 -3 -3
79
Calculation of stock returns

• Annual return dividend income capital
  gain/loss for year
• stock price at start of year

Real rate of return annual return -
inflation rate
80
The Best Time to Invest

• Average Annual Rates of Return 1970 1994

Investments Made At
Market high each year 17.5 Market low each
year 18.3 0.8
Difference
The best time to invest is whenever you have
the money
Source Templeton International Fund Management
81
Average risk premium

• rate of return - the treasury bill rate
• (called maturity risk for bonds)

82
Expected market return

• T-bill rate normal risk premium
• The return investors expect they will earn over
  some future time period.
• It is subject to uncertainty. It may or may not
  occur.

83
Required rate of return

• risk-free rate inflation premium
• investor wants more than the risk-free rate for
  investing in a risky security

84
BUILDING AND MANAGINGYOUR PORTFOLIO
The risk of a portfolio is less than the risk of
the individual securities it holds
85
When buying stocks, diversify among the sectors
Most Volatile
Manufacturingand Resources Consumer Financeand
Utilities
Less Volatile
86
Asset Mix
CASH
BOND/FIXED INCOME
EQUITIES
87
Asset Mix Examples
Case 1 A young, healthy single individual
professional with medium investment knowledge and
high risk tolerance, moderate tax rate and long
time horizon Cash 5 Fixed Income 25 Equities
70 100
Case 2 A senior citizen in a low tax bracket
with no income other than government pensions, a
medium time horizon and low risk
tolerance Cash 8 Fixed Income 62 Equities
30 100
Case 3 A middle-aged line factory worker,
married with three teenaged children, who is a
homeowner with great concerns about future
employment and funding college education, and
with low investment knowledge Cash 10 Fixed
Income 40 Equities 50 100
88
Constant weighting asset allocation
10 70 20
5 80 15
CASH
CASH
EQUITIES
EQUITIES
FIXED INCOME
FIXED INCOME

• Sell 10 Equity
• Buy Fixed Income and Cash
• This brings you back to your original asset
  allocation.

89
Tactical Asset Allocation
10 70 20
CASH
EQUITIES
Interest Rate Bond / Fixed-Income Price
FIXED INCOME

• Boost to 30 Fixed Income
• Sell 10 of Fixed Income
• This brings you back to your original asset
  allocation.

90
Volatility decreases with time
Standard deviation of returns
Holding period for TSE 300 in years
91
Dollar Cost Averaging
Price Invested No. of units 11.50 200 17.39 1
0.50 200 19.05 11.00 200 18.18
9.50 200 21.05 10.00 200 20.00 95.67

• Average price 10.45
• Total amount invested is 1,000 to purchase 95.67
  units. The average cost per unit is 10.45

92
FUNDAMENTAL VERSUS TECHNICAL ANALYSIS
Fundamental vs technical analysis

• Fundamental analysis company driven
• You look at the Company
• Technical analysis Market driven
• You look at stock price and volume trends

93
Three trends you want to see

• Sales
• Earnings
• Dividends

94
9 ratios to help you check a companys financial
health

• Net profit margin
• Return on equity
• Earnings per share
• Price/cash flow
• Price/book value
• Price/sales
• Price/earnings
• Current
• Debt/equity

95
The Debt/Equity Ratio

• Tells you if firm is borrowing too much money

Debt/equity ratio short-term debt long-term
debt x 100 shareholders equity
Rule Debt should not be more than 50 of equity.
96
Return on Equity

• Tells you how profitably firm has used
  shareholder funds

Return on equity net earnings - preferred
dividends x 100 common equity
Rule Compare with competitor companies
97
Earnings per Share

• Tells you how profitable your share of the
  company is

Earnings per share net earnings (before
extraordinary items) - preferred
dividends number of common shares
Rule Should increase consistently year over year
98
Cash Flow

• Gives you a clearer picture of the firms earning
  power

Cash Flow net earnings (before extraordinary
items) - equity income minority interest in
earnings of subsidiary companies deferred
income taxes depreciation any other
deductions not paid out in cash, e.g. depletion,
amortization, etc.
Rule Compare to competitor companies
99
The P/E Ratio

• Might tell you if shares are under or overvalued

P/E market price of stock earnings per share
Rule In general, the lower the P/E, the better
100
Calculation of a Five Week Moving Average for a
Particular Stock

• Week One 17.50
• Week Two 18.00
• Week Three 18.75
• Week Four 18.35
• Week Five 19.25
• Total 91.85 / 5 18.37

101
Top Down and Bottom Up

• Bottom Up
• Look at company first
• Use detailed company analysis
• Look for earnings momentum
• Will pay higher price if growth potential warrants

• Top Down
• Look at economy first
• Then for growth sectors
• Then for growth companies
• Often in international funds

102
Top-down approach
Economic Analysis
Industry Analysis
Company Analysis
103
Six Steps Towards a Financial Plan(the investor)

• 1. Financially, where are you?
• 2. What are your financial goals?
• 3. Are there any obstacles in your path?
• 4. What are your investment objectives?
• 5. What is your investment strategy?
• 6. Have you reviewed your financial plan lately?

