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Upcoming Sessions

(Tuesday Evenings)
3, 10, 17, 24
(Monday Evenings)
7, 14, 21, 28
(Tuesday Evenings)
5, 12, 19, 26

Invest for Your Dreams

I have to applaud all of you who took time out your schedules to attend the Investing 101 class. I have no doubt that your investment of time will pay dividends over your lifetime.

Bryan Hall is a partner of the investment firm Hall, Hodges & Associates. We are so thankful that he took time out to come and teach our young people the fundamentals of money management.

James O’Shaughnessy, author of How To Retire Rich, said “Your financial success comes down to how much you save…and how much you spend!” That’s too simple, right? Well, Bryan showed us that the decision to spend or save will ultimately make or break your fortune.

The earlier you start to save the better off you’ll be. Bryan explained that younger people who learn to integrate saving into their lifestyle have a better chance at building their fortune sooner.

The cost of waiting:

Jill opens an individual retirement account (IRA) at the age of 22, invests $2,000 a year for 9 years, then she stops. Jill invests a total of $18,000.

Jack waits until he’s 31 to open his IRA. Like Jill, he invests $2,000 per year but doesn’t stop at 9 years, he continues on for 34 years. His total investment is $68,000.

Who do you think retires, at 65, with the largest sum in their IRA, Jack or Jill? I bet you’re all thinking it has to be Jack, he invested $50,000 more than Jill. Through the miracle of compounded interest, Jill has $446,238 in her IRA (remember she only paid $18,000 into her retirement account) while Jack has $396,916 in his IRA (remember he paid $68,000 into his retirement account.) How can this be? This miracle is known as compound interest.

Benjamin Franklin called compounding interest the eighth wonder of the world. When you receive interest on money you’ve deposited and then get paid interest on the interest you’ve received…that’s compounding. Cool, huh?

How do you decide where to invest your money?

We all want to earn as much as possible without loosing our initial investment. Generally speaking, the higher the risk (the possibility that you may loose some of your initial investment) the greater the reward (the amount of money you will earn on your investment.) Your tolerance for risk is something you need to determine with your investment professional. Factors such as age, income, obligations and lifestyle should all be taken into account while making a decision regarding your investments.

The Rule of 72

The Rule of 72 says that if you divide 72 by the interest rate, you’ll get the number of years it will take to double your money. Here’s an example:

You’ve invested $100.00 in a CD that is earning 4% (the interest rate):
72 / 4 = 18

That means that if you invested $100 dollars and earned 4% it would take 18 years for you to have $200. So, following that formula, if your investment is earning 6% we find that it will take 12 years to double your money.

Finally Bryan illustrated why it’s important to stay in the game! If your grandmother had invested $1 back in 1925 by the year 2000 she would have made the following gains:

New Amount
US T-Bills
$ 14.80
Government Bonds
$ 31.66
Corporate Bonds
$ 57.45
S&P 500

The US Treasury is considered a safe, low risk investment. The return is fairly low. The S&P 500 would be considered the riskiest of this bunch, but we see than Grandmas’ dollar has grown to $2,821.53. The greater risk, coupled with decision to leave it alone, would have paid off in the end.

So we’ve learned to:

  1. Decide to save rather than spend
  2. Save and invest early with consistency
  3. Recognize that compound interest is your friend
  4. Determine your risk tolerance so that you can decide where to invest
  5. Calculate using the rule of 72
  6. Stay in the game

These are just the highlights! We covered so much more than I can recap in this article. When the course comes around again, I highly recommend your participation! Learn how to make your dreams come true!