Making Your

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Valued Gateway Customer
Valued Gateway Customer
Valued Gateway Customer
Making Your tash Last A Lifetime
University of Maryland,
Cooperative Extension Patricia M. Tengel,
Family Resource Management Specialist
Valued Gateway Customer

Valued Gateway Customer
Valued Gateway Customer
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Goals for today 1. To help you determine
appropriate investment strategies for your
situation 2. To help you understand the
investment choices available to you.
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What are your goals? Minimize risk Keep
your assets in tact Continue saving for an
extended life Inheritance for your
heirs Enhance your current life style
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Determining Appropriate Investments 1.
Indicate closest age (7) 50 (5) 60
(3) 65 (1) 70 ____ 2. Annual income from
all sources (2) 20,000 (4) 30,000
( 5) 40,000 (6) 50,000
____ 3. Percent of income spent annually (1)
100 (3) 90 (5) 80 (7) 70 (9) 50 ____
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Determining Appropriate Investments 4. Number
of dependents you support (9) 0 (8) 1
(6) 2-3 (4) 4-6 (1) 6 or more
____ 5. Value of assets (house, ins, savings,
investments) (1) 50,000 (3) 100,000 (5)
250,000 (7) 350,000 (9) 500,000 or
more ____ 6. Approximate debts (mortgage,
bills, in relation to assets) (9) 30
(7) 50 (5) 75 (3) 90 (1) 100
______
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Determining Appropriate Investments 7. Amount
of liquid assets in bank or money market to
pay expenses for ___ months (1) 2 (3) 3
(5) 4 (7) 5 (9) 6
______ 8. Life insurance coverage
(9) 250,000 (7) 150,000 (5) 100,000
(3) 50,000 (1) 25,000
______ 9. Health insurance including
Medicare (1) Basic (5) Major Medical
plus Basic (9) Basic, Major Medical,
Catastrophic _______
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Financial Objective Investment strategy
1 Insured CDs, money market funds
2 Treasury bills notes, and inflation
adjusted bonds 3 Investment grade
corporate municipal bonds, preferred stocks,
bond mutual funds 4 High yield corporate
municipal bonds, high yield mutual bond
funds, convertible bonds 5 Blue chip
stocks, and growth income, equity income,
and balanced mutual funds
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Where to keep Cash Objective 1
Certificates of Deposit Insured to
100,000 Shop for best rates
Money market accounts Not insured unless
at a bank Very Safe Short maturities
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Treasury Bills Objective 2 3, 6, 12 month
term 1,000 units and 1,000 increments Sold at
a discount Buy through Treasury Direct or
Federal Reserve Bank at no charge Buy at a bank
or brokerage fee ranges 25-100 Exempt from
State and local taxes
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Treasury Notes Issued as 2, 3, 5 or 10 year
terms Issued in 1,000 denominations Interest
paid semi-annually Interest exempt from state
and local taxes Pay a higher interest rate than
T-Bills, term is longer
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Series EE Savings Bonds Denominations50 to
10,000 Buy at 1/2 face value Backed by full
faith and credit of Federal Gov. Buy at most
banks or through payroll deduction Bonds issued
after 5/1/95 earn (no minimum) 85 of 6-month
T-Bill rate held 5 years. or less 85 of 5-year
Treasury rate held 5 years or more Bonds issued
after 5/1/97 earn 90 of 5-year Treasury rate,
no minimum Current rates call 800-US BONDS

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Series I Savings Bonds Denominations50, 75,
100, 500, 1,000 and 5,000 starting May 1999
also 200 and 10,000 Issued at face
value Interestfixed rate and inflation rate
changes every 6 months Earn interest for 30
years Available after 9/1/98
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Inflation-Indexed Bonds 10 year notes or 30
year bonds Semi-annual interest
payments Principal is indexed to inflation Bond
interest paid on current value of principal Must
pay taxes on interest increase in principal
each year
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Corporate Bonds Objective 3 Invest for
income Interest Paid before dividends Amount
stated at purchase No loss of principal when held
to maturity Sell early? If interest rates
rise, price of bond falls. If interest rate
fall, price of bond rises. No hedge against
inflation May be callablecalled early
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Investment Grade Bond Ratings General Moodys
SP Description Best quality Aaa AAA High
quality Aa AA Upper medium A A Medium Ba
a BBB Consider buying bonds with different
maturity dates.
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Municipal bonds Debt issues of state, local
governments, and certain public
authorities Issued in 5,000 and 10,000
unitsusually must buy a minimum of 20,000
Tax exemptpay a lower rate than
corporates General Obligation Bonds Used to
finance roads, schools, government
buildings Safestbacked by taxing authority of
issuer
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Preferred Stocks Have high, secured
dividends Should have cumulative rights Trade
like bonds, but no maturity date Prices tend to
fluctuate, be careful when selling May have a
call provision like a bond
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Bond Mutual Funds Never mature as do regular
bonds Manager trades to keep fund at stated
maturity level Universe of bonds the same for
all funds of same type Look for fund with low
fees for best returns The shorter the average
maturity, the less the fund will fluctuate in
price Select a fund that pays monthly dividends

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How Interest Rates Affect Bond Funds
Est. Impact of Interest Rate Change on Net Asset
ValueVanguard AveragePortfolio Maturity -1
-2 1 2
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High Yield Corporate Municipal Bonds
Objective 4 Interest rate paid much higher
than other bonds Below investment grade
bonds Depending on credit risk, some bonds
riskier than others Could stop paying interest
or company could go bankrupt Both corporations
and municipalities can have financial problems
and must pay higher rates of interest
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Below Investment Grade Bond Ratings General Descr
iption Moodys SP Speculative Ba BB Low
Grade B B Poor to Default Caa CCC Highly
speculative default Ca CC Lowest
grade C C Interest or principal not
currently paid n.a. D
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High Yield Bond Mutual Funds Also called junk
bond funds Professional management Portfolio
supervision Look at total yieldinterest
capital gains not just interest Watch interest
rates as they start to rise, sell right away to
avoid losing principal Limit amount of funds in
junk bonds to 10 of assets
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Convertible Bonds Can be converted for a
specific number of shares of common stocks Yield
3 to 5 more than the dividends of common
stock Investor has the safety of bonds and price
appreciation of stocks Bonds often called when
interest rates fall must be converted into
stock Buy convertible bonds only of companies
that you would invest in
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Blue Chip Stocks Objective 5 Ownership in a
major company History of profitability Continued
or increasing dividends Sufficient financial
strength to withstand economic downturns Example
s IBM, General Electric, Du Pont, Proctor and
Gamble
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Growth and Income Mutual Funds 7 of 10 largest
funds Investment Company of America Washington
Mutual Investors Vanguard Index 500 Fidelity
Growth and Income Vanguard/ Windsor Vanguard/Win
dsor II Dean Witter Growth and Income Give
equal weight to capital gains
dividends Emphasis on blue chip stocks Returns
often equal to growth funds
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Equity Income Mutual Funds Dividend paying
stocks Shoot for yield 50 to 100 higher than
SP 500 Price appreciation below normaltrails
the market in good times, does not fall as much
in bad Invest inutilities, oil, drug
companies
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Balanced Mutual Funds Contain stock for growth
bonds for income Typically, 65 in
stocks Oldest funds around Vanguard
Wellington 1928 CGM Fund (Loomis-Sayles
Mutual) 1929 Over time, balanced funds give
respectable returns with low risk
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Running out of money? Consider a Reverse
Equity Mortgage on your home for extra cash
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Reverse Equity Mortgages Cash advance, monthly
payment, or credit line Do not have to repay
until 1. Die 2. Sell home 3. Move from home
permanently Size of loan increases each month
and the interest is compounded on the payment
received each month Will have to pay origination
and closing costs they can be financed
through the loan
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Reverse Mortgages Loan size depends on Equity
in your home The interest rate you pay Expected
term of the loan Never pay back an amount
larger than the value of your home Owner keeps
title to home Loan advances are non-taxable, do
not affect Social Security or Medicare
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The HUD (Housing and Urban Development) /HECM
(Home equity conversion mortgage) Plan Insured
by HUD Must be over 62 and own home Must attend
counseling session before applying Can receive
lump sum, credit line (can grow over time) /or
monthly payment for fixed period or as long as
you live in the home Loan based on maximum home
value of 153,362.50 Mortgage insurance cost2
of home value 0.5 added to interest rate
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HUD/HECM Lenders in Maryland American Senior
Income Baltimore [phone] Amerifirst
Mortgage Baltimore (800)
473-6467 Bank United Mortgage Virginia Beach
[phone] Carroll County Bank West
Minister [phone] Home Mortgagee Corp.
Levittown, NY [phone] Household Senior
Svs. Chicago, ILL(800) 414-3837 International
Mortgage Baltimore (800)
581-7806 Cumberland [phone] Owings
Mills [phone] Unity Reverse Mortgage
Columbia [phone] Rockville
[phone] Wilmington Savings
Fund Society Wilmington, DE(800) 292-9542
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Household PlanEver Yours
Sponsored by Household Internationala
consumer finance company, very large Lump sum,
credit line or combination Maximum home value
250,000, credit line to 250,000 Variable
interest rate prime rate 3, rate changes
with prime rate Loan is not insured
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Ever Yours Lenders in Maryland American Senior
Income Baltimore [phone]
Household Senior Services Chicago (800)
414-3837
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The Fannie Mae Home Keeper Mortgage Features
similar to HUD plan Credit line (cannot grow
over time) or monthly payments No Federal loan
guarantee Must attend counseling session Value
of home cannot exceed 207,000 loan based on
full value
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Fannie Mae Lenders in Maryland American Senior
Income Baltimore [phone] Home Mortgage
Corp. Levittown, NY [phone] Unity/Revers
e Mortgage Columbia (800)
368-3254 Rockville [phone]
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TransamericaHomeFirst Plan Must be over
65 Home worth more than 100,000 Lump sum,
credit line, or monthly check or
combination Monthly check is an annuity for as
long as you live from Metropolitan Life or
Transamerica Occidental Life Insurance.
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HomeFirst (continued) Interest rates 9.75
fixed rate on monthly loan advances 12.5 on
credit line advances Home First Lender in
Maryland Unity/Reverse Mortgage Columbia
[phone] Rockville [phone]
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Attending Make Your tash Last a
Lifetime Has shown me I need to
.. Something I learned today was
..