104
Your Net Worth

• ASSETS
• Cash Equivalents
• (bank accounts CSBs)
• _______________________________
• Short-term Investments
• (T-bills, money market funds, etc.)
• _______________________________
• Life Insurance cashable value
• _______________________________
• Longer-term Investments
• (stocks, bonds, RRSPs, Pension fund)
• _______________________________
• Other Assets
• (House (full value), car, art, jewelry etc.)
• _______________________________

LIABILITIES Short-term Debt (credit cards,
personal loans, etc) ____________________________
___ Longer-term Debt (mortgage,
other) _______________________________ TOTAL
LIABILITIES _______________________________ NET
WORTH (Total Assets - Total Liabilities) _______
________________________
105
Budgeting
Income fromemployment
your net income(or take home pay)
less
less

• necessary fixed expenses such as
• rent or mortgage,food
• clothing, transportation
• insurance, entertainment

income taxes othercompany/government
deductions
equals
equals
Your discretionary income which you can use to
spend and/or invest
your net income(or take-home pay)
106
Setting Clear Goals
AIM AMOUNT FINANCIAL GOAL Retire at Age
55 (Freedom 55) With Annual Income of 55,000
107
Sample Investment Strategy Statement

• "My primary investment goal is to save for a
  comfortable retirement in 20 years through a
  portfolio that focuses on capital growth. I
  expect to outperform the stock market over time,
  understanding that occasional years of negative
  performance will be inevitable. Although income
  generation is not a concern, a portion of my
  portfolio will be maintained in conservative
  fixed-income securities to balance the riskier,
  growth-oriented stock portion."

Statement Reflects Goal comfortable
retirement Time horizon 20 years Objectives
capital growth through stocks Risk tolerance
occasional negative performance, balanced by
fixed-income securities.
108
Investment Policy Statement

• I. I am a moderately risk tolerant investor who
  wants to have some involvement in a money
  management approach to building wealth.
• II. My primary objective is to have my money grow
  until I retire at approximately age 60 when I
  will want to convert those assets to income.
• III. To accomplish this, I will keep no more than
  10 of my portfolio liquid about 30 in debt
  type assets and 60 dedicated to growth.
• IV. Specifically, I will use my bank account and
  a money market mutual fund for the liquid
  portion my company pension and a term deposit
  for the income component and growth mutual funds
  to offset inflation. On average, this portfolio
  should yield about 12 annually, fluctuating
  between 0 and 20.
• Signed___________________ Date_______________
  ____

109
My Personal Investment Statement

• Level I _________________________________________
  _____
• (Philosophy) _____________________________________
  _________
• ______________________________________________
• ______________________________________________
• Level II _________________________________________
  _____
• (Objectives) _____________________________________
  _________
• ______________________________________________
• ______________________________________________
• Level III ________________________________________
  ______
• (Asset Allocation) _______________________________
  _______________
• ______________________________________________
• ______________________________________________
• Level IV _________________________________________
  _____
• (Security Selection) _____________________________
  _________________
• ______________________________________________
• ______________________________________________

110
Whats Investing?

• Investing makes your money grow
• Investing capitalizes on economic growth
• Investing involves some level of risk
• Investing rewards patience
• Investing outpaces inflation

111
Investment Objectives

• Safety of principal
• You don't want to lose your initial investment
• Income
• The regular payment of money that is earned from
  the investment
• Growth
• An increase in the value of your investment
• Liquidity
• The ability to turn your investment into cash
  very quickly

112
Life insurance defined...

• all insurance deals with risk
• insurance protects against financial loss
• life insurance protects against the loss of money
  that may occur as the result of someones death

113
3 risks that threaten income

• death
• disability
• old age

114
Human life value

• earnings 50,000
• interest rate 10
• human life value 50,000/10 X 100
• 500,000

115
Cash and income needs

• mortgage fund
• emergency fund
• dependency period income
• spouses income
• education fund
• last expenses

116
Six Step Planning Process(the advisor)

• interview the client
• data gathering
• financial analysis
• plan formulation and recommendations
• plan implementation
• monitoring and plan review