INVES

TMEN

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ATEGIE

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TO G

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" R U L E N O . 1 : N E V E R L O S E M O N E Y.

R U L E N O . 2 : N E V E R F O R G E T R U L E N O . 1 . "

- W A R R E N B U F F E T T

INTRODUCTION

Assets are less ideal than income when you need money to spend in the short-term.

Investment strategies that focus on income make more sense as one nears retirement age.

The main component for determining the amount of that income is risk. The greater risk one is willing to take on, the greater the potential for a high-income stream.

3 TYPES OF INVESTMENT INCOME

• Combines stocks as well as fixed income instruments

Variable

• Income that can be expected but is not guaranteed

Predictable

• Income guaranteed by a government or insurance company

Guaranteed

VARIABLE INCOME INVESTMENT STRATEGIES

Can outpace inflation and grow wealth over time

Allows for consistent and reliable stream of income

While the income will be less than that generated by a 100% income strategy, there will still be some income while providing asset growth as well.

PREDICTABLE INCOME STRATEGIES

Predictable income strategies are generally safe and reliable investments, but all of these investments are on a sliding scale with regards to risk.

For example, some bonds are very low-risk investments, but there are also very high-risk bonds.

EXAMPLES OF PREDICTABLE INCOME STRATEGIES

Dividend income from stocks

• Portion of profits that a company earns and pays back to investors

• Look for stocks that pay good dividends over time.

Dividend income funds

• Focus on stocks that consistently pay dividends to investors

• Managed by investment professionals

EXAMPLES OF PREDICTABLE INCOME STRATEGIES (CONT’D.)

Corporate Bonds

• Individual loans money to a corporation

• Businesses in a riskier financial situation pay more for the privilege of borrowing your money.

Bond Funds

• Invests almost exclusively in bonds and other debt instruments

• Different funds have different rates of return depending on the quality of the investments.

GUARANTEED INVESTMENT STRATEGIES

There are three (3) types of guaranteed investment strategies:

Treasury bills

Fixed annuities

Certificates of deposit (CDs)

GUARANTEED INVESTMENT STRATEGIES:TREASURY BILLS

Short term – lessthan a year

Purchased in denominations of

$1,000 and maximum is $5M

Maturities are typically 4, 13or 26 weeks

Do not pay interest

GUARANTEED INVESTMENT STRATEGIES:FIXED ANNUITIES A fixed annuity is a contract issued by an

insurance company that makes fixed payments over the term of the contract.

The contract typically ends when the person receiving the payments dies.

GUARANTEED INVESTMENT STRATEGIES: CERTIFICATES OF DEPOSIT (CDS) Saving certificate issued by commercial bank

Pays interest to the purchaser

Maturity typically 1 month to 5 years

Interest rate is fixed and compounded daily

Guaranteed by the federal government

WHICH STRATEGY IS RIGHT FOR YOU? ASK:

• How long are you looking into the future?

• Longer time frame allows for greater risk.

• Shorter investments: Be more conservative.

What is my time horizon?

WHICH STRATEGY IS RIGHT FOR YOU? ASK:

• Higher worth allows riskier investments.

• If risk makes you uncomfortable, invest conservatively.

What is an acceptable

risk?

WHICH STRATEGY IS RIGHT FOR YOU? ASK:

• There are some investments that are better left to the experts, like junk bonds.

What is my expertise?

INVESTING IN BONDS

The basics of investing in bonds are really quite simple.

Remember that you are lending money to a company or government that issues the bond.

The bond is simply an agreement to repay the face value on the bond plus a specified interest within a specific period of time.

THINGS TO CONSIDER WHEN INVESTING IN BONDS1.

Ris

k a

nd

bon

d

rati

ng

s Bonds are rated for risk.

AAA bonds are the safest.

BB or below are 'risky‘.

Risk is based on growth potential, financial stability and current debt.

2.

Bu

yin

g b

on

ds Sold over-the-counter (OTC).

Sold in $5,000 increments.

Quoted as a percentage of the face value.

THINGS TO CONSIDER WHEN INVESTING IN BONDS (CONT’D.)

3.

Inte

rest

Typically paid every six months

Interest rate is based on the face value of the bond.

Bonds with longer maturity dates tend to pay higher interest rates to take into account the unpredictability of the future.

INVESTING IN BOND FUNDS

These funds are similar to stock mutual funds. The only significant difference is the type of investments the fund manager utilizes.

Bond funds and dividend funds are frequently less volatile than stock funds and can also provide the investor with a steady stream of income.

As with all mutual funds, there are different levels of risk and return. Ensure the fund you choose is a good match for your risk tolerance.

THINGS TO LOOK AT WHEN ANALYZING BOND FUNDS

1.

Exp

en

ses

Avoid funds with over-average expenses.

Expenses are more important with lower risk funds.

THINGS TO LOOK AT WHEN ANALYZING BOND FUNDS (CONT’D.)

2.

Fu

nd

’s C

red

it

Ris

kMutual funds invest money in companies with differing degrees of credit worthiness.

Higher risk bonds and dividend-paying stocks can sometimes lose intrinsic value, which would lower the value of your investment and reduce your income stream.

THINGS TO LOOK AT WHEN ANALYZING BOND FUNDS (CONT’D.)

3.

Inte

rest

rate

ri

sk

People are willing to pay more for a bond that pays more interest than one that pays less.

Long-term bonds are more sensitive to the potential rise in interest rates.

Interest rate risk is frequently higher when interest rates are low.

“Money isn't the most important thing in life,

but it's reasonably closeto oxygen on the

‘gotta have it’ scale.”

- Zig Ziglar

GENERAL INVESTING TIPS

Have a Budget

• Know where your money is going so you can allocate more money to investments.

• The more money you can invest, the more investment income you can generate.

GENERAL INVESTING TIPS (CONT’D.)

Invest automatically

• The more your investment activities can be put on autopilot, the more likely you are to invest money consistently.

• This includes 401(k)s, automatic withdrawals, and investing first before paying your bills.

GENERAL INVESTING TIPS (CONT’D.)

Avoid movin

g your mone

y around too much

• People have a natural knack for moving their money at exactly the wrong times.

• Once you’ve found a good place for your money, try to leave it alone.

GENERAL INVESTING TIPS (CONT’D.)

Stay on

top of your investment

s

• Even if you have professionals investing your money for you, it's important to stay on top of things. It's your money.

• Don't be afraid to ask questions.

GENERAL INVESTING TIPS (CONT’D.)

Keep learni

ng

• Even if you're not investing your money yourself, the more you know, the better off you'll be.

POINTS TO NOTE

There comes a time in most people's lives where income is more important than the value of one's assets.

As with any other type of investing, it's important to be aware of your goals.

CONCLUSION – QUESTIONS TO ASK YOURSELF

How much investment income do you need to have each month?

When do you need the income?

How much risk can you subject your investments to?

How much can you afford to lose in the near future?

CONCLUSION If you lack the expertise to invest in fixed income

investments, don't hesitate to get professional assistance. There are many experts out there waiting to help.

Always continue to learn more about money and investing. The more you know, the better decisions you'll make.

Don't wait to get started. A strong, steady stream of income can be yours if you take the right actions and get busy!