Financial Seminar For Nurses

1. Patrick Heyman, Ph.D., ARNP Financial Seminar For Nurses

2. Financial Independence • No debt • Own house free and clear • Enough savings/investments • Benefits • Less stress • More security • Work for enjoyment • Able to freely contribute to God’s kingdom

3. Biblical Principles • All money is God's money • Stewards caring for what is not ours • To whom much is given, much is required – Luke 12:48 • He who is faithful in small things will be entrusted with more – Matthew 25:14-28 • Look at the ant's example - Proverbs • A borrower is slave to the lender - Proverbs

4. Biblical Principles • Work diligently • Give a tithe back to God • Save • Be generous toward those in need • Care for your family • Stay out of debt • “But I thought Jesus said, ‘Blessed are the poor?’”

5. Crown Money Map • Emergency Savings (3 mos expenses)‏ • Pay off credit cards • Pay off consumer debt • Save for major purchases • Buy home, begin investing • Home mortgage paid off • True financial freedom

6. Transforming Debt to Wealth Plan • Pay off credit cards • Pay off consumer debt • Emergency Savings • Purchase/Pay off house • Begin investing • True financial freedom

7. Debt is the Single Biggest Obstacle to Building Wealth • Example: You have $100 a month extra. You want to buy a $1000 Widescreen TV • Save it for 10 months with 4.5% interest • 1 $1000 widescreen TV • $20.86 left over in interest • Buy it now on a credit card at 8% interest • After 10 months you have 1 TV • You still owe $145 • Net difference = $165.86 in lost wealth

8. To become financially independent you must • Control Spending: live under your means • Do not earmark future raises for spending • Resist credit • If you are in debt, pay it off as quickly as possible • Paying off a 9.6% credit card is the same as getting 9.6% in interest after taxes • Save/invest • If you don't have the self control, create artificial scarcity

9. Counter Culture • Income vs Net Worth • Most high income earning households will never become millionaires • Spend too much • Status symbols • Increased living expenses • Poor role models/peer support • Most millionaires are first generation • Savings is more important than income

10. Do I Really Need to Know All This? I'm Young and Poor!!! • Sara starts working at 18 and invests $2000/ year for six years, and then never invests again. • Stephanie starts working at 25 and invests $2000/ year until she retires at 67. • Ashley starts working at 35 and invests $2000/ year until she retires at 67.

11. And the Winner is... • Assuming 8% interest, at age 67 • Sara invested $12,000 and has $468,332 • Stephanie invested $84,000 and has $711,899 • Ashley invested $64,000 and has $315,253 • And if Sara decides to keep investing $2,000 a year until she retires.... $1,239,343!!!!

12. Things to include in budget • Net income • Tithe and Charity (PBA alumni association) • Expenses • Monthly (rent, electricity) • Non-monthly (insurance premiums) • Unexpecteds (car repairs) • Savings • Retirement/Long term • Goal oriented (new car, vacation) • Some fun (personal allowance)

13. Destroyers of Wealth/Creators of Misery • Debt • Divorce – number 1 wealth destroyer (also happens to be counterbiblical) • Fighting about money • Poor • Rich • Spending styles • Number one predictor of millionaire????

14. Tips For Significant Other • If dating • Maintain separate accounts • Avoid buying high value items together (boat, house, etc.)‏ • If married • Agree on a budget; do a monthly evaluation • Keep a joint account for marital expenses • Keep an individual account for each spouse, and give yourself a budgeted allowance that each spouse can use or save how they want

15. Tips Continued • Designate one person to keep the books/pay the bills • Make sure the other reviews regularly • Detect problems early (gambling or risky investments) • Premature death

16. The Heyman Money Plan For Marital Bliss Husband Salary Wife Salary IRAs Main Checking Account Short Term Savings Long term/ Emergency Savings Husband Allowance Wife Allowance Arrows indicate automatic transactions. Bills are paid from main checking.

