INVESTMENT/TRADING VOCAB & IDEAS
Created by: Mike Kleinhenz – Kayline Strategies, L.L.C.

---

DEFINITIONS:

• Stock: A share of ownership in a company. Shares of stock are traded (bought and sold) on public stock exchanges. Stock(s) [market] has returned a historical average of about 8% annually over the last century (when the stock market is measured as a whole).

• Bond: A form of debt (company debt). When you buy a bond from a municipality (govt. or corporate), you are lending them money that they will repay to you with interest over a set period of time. Bond markets have delivered about a 6% annual return over time.

• Stock Exchange: A place (physical location) where securities & commodities are traded/exchanged. The New York Stock Exchange is a physical location. The NASDAQ is a network of individuals, computers, faxes, and phone systems that exchange stocks.

• Dow Jones Industrial Average: A measure of the performance of 30 large industrial company stocks. Not an exceptional measurement of the overall direction of the stock market, but tried & tested…very popular and very old (we’re stuck with it).

• NASDAQ Index: A measure of the performance of the stocks listed only on the NASDAQ stock exchange. The NASDAQ is a fairly new exchange.

• S&P 500 Index: A measure of the 500 largest publicly traded stocks in the USA and seems to provide a more accurate indication of what the stock market is doing than the Dow Jones Industrial Average. The S&P 500 Index has averaged about 11% annual return over the last several decades.

• Mutual Fund: A fund (group of highly-paid investors) that collects money from individuals and invests it on their behalf in “groups of individual stocks” while following specified rules, strategies, or stipulations pertaining to the individual fund’s bylaws.

• Actively Managed Mutual Fund: A mutual fund that is actively managed (stocks are more aggressively bought and sold) in an effort to beat the performance of the S&P 500 Index. In an average year, only 15% of all actively managed mutual funds manage to beat the performance of the S&P 500 Index.

• Index Mutual Fund: A mutual fund (also referred to as an E.T.F. or Exchange Traded Fund) that mimics the stock movement in an index (such as the S&P 500 Index). Rather than attempting to ‘beat’ the index, this type of fund simply matches it. Fees and taxes are lower (non-existent) with this type of fund than with actively managed mutual funds.

• IRA: Individual Retirement Account. This is an account, not an investment! Once money is placed in an IRA, it still must be invested in something. IRAs offer the investor the chance to deduct contributions to the IRA from their taxable income for the year the contribution is made. Investments in an IRA grow tax-deferred (they are not taxed until withdrawal at retirement). Special provisions regulate early withdrawals by assessing rather large fiscal penalties. The amount you may contribute is limited each year ($4k).

• Roth IRA: Similar to Traditional IRA with the following exceptions: 1) contributions are not tax deductible and, 2) The investments grow TAX–FREE (not tax-deferred). This means that you will not pay taxes on the capital gains experienced in your account as long as you wait until retirement age to withdraw the funds.

• 401(k): A company-sponsored tax-deferred retirement account. Similar [in many ways] to an IRA, except that employers may match a percentage of the funds you contribute. Contribution limits are much higher than IRAs and you may take loans against your 401(k), rather than withdrawing funds with a penalty (prior to retirement).

---

PRINCIPLES AND IDEAS OF INVESTING:

• Start Early! The amount of time is far more important than either the amount invested or interest rate earned when calculating the future value of investments.

• It’s not what you earn; it’s what you keep: Invest as much as you can (within reason).

• Identify your objectives & match them to your investment strategies: make sure that the money you invest for the long term will not be needed in the short term.

• Take full advantage of tax-exempt and/or tax-deferred retirement plans: these plans can produce significant benefits & peace of mind, if the investor will put them to use.

• Pay an honest tithe and make financial management a matter of family discussion and prayer [if you are so inclined depending on your religious commitments & beliefs].

• Be consistent: invariably adding to investments over a scheduled period of time is a painless [intelligent] way to build a significant amount of wealth over a long time frame.

• Be patient: having the discipline to leave your investments alone when they temporarily lose value is critical to long-term success. Don’t “jump the gun” and remain stalwart!

---

SUGGESTIONS I WOULD MAKE TO ONE OF MY OWN FAMILY MEMBERS ON HOW TO GET STARTED:

- Establish a family budget and eliminate consumer debt (high cost debt such as credit cards, signature loans).

- Set aside a realistic amount of funds to address short term needs (so that you can keep your hands off of long-term retirement funds).

- Maximize participation in employer-sponsored tax-deferred plans (i.e. 401(k), Keogh). - Open a Roth IRA (highly recommended over a traditional IRA) with an institution such as Charles Schwab, Fidelity, or any other reputable financial institution including your own personal on-line broker/dealer (Interactive Brokers, Options X-press, Think or Swim, etc…) if you feel comfortable enough to manage it within the firm’s guidelines/restrictions and your own risk-tolerance strategies. Always keep in mind what the objective of a long-term retirement account consists of and manage it accordingly.

