lecture 2 - Investing 101: Dr. Irvines Ten Commandments of...

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Investing 101: Dr. Irvine’s Ten Commandments of Personal Investing Professor Paul J Irvine Terry College of Business University of Georgia
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Paul J Irvine Ten Commandments 2 Some context
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What is going on? Paul J Irvine Ten Commandments 3
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Paul J Irvine Ten Commandments 4 A consumer deleveraging?
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You know about this risk? Paul J Irvine Ten Commandments 5
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We are getting close enough to make projections now. Paul J Irvine Ten Commandments 6
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Paul J Irvine Ten Commandments 7 1. Save The more the better The sooner the better Never put off until tomorrow what you can save today Pay yourself first Think in terms of opportunity costs That extra $5,000 you spent on the upgrades to your car may be worth over $50,000 in retirement (30 years at 8%) Corollary: Pay off your credit card debts
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Paul J Irvine Ten Commandments 8 Accumulated Wealth The Early Bird Gets the (Golden) Worm $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 10 15 25 30 35 Number of Years Saved Accumulated value of $500 per month at 8% per year, compounded monthly
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Paul J Irvine Ten Commandments 9 How Much Should You Save? Percent of annual income one must save to achieve 80% of pre-retirement income during retirement years (in real terms)* * Assumes that you will retire at 65, have a life expectancy of 90, and ignores taxes. Assumes that you’ll earn 5% in real terms in your savings years and 3% in real terms during your retirement years on all investments. Age 30 35 40 45 % of Income to save (given the following level of current savings): Your savings = 0 15.4% 21.0% 29.2% 42.1% Your savings = 1x Income 9.3% 14.5% 22.1% 34.1% Your savings = 2x Income 3.2% 8.0% 15.0% 26.1%
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Lots, Save Lots Paul J Irvine Ten Commandments 10
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Paul J Irvine Ten Commandments 11 2. Save Tax-Free The magic of compounding (see rule #1) Suppose you kept (and compounded upon) only 70 cents of every dollar you invested Tax-advantaged savings vehicles Regular IRA, Roth IRA 401(k) / 403(b), 457(b) Self-Employment plans: Keoghs, SEP IRAs 529 College Savings Plans Etc. Note: all have their own quirks of which to be aware But watch those expenses! See # 9 - Expenses
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Paul J Irvine Ten Commandments 12 Taxable vs. Tax-deferred gains Year Pre-Tax Post-Tax 15 $3,172.17 $2,316.44 25 $6,848.48 $4,055.42 35 $14,785.34 $7,099.87 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 0 5 10 15 20 25 30 35
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This note was uploaded on 06/05/2011 for the course FINA 4310 taught by Professor Staff during the Fall '08 term at University of Georgia Athens.

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lecture 2 - Investing 101: Dr. Irvines Ten Commandments of...

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