THE MONEY TREE

An investment in knowledge usually pays the best interest.

Benjamin Franklin, Statesman/Inventor

When I think of all the sorrow and the barrenness that has been wrought in my life by want of a few more pounds per annum than I was able to earn, I stand aghast at moneys significance.

George Gissing, The Private Papers of Henry Ryecroft

The Money Tree is designed to provide essential information on researching and investing in stocks, bonds and mutual funds and a way of tracking the results of your investments. It provides a gateway to a vast reservoir of the best informational and educational publications and web sites. It provides a place to keep the important records needed in life for easy access.

To develop a good understanding and feel for the markets and the economy takes time, information and study. It is not something that is learned over night. It requires consideration over an extended time period and a variety of economic conditions. If you could devote all of your time to studying the markets and investing it would still take a lot of time to gain a good understanding. But you have a family, an occupation, obligations and a host of other concerns. So get started now. Set aside a little time each day for something that should be a required course in high school and college. INVESTING.

It is sincerely hoped that the Money Tree will provide you with a basic knowledge of investments and online resources that will make a tree of wealth for your future and provide you with the cool shade of cash in your later years.

The Money Tree can be arranged to suit your needs. Additional page dividers can be purchased should you want to create you own sections for holding different personal and/or financial records. The purchase of a three hold punch is recommended if additional papers are to be kept in the binder. Copies of record pages have been provided in a page protector so that you can make copies as they are needed and never have to order refills. (Note: All information is current at the time of compilation but on the Internet things change daily.)

TABLE OF CONTENTS:

THE FIRST STEPS TO FINANCIAL FREEDOM

BONDS

MUTUAL FUNDS

STOCKS

ONLINE BROKERS/TRADING/RESOURCES AND WEB SITES

FINANCIAL RECORDS

THE BASICS

OF INVESTING

THE FIRST STEPS TO FINANCIAL FREEDOM

ASK YOURSELF THESE QUESTIONS

(1) Where are you now? What is your total net worth, cash flow and expenses? Are you currently following a well thought out plan of investing or are you just thinking about it at some unspecified time in the future?

(2) Where do you want to go financially? What type of lifestyle do you want? What major expenses will be coming up? When do you want to retire? How do you want to live when you retire?

(3) How can you best get to where you want to be? Do you have a road map?

IF YOUR FINANCIAL HEALTH AND MONEY MANAGEMENT COULD USE SOME IMPROVING ASK YOURSELF THE FOLLOWING:

(1)Would you give up a half an hour of television per night to study investing, look at web sites and make yourself a better investor or to learn about investing if you havent started yet?

How about an hour on Sunday? Would that be too much?
Would you check out a book or two from the library and read them and study the financial newsletters most libraries have?
Would you purchase and start an investment library and study it?
Would you watch CNBC and begin to learn about the financial world?
Would you set aside some money to subscribe to a financial newspaper and tune your mind into making money?
Would you start reading the business section of your local paper if you dont already?
Would you be willing to live below your means to start an investment program for your future?

(9) Are you really ready to immerse yourself in world of stocks, bonds and/or mutual funds and start a plan for your future?

Consider this: Jack invests $100 a month starting at age 25. He increases his education and moves up to better positions. At age 35 he starts to put away $500 a month and has an average annual rate of return of 10%. At 65 he has $1,500,000.

George doesnt save anything until 35 but he has moved up and puts away $500 a month at an average annual return of 10% just like Jack. At 65 he has $1,100,000. Jack only invested $12,000 more than George did but he has $400,000 more to spend in his retirement. (Source Investors Business Daily)

If time doesnt work for you it will surely work against you.

The first step to finding an investment strategy and starting a portfolio that is right for you (or changing an existing strategy and rearranging your existing portfolio) is to determine 6 basic things:

(1) Calculate your net worth, cash flow, your real take home pay, your expected expenses (college, a house, etc.) your retirement needs and what type of money would be needed in the event of an untimely death. This can take some time but is essential for you to know where you are. Try the American Express site at the following address: http://www6.americanexpress.com/advisors/tools/. They have a basic calculator for getting a picture of your finances. Also try (for a fee) financialplanauditors.com/

(2.) Determine how much money you can set aside for investing.