- Filling out a [Roth] IRA is pretty simple and will usually consist of the following steps, some of which are more of a recommendation instead of an actual “step”: Make sure that the financial institution you open your account with will allow you to buy unlimited stocks or mutual funds (some will limit your choices). Call their 1-800 number (i.e. 1-800-435-4000 for Charles Schwab). Ask for a Roth IRA application. You may open an account for yourself and you may also open an account for a non-working spouse if you wish to double your contributions, which are limited on a yearly basis. Deciding to open a second account for the non-working spouse is an excellent idea and you could contribute sparingly for additional future gains. Fill out the application (it contains “difficult” questions, such as: ‘what is your name,’ SSN, home address, etc…). Attach a check to it in the amount that you wish to open the account with (note that the institution may have an initial minimum amount required to open the account). There shouldn’t be any further emphasis on this amount that you are opening the account with and it doesn’t indicate that you will be expected to fund the account with the exact amount on a monthly basis. Once you’ve received it, read through it, made copies of it, and filled it out completely…MAIL IT IN! In a few days you will receive a confirmation statement with your account number and instructions on how to place trades/manage the account [and make additional contributions] within your account for future reference.

- Within your Roth IRA, it would be a wise choice to invest in an S&P 500 Index Fund (otherwise known as an ETF or Exchange Traded Fund), such as the Vanguard S&P 500 Index Fund (symbol: VFINX). This is just a suggestion if you primarily plan on “buying and holding” or managing the account as an investor or position-trader. Make sure to compare the fund you select with others to be sure it offers low fees and low tax liability. Mutual Funds have notorious front-end and/or back-end loads (additional fees attached to the overall cost of the fund). Go to Morningstar.com to compare funds.

- Add to it every year! Make your yearly contributions as high as you can without causing discomfort to you or your family’s basic needs. There is a yearly maximum amount that you can contribute to the IRA, which is $4,000.00. In 2008, the amount will increase to $5,000.00 and also be indexed to rise with inflation at $500.00 increments. There have been progressive overhauling efforts to the structuring of IRAs that the George W. Bush administration has worked hard for despite heavy opposition from his political opponents. These changes include provisions that would help individuals over the age of 50 to contribute more than the current maximum amount in order to “catch up” to their retirement needs/objectives. There are also penalty-free withdrawing opportunities that would allow the account holder to take cash from the IRA at an earlier time than intended, but are limited to certain criteria, such as a first-time home purchase and/or college education expenses for children if the primary account holder is younger than 55 ½ years old.

- You may elect to sign up for an automatic investment option which will deduct a specified amount from your checking account and invest it in more mutual fund shares [ETF’s] or stocks of your choice each month (with little to no effort).

- As time goes on, educate yourself about your available investment options! If you are confident enough and/or feel you could out-perform the normal growth rates of the S&P 500 index over an extended period of time (position or swing-trading time frames), then make other investment choices that you believe will get you the best results based on your own analysis. Investigate other funds or other forms of investment that will bring a degree of diversification to your portfolio. Measure your performance each year to the S&P 500 (SPY or Spyders) and be brutally honest with yourself about your abilities in order to make a realistic assessment of your long-term investment aptitude.

- DO NOT endeavor to time the market by attempting to pick the “tops and bottoms” for the intelligible fact that it’s a statistical quagmire and no one can consistently predict market direction correctly. This will cost you significant gains and losses in the long run. Be smart, patient, disciplined, and odds-based with your investment decisions and try to avoid the mindset of a gambler, which is to “get rich quick” using luck as your investment foundation.

---

BOOKS THAT I'VE READ AND NOW RECOMMEND:

• “Reminiscences of a Stock Operator” by Edwin LeFevre

• “Rich Dad, Poor Dad” by Robert T. Kiyosaki, Sharon L. Lechter

• “Tools and Tactics For the Master Day-Trader” by Oliver Velez and Greg Capra

• “The Disciplined Trader” and “Trading in the Zone” by Mark Douglas

• "The “Market Wizard’s Book” by Jack Schwager

• “The Wall Street Journal Guide to Understanding Money and Investing” by Ken Morris

• “Business Strategy and Security Analysis: The Key to Long Term Investment Profits” by Suutari

• “Investing for the Long-Term (Market Strategies)” by Robert Linggard

• “Investment Psychology Explained: Classic Strategies to Beat the Markets” by Martin Pring

---

*REMEMBER: I AM NOT A FINANCIAL ADVISOR! USE THIS INFORMATION TO HELP YOURSELF COME TO YOUR OWN CONCLUSIONS. DO NOT TAKE ANY OF THE INFORMATION CONTAINED IN THIS WEB DOCUMENT (or any other web page you may come across) AS ADVICE TO PERFORM A CERTAIN ACTION REGARDING YOUR OWN CAPITAL AND/OR INVESTMENTS. BE SMART. BE WISE.

---