17. Protecting Your Small Fortune • Inflation • Debasement: Loss of the value of money • “Expansionist monetary policy” • Artificially low interest rates • Artificial bubbles • Boom/Bust cycle • Avoid debt • Invest in gold, commodities, stocks • Stay out of cash, bonds

18. This Is Only A PrimerSuggested Further Reading • www.crown.org/library • Stanley & Danko: The Millionaire Next Door • Suze Orman: The Money Book for the Young, Fabulous & Broke • Larry Swedroe: The Successful Investor Today: 14 Simple Truths You Must Know When You Invest • John Cummuta: Transforming Debt to Wealth (Buy it on E-bay if available)‏ • P.J. O'Rourke: Eat The Rich

19. Libertarian Thoughts,aka Freedom in American Society • Murray Rothbard, What Has Government Done to Our Money?http://mises.org/money.asp • Murray Rothbard, The Case Against the Fed http://mises.org/books/fed.pdf • Peter Schiff, Crash Proof: How to Profit From the Coming Economic Collapse

20. Creating Artificial Scarcity • Pay yourself first technique • Fund retirement accounts before the paycheck ever gets to you • Have automatic transfer of money from checking to a savings/investment account • Pay your bills as soon as you get them; do not wait until they are due

21. Okay, I'm living under my means • What do I do with all this money Lying around? • Pay off debts • Fund retirement accounts • Save for house • Pay off the house • Save/invest for retirement • Enjoy life a little

22. Retirement Plans • 401(k), 403(b): Employer plans • Reduce before tax income • Grow tax free • Often have matching contribution programs • Vestment period • Traditional IRA: Personal Plan • Up to $4000/year • Reduces current taxes • Grows tax free

23. Retirement Plans cont • Roth IRA: Individual Plan • Up to $5000/year • Must pay taxes on contributions • Grows tax free, and is never taxed again • Other plans: SEP, Simple, etc. • More for Private businesses, self-employed

24. Retirement Plan Strategy • First Question: Should I fund my retirement plan or pay down debt? • Contribute to 401(k), 403(b) to meet the employer matching • Max out Roth IRA • Get your emergency savings • Max out 401(k), 403(b)‏

25. Retirement Accounts • One thing in common: reduce or delay income tax • How income tax works • Income vs Taxable income • Marginal tax bracket

26. Marginal Tax Rates

27. Concrete Examples Please

28. How do I get anIRA or Roth IRA? • IRAs must be held by a financial institution • Can transfer between institutions • Can invest in a wide variety of options • Stocks, mutual funds, bonds, even real estate, gold, silver, commodities • Depends on the financial institution • Mutual Funds are most popular

29. Income Tax Myths • Myth: Maximize deductions to reduce tax burden • Example: Take a big mortgage, so you get the interest deduction • Reality: Maximize taxable deductions by minimizing taxable income AND maximizing wealth (net worth)‏ • Example: Fund retirement accounts

30. Investment Basics • Basic terms • Liquidity: ability to “use” an asset • Risk: possibility that value of an asset may go down • “No risk” investments • FDIC insured accounts • U.S. Treasury Bonds • Emergency Funds should be in “no risk” relatively liquid accounts • i.e., savings account not stocks

31. What is investing? • “Americans live in a chosen country to which has been vouchsafed a “new era” in which all one has to do is buy “well-selected stocks at any time, at any price, and hold with sufficient patience in order to sell for more than one paid and thereby realize a handsome return on the investment” -- Chamberlain and Hay, 1927

32. What is investing? • Speculation • Purchase with the hope to sell it for more than you paid for it in the future • The greater fool theory • Investing • Income now • Preservation of capital • Growth in value • Price matters

33. Investment Vehicles (Examples) • Equity – Owning a piece of something • Stocks • Real estate • Partnerships • Liability – Loaning money • Bonds • Mortgages • Bank account • Derivatives and Commodities

34. “Investment” Theory • Modern Portfolio Theory • It is impossible to consistently outperform the market • Don't try to pick winners and losers • Select a “mix” of investments that corresponds to your risk comfort, and sit back, enjoy the ride • Bottom line

35. Stock Terms • Company size (market cap)‏ • Large cap • Mid cap • Small cap • Earnings Potential • Growth stock: earnings expected to grow rapidly; typically do not pay dividends • Value: company is thought to have low growth potential; usually pay higher dividends

36. Stock Indexes • GPA for a group of stocks • Groups of stocks that track a “segment” of the market • Dow Jones Industrial Average • NASDAQ • Standard & Poor 500 (S&P 500)‏ • Russel 2000 small cap index • Wilshire 5000 (overall American stock market)‏

37. Mutual Funds • A group of stocks which is then sold in shares • Actively managed funds • A manager tries to pick stocks that he thinks will outperform the others • Passively managed funds • Use an algorithm or stock index to determine what stocks they will have • Versatility: stocks, bonds, REITs, mixes

38. Mutual Funds • Broker funds (traditional): • Usually have a low barrier to entry, esp for IRA accounts • Account maintenance fees, no commissions • Fees are usually waived for accounts higher than $3000 - $5000 • Exchange traded funds (ETFs) more advanced (look it up later) • Are traded like stocks • Commissions, but no maintenance fees • 401(k), 403(b)‏

39. Fund Expenses • Front load: upfront commission • Back load: back end commission • No load • ONLY PURCHASE NO LOAD FUNDS • Expense ratio • When given a choice between two equally performing funds, go with the one with lower lower expense ratio • Passive funds cost less than active funds

40. How to Buy a Fund • Choose a brokerage firm and open account • Decide what kind of investment strategy you want to pursue • Buy the fund with the lowest expense ratio that helps you achieve that goal

41. Comparing Funds • Don't be suckered by past performance • In any given year, 85% of actively managed funds fail to outperform their benchmarks (stock index)‏ • Of the 15% that did outperform the market, less than 1% will do so three years running • Active funds have higher expense ratios. You must subtract that from your return • Bottom line: index funds are the way to go for most investors

42. Diversification: Building a Portfolio • Purpose of Diversification • Reduce risk • Balance losses in one are with gains in another • Stocks • Bonds • Money market • Real estate • Gold and foreign markets

43. Hey I Don't Need Think I Need to Know About Mutual Funds • Yes you do. • Most 401(k)'s and 403(b)'s require you to invest your money in on of several mutual funds that they provide. • For example, the VA offers: (tsp.gov)‏ • G Fund: Government securities (T-bills)‏ • F Fund: Bonds • S Fund: Small Cap • C Fund: Large Cap • I Fund: International • L Funds: Life

44. Too Lazy for All That? • Choose a “blended fund” • A fund that has a set mix of stocks and bonds • Usually, the company has a series of questions • Age • Planned retirement age • Desired return • Risk tolerance • Buy one fund and be done with it.

45. VA Lifecycle Funds

46. Too Boring? • Get really wild and crazy with specialty funds • Gold funds • Currency funds • Hedge funds • Biotech funds • Etc. • Generally speaking, don't buy individual stocks unless you put in the effort to educate yourself

47. Sample Investment Mixes • Aggressive long term • All small cap/value stocks • Aggressive long term with some diversification • 70% small cap/value stocks • 20% large cap stocks • 10% International stocks

48. Sample Invest Mixes cont • Lower Risk Long Term • 20% large/growth cap • 20% small/value cap • 10% international • 10% REIT (real estate)‏ • 30% bonds • 10% Treasury bills

49. Boutique Euro Pacific Capital “Full Service” Merill Lynch Morgan Stanley Citigroup Sample Brokerage Firms • Vanguard • T. Rowe Price • TD Waterhouse • Fidelity Investments • Charles Schwab