A good rule of thumb is that men should set aside 10% of their income and women set aside 12%. The reason for the difference is that women live longer and therefore need more savings. Needless to say this is not always possible. The vicissitudes of fortune will make an uninterrupted savings plan difficult at best. But during times of plenty more can be put away to cover for the lean times. The important thing is to get started. A money tree wont grow unless you plant it and take care of it.

Create a road map for your financial future. Decide when you plan to use the money and what will it be used for.

How long will it have to grow and what type of return will be needed?

Is the money to be used for your education, a childs education, cash to start a business, a down payment on a home? Is it to keep you from having to live on your Social Security check from the government in old age?

Where you are at in life, what you are saving for and how long you have to build the cash can affect the type of investment you make. These are things that must be considered if you are to build a good financial future for yourself and your family.

Determine how much risk you can tolerate.

Stocks, bonds and mutual funds all carry differing degrees of risk. Each of these major categories has numerous subdivisions with differing degrees of risk and the risk differs with each investment vehicle. Each individual has a different tolerance for risk.

Do you want the utmost safety and can accept a low rate of return? You want government bonds or government bond funds.

Do you want your capital secured and your returns a bit better than government bonds? Then you probably want blue chip bonds or bond funds.

Do you want the relative safety of bonds but your are willing to take some risk in exchange for a higher rate of return? Junk bonds might be for you.

Do you want to take some risk in stocks in exchange for a possible higher rate of returns than bonds but prefer the risk spread out and managed for you? You want to look at stock mutual funds.

Do you want your investment vehicle to do as good as the market average but you dont want to worry about it? You probably want a stock index fund with a low fee company.

Are you more comfortable with large, stable companies whose stock costs a lot but pay good dividends you can reinvest? Blue Chip stocks might be the right investment vehicle for you.

Are you willing to do your own research and accept higher risk with the possibility of high returns? Then you are probably an independent stock investor.

Does high risk turn you on? Recent Internet Initial Public Offerings might be right for you.

You may want all of these at different times of your life and during different economic conditions.

Do turbulent markets give you the jitters? Always ask yourself how much of a beating you can take because every investor takes a beating from time to time. Could you sit out a market decline that lasted 6 months, 1 year, a two-year recession? There are always going to be declines and recessions and no one can accurately predict when they will occur. How much safety do you want and how much risk can you sleep with.

Determine what expenses can be cut or decreased to increase your capital.

Saving involves sacrifice. It involves keeping your eye on the future, not on the greedy present. Go through your finances with a ruthless eye toward your expenses and what is really important and what is bull.

How much do you really need to survive?

What can you truly cut?

How much goes to recreation?

How much to ego? Why?

How much goes you dont know where?

Keep track of every dollar you spend for a month then take a good hard look at where your money goes. Keep receipts and record everything that you spend then sit down and look at whats frivolous and what isnt. Look especially hard at recurring monthly bills. $30 per month is $360 per year. Cut the frivolous. Then take another hard look at what changes can be made with how you spend your money. Is there anything else you can do to free up more cash?

How many credit cards would you be willing to slice and dice for your financial future?

Would you be willing to shop at discount stores and discontinued racks?

If you eat out at lunch would you be willing to brown bag it?

Would you be willing to buy your kids clothes at a thrift store?

Would you take your vacations at home to save money to invest?

Would you save up and invest to pay cash for a new car instead of making payments?

Do you drive an older car that is still dependable but have your eye of something flashy? Buy a new car for $20,000 with 10% down and a 48-month loan and your payment will be $448 per month. If you set aside the money to buy the car in a 5% money market fund you could pay cash at the end of 4 years. If you started buying your cars this way at age 30 and invested the extra money in an IRA that returns 9% you would have over $300,000 when you retire.

Would you swallow your ego and pay cash for a used car instead of a new one or even ride the bus to save money to invest?

Would you do without cable TV? Forty dollars a month is $480 per year.

Would you work a part-time job? Forty dollars a week in take home pay is $2,080 to invest over the period of a year.

How about paying off your credit card debt to save yourself 18% or more if your rate is higher?

Almost everyone can cut some expenses to increase the dollars available for investing if they really want to. But it always involves some pain. No pain, no gain.

Determine what steps you can take with regards to your employment to increase your income. A step up is a step forward.

Would your company train you for a better position if you let them know your were interested and available? Many companies prefer to fill positions from within if at all possible.

Are there any night courses available that could increase your skills and therefore your income level?

Would you be willing to go back to school full time if you can afford it?

If youre dissatisfied with your income have you been checking the classified ads and the Internet job sites for a new job?

Have you sent out any resumes or contacted anyone? Even if you are basically satisfied with your current employment have you been checking the classified and Internet for a better company and a better position? Moving from a job that doesnt have benefits to one that does is one of the best investments you can make. A better paying position with better medical and retirement benefits is always a good investment. But you have to search to find it. And it probably wont happen if you just look once or twice and then stop. Check out these web sites for better jobs and new careers:

careermart.com (2) selectjobs.com (3) monsterboard.com

(4) occ.com (6) net-temps.com (7) careersite.com

(8) new.careerpath.com (9)jobtrack.com (10) ajb.dni.us

(11) hotjobs.com (12) joboptions.com (13) futurestep.com

(14) tripod.com (15)hireminds.com (16) careerbuilder.com

(17) zinezone.com

When contacting a company by E-mail remember to (1) Make electronic correspondence as formal as print, (2) Keep your resume simple, (3) Include your E-mail address in all correspondence, (4) Follow up an E-mail resume with a hard copy, (5) Send your resume and cover letter as E-mail and not a separate attachment that might not fully make it through, (6) Send a copy to a friend with a different E-mail program to see if it gets through all right. Remember, many employers search through their resume databases by keywords, always include terms and phrases relating to your expertise.

PERSONALITY TESTING TOOL SITES

review.com/birkman (2) keirsey.com (3) assement .com

(4) careersby-design.com (5) ten-speed.com/parachute/

WHEN SHOULD YOU START INVESTING?

You should start right now! Unless the market is in the middle of a steep slide. Invest $400 per year (about $7.70 per week) starting at age 30 at an average annual rate of return of 10% and you will have almost $120,000 at age 65. The same investment and rate of return with investment starting at age 40 produces a little over 42,000. Of course if you could double that to $15.40 per week you could double the result. If you do your investment homework.

If two people invest at a rate of return of 10% over a forty year period with the first investing $2,000 per year for years 1-8 and the second investing $2,000 in years 9-40 the first person would invest a total of $16,000 and the second would have a total of $64,000 invested. Due to the effects of compounding at the end of the 40 year period the person investing in years 1-8 would have $88,000 more. (Source: Investors Business Daily.)

THE VALUE OF $100 COMPOUNDING AT 10% AFTER:

1 YR. $110.00 2 YRS. $121.00

10 YRS. $259.00 20 YRS. $673.00

50 YRS. $11,739.00 100 YRS. $1,378,061.00

Invest $100 per month at a 10% rate of return and you will have $20,000 in 10 years, $41,000 in 15 years, $76,000 in 20 years and $227,000 in 30 years. Invest $300 per month and the figures are $62,000 for 10 years, $125,000 for 15 years, $229,000 for 20 years and $683,000 for 30 years. With an annual average inflation rate of 3% over 30 years the $227,000 is $117,000 and the $683,000 becomes $353,000.

YOUR FINANCIAL LIBRARY: PASSPORT TO PROSPERITY

One of the most important things you can do for your financial future is to start a financial library and read and study the books as you learn about your chosen investment vehicles and the markets. The following books will give you a basic investment library for study. The financial programs on CNBC will give you a day by day commentary on whats happening in the markets. If you are new to investing you may feel a little overwhelmed by the sheer amount of information that you are bombarded with. It takes time and effort to learn about a particular investment vehicle and learning about investments is a lifetime experience.

Choose an investment vehicle (stocks, bonds or mutual funds) that interests you and immerse yourself in learning about that one vehicle until you feel you have a good grasp of it. Pick a certain security within your area of interest and follow it in the financial section of your local paper as it goes up and down. Let reality be your teacher. It is the only true teacher although the bills for the lessons can be a bitch.

Look over the following books and check them out from your library or purchase the ones that interest you and spend some time reading about stocks, bonds, mutual funds and the markets. They are generally listed from easy to difficult.

The 10-Minute Guide to the Stock Market by Dian Vujovich (Pub. Macmillan Soectrum/Alpha Books) Chapters on Welcome to the World of Stocks, Who Owns Stocks, Why People Buy Stocks, The Stock Markets, The Different Kinds of Stocks, Where the Money Goes, Stock Personalities, International Stocks, Dividend Paying Stocks, What to Look for When Buying Stocks, Dont Overlook These Stock Particulars, How to Buy Socks, Where to Buy Stocks, When to Sell Stocks, Tax Consequences, Investment Strategies, Mutual Funds, Indexes that Track Stocks. Note: There are also 10 Minute Guides to Beating Debt, 401(k) Plans, Annual Reports and Prospectuses, Smart Borrowing, Buying and Selling Your Home, Mutual Funds, and Long Term Retirement Planning.

Learn to Earn by Peter Lynch.

Published by Fireside Books New York, NY Easy to understand. Good for a beginning investor. Contains sections on: A short History of Capitalism, The Basics of Investing, Stock Picking Tools and How to Decipher a Balance Sheet.

How I Made 2,000,000 in the Stock Market by Nicolas Darvas

Published by Carol Publishing Group. An interesting story of a mans experiences in the stock market, the good, the bad and the ugly.

100 Best Mutual Funds by Gordon K. Williamson

Published by Adams Media Corp. Good Reference Book for Mutual Funds. Sections on the following types of funds, Aggressive Growth, Balanced, Corporate Bond, Global Equity, Government Bond, Growth, Growth and Income, High Yield, Metals and Natural Resources, Money Market, Municipal Bond, Utility Stock, World Bonds.

Appendix A-Q: Glossary of Mutual Fund Terms, Who Regulates Mutual Funds, Dollar Cost Averaging, Systematic Withdrawal Plan, Load or No Load, The Best and Worst Days, Investing in the Face of Fear, Is Bigger Better, US Compared to Foreign Markets, Past Performance Compared to Future Returns, The Power of Dividends, Growth Stocks vs. Value Stocks, Stock Volatility in Perspective, Does Foreign Diversification Really Reduce Risk, The Last Fifteen Years, Asset Categories: Total Returns for the Last Ten Years, Alphabetical Index of Funds.

Industry Group and Ticker Symbol Index by Investors Business Daily

Essential for stock trading. Lists companies and their trading symbols by Industry Group, Alphabetically and Alphabetically by ticker symbol. Available from Investors Business Daily. Updated twice a year.

Wall Street Words by David L. Scott.

Published by Houghton Mifflin Company. Essential reference work of the terms used on Wall Street. Has technical analysis chart patterns in appendix.

Guide to Understanding Money and Investing (The Wall Street Journals)

Published by Light Bulb Press Excellent overall view of money and investment and speculative vehicles. Has sections on: Money (15 subsections), Stocks (24 subsections), Bonds (11 subsections), Mutual Funds (10 subsections), Futures and Options (13 subsections).

Guide to Planning Your Financial Future (The Wall Streets Journals)

Published by Light Bulb Press. Sections on Retirement and Pension Plans, Social Security, Investing, Estate Planning and Health Care.

Lifetime Guide to Money (The Wall Street Journals)

Published by Hyperion Press. Excellent overall view of money management. Sections on: Taking Control of Your Finances, Mastering the Secrets of Successful Investing, Finding Your Way Through the Insurance Maze, Making the Most of Your Benefits, Handling Family Finances and Estate Planning, The Smart Way to Deal with Debt, Managing the Real Estate Balancing Act, Cutting Your Taxes and Saving Your Sanity, Steering Clear of Mistakes and Scams, Putting the Pieces Together When You Do Not Fit the Mold.

Guide to the Markets by Investors business daily.

Excellent book for an in depth study of markets and investing. Chapters with numerous subsections on: The Capitalist Epoch, The Stock Market-Your Share of Prosperity, Mutual Funds-An Investment Revolution, Options-The Prudent Persons Primer, Bonds-A Huge and Varied Market of Steady Returns, The Futures Market-Getting a Handle on the Hype, Economics and the Markets.

How to Make Money in Stocks by William J. Oneil

Highly recommended for independent investors. Excellent book for stock picking. Explains William Oneils CANSLIM method for picking winning stocks. Chapters on: Current Quarterly Earnings per Share, How Much is Enough; Annual Earnings Increases, Look for Meaningful Growth; New Products, New Management, New Highs, Buying at the Right Time; Supply and Demand, Small Capitalization, Plus Big Volume Demand; Leader or Laggard, Which is Your Stock; Institutional Sponsorship, A Little Goes a Long Way; Market Direction, How to Determine it. Additional chapters on buying and selling, chart reading, ticker tape reading, models of the greatest stock market winners from 1953-1993 and more.

Encyclopedia of Investing by Investors Business Daily

Reprints of articles published in Investors Business Daily on Stock Picking, The General Market, Mutual Funds, Bonds, Options and Futures.

Guide to High Performance Investing by Investors Business Daily

Involved and technical. Lots of study. Chapters on: General Market Indicators, Psychological Market Indicators, Stock Analysis, Investment Strategy and Mutual Funds.

An individual who plans to be a self-directed investor should subscribe to one of the financial newspapers such as the Wall Street Journal, Barrons or Investors Business Daily. Tuning yourself to the making of money means immersing yourself in information and reading financial newspapers that can give you a broad view of what is going on in the markets and economy.

INVESTORS BUSINESS DAILY Investors.com 800-599-0514

RETIREMENT ACCOUNTS

One $2,000 contribution to a Roth IRA compounding at 9% over 35 years puts over $40,000 tax free in your pocket when you retire.

A worker making $30,000 per year wants to retire at 65 with $500,000 in savings. At an 8% return he would have to put 9% of his pay away if he started at age 30. If he postpones starting his savings program until he is 40 he will have to put away 21% of each paycheck. If he starts saving at 50 he would have to put away over 50% of each paycheck. (Source Investors Business Daily)

Invest $2,000 a year for 10 years at 8% and you would have just over $31,000 when you stopped investing. Retire at age 70 ½ with an 8% annual return and that $31,000 would be about $600,000.

One of the most important things you can do for your financial future is to open an Individual Retirement Account. Below are the current basic choices. There are penalties for early withdrawal, limits on contributions and, as always, the rules may be changed by the government. But it is one of the best investments you can make. With some accounts you can make withdrawals for hardship or take out loans for education. As of 1999 Americans have 585 Billion in 401(k) plans and 934 Billion in IRA accounts.

.457 ACCOUNTS--The name of this account is taken from the section of the tax code that creates them. It is a salary deduction plan whereby an employee can defer taking income up to a certain ceiling thereby reducing their taxable income. The money is invested and grows tax-deferred until the employee changes jobs or retires. Loans and hardship withdrawals may be allowed.

ESOPs--(Employee Stock Ownership Plans) These retirement plans invest in the companies stock and are often funded by the company. There are various rules for when the stock can be sold; employers must by law let older workers sell a percentage of the stock to diversify their investments; some companies require employees leaving the company to sell their shares back to the company.

401(k)--A retirement plan provided by some employers in which an employee makes contributions that are deducted from pre-tax dollars. The employer will often make a matching contribution up to a certain amount. The employee manages the account and the money isnt taxed until withdrawal. Americans have over 580 billion dollars in 401(k)s with 42% of that in mutual funds. Visit financialengines.com. The service, Financial Engines, was co-founded by Nobel Prize-winning economist Bill Sharpe. The service will project the performance of your 401(k) holdings and give you specific advice on which of your holdings you should sell and what to buy. You give it your goals and it will tell you what the chance is that your current holdings will meet that goal.

403(b)--A retirement plan similar to the 401(k) for employees of school districts, hospitals and nonprofit organizations. Employee contributions are deducted from pre-tax dollars, the employee may direct the account and the money is not taxed until it is withdrawn.

TRADITIONAL IRA--A tax-deferred retirement account for individuals whose income falls within a certain range. As income increases above a certain point the amount that can be contributed decreases. There is a limit to the amount that can be contributed per year and the contribution is deducted from pre-tax income lowering tax liability. The account may be self-directed. The money is taxed upon withdrawal. You can start taking distributions at age 59 ½. You must start taking distributions by April 1, following the year you reach 70 ½ years of age. There is a mandatory minimum amount that must be withdrawn.

ROTH IRAA retirement account in which the contributions are made with after tax dollars. There is a limit to the amount that can be contributed per year. The account may be self-directed. The money is not taxed upon withdrawal and there is currently no mandatory distribution requirement.

SIMPLE(Savings Incentive Match Plans for Employees) Employees can make pre-tax contributions up to a certain limit and the employer may elect to make a matching contribution up to 3% of compensation and a maximum of $6,000. The money is not taxed until withdrawal. The account may be self-directed.

SEP-IRA(Simplified Employee Pensions) Those who are self employed can make contributions up to a certain percentage of income. Income from most part-time jobs qualifies. The contribution is tax deductible and the money is not taxed until withdrawal. The account may be self-directed. You cannot borrow from a SEP.

KEOGHA retirement plan for the self-employed that lets them contribute a certain percentage of their income up to a ceiling and deduct it from their taxable income. Just about any self-employed income qualities. The income is tax-deferred until withdrawal. There are two types of KEOGH plans. The profit-sharing plan allows a percentage to be contributed up to a limit. The amount of contributions can be changed or interrupted making it flexible. With the money-purchase plan you must set a certain amount to be contributed and stay with it. If the contribution is not made there is a penalty. Small businesses may also offer KEOGH plans.

EDUCATIONAL IRAs (529 PLANS) can be set up for children under 18 year of age and up to $500 can be contributed each year. The contributions are tax free if used for books, tuition and other qualified expenses.

10 THINGS TO KNOW ABOUT IRAS

(1) You can invest your IRA any way you like: savings accounts, money market funds, mutual funds, bonds, stocks, options or futures.

(2) If one spouse is not working you may still open an IRA for that spouse and contribute the maximum amount allowed (currently $2,000 for Roth and Traditional).

(3) To open an IRA you will have to provide a list of primary and secondary beneficiaries, their date of birth and social security numbers and the percentage they are to receive.

(4) You cannot trade on margin with an IRA account.

(5) Your contributions to retirement plans cannot exceed the maximum allowed by the IRS and these vary with the type of plan and may be changed in the future.

(6) You dont have check writing privileges with an IRA brokerage account.

(7) If you die with money in your IRA the money will be paid in the percentages. specified to the primary beneficiaries, if they are not alive the money goes to the secondary beneficiaries, if they are not alive the money goes to your estate.

(8) If you take money out of your IRA before retirement you must pay a tax penalty. With some types of accounts you may be able to take out a loan or (in a Roth) take out money for a first time purchase of a primary residence or for educational purposes.

(9) You do not have to pay a penalty for early withdrawal if you are totally disabled.

(10)Belonging to different retirement programs may effect how much you can contribute to any IRA account.

Note: Transfers are the movement of funds directly between two IRA accounts (they must be the same types of account). In Rollovers the money goes to the account holder who then chooses another retirement plan to move the money to. At present you have 60 days to move the money into another IRA account without penalty

For additional info contact the IRS @ 800-829-1040 and order publication 590 individual retirement arrangements. It can be ordered online at irs.ustreas.gov

IRA INVESTMENTS: BONDS VS STOCKS

Invest $2,000 per year from age 25 to 65 in a bond IRA with an average annual rate of return of 5.2% (historical average return) and you would have $253,722 when you retired. Invest the same $2,000 per year in stocks with an average return of 11% (historical average return) And you would have $1,163,652. (Source Investors Business Daily)

DOLLAR COST AVERAGING

Dollar cost averaging is a good way to cut the risk of investing and is a good way for a conservative investor to invest. You invest a fixed amount every month or some other period of time in an investment vehicle and over time the fluctuations of the market tend to average out. When the price of the security is down you are buying more shares, when the price is up you are buying less but your securities bought before are worth more.

Studies done on dollar cost averaging compared to lump sum investing showed that generally speaking lump sum investing has produced a superior return in the majority of cases but not everyone has a lump sum to invest. A lump sum investor who doesnt study the market for a particular security could end up investing at the highest price. Dollar cost averaging provides a risk-adjusted way to invest.

20 YEAR AVERAGE RETURNS OF INVESTMENT VEHICLES

STANDARD AND POORS 500 17.8%

SMALL CAP STOCKS 16%

INTERNATIONAL STOCKS 13.8%

CORPORATE BONDS 10.9%

INTERMEDIATE TERM GOV. BONDS 9.9%

30 DAY T-BILLS 7.2%

NOTE: Different historical averages will often be quoted for the same investment vehicle due to the time frame for each computation, whether it is computed before or after taxes and the assumed tax rate.

STOCKS, BONDS AND TAXES

Keep in mind that bond interest income may be taxed at the highest rate (currently 39.6%) if you are in the highest income bracket. Stocks held for long-term capital gains (held over a year) are currently taxed at a maximum rate of 20%.

MAJOR ECONOMIC INDICATORS AND INDEXES

Various indexes and averages are used to gauge the health of the economy. The major indexes are:

INDEX OF LEADING ECONOMIC INDICATORS tracks a number of gauges of the health of the economy such as unemployment claims, new factory orders, housing starts, durable goods, measures of manufacturing performance and the money supply. It is an indication of whether the economy is moving toward recession or growth.

THE CONSUMER PRICE INDEX tracks housing, food, transportation, medical care, clothing, entertainment and other factors and reflects economic trends. It influences economic decisions such as cost of living raises in jobs and pensions. It is one of the most watched indicators of inflation.

THE PRODUCER PRICE INDEX tracks the cost of raw materials. When production costs rise the increased cost is passed along to the consumer over the following months causing the price of goods to rise.

THE LEADING INFLATION INDEX measures inflation rate changes and is published by the Center for International Business Cycle Research.

There are other indicators that measure consumer confidence, personal income and consumption and gross domestic product but these are the major indicators.

DOW JONES INDUSTRIAL AVERAGE In 1884 investor Charles Dow took the average closing prices of 11 stocks (9 railroad and 2 manufacturers) and created the Dow Jones Industrial Average. He published it in a paper he had started with Edward Jones. The paper was later to become The Wall Street Journal. The list has been updated 20 times as the fortunes of companies changed and has been expanded. Of the original companies on the list only General Electric remains. The rest are gone with the wind.

DOW JONES TRANSPORTATION AND UTILITY AVERAGES monitors airlines, railroads and trucking companies and gas electric and power companies.

STANDARD AND POORS 500 INDEX (S & p 500) created in 1923 acts as a proxy for the market and tracks 500 leading companies. It is the benchmark that investors most often measure their performance by.

NEW YORK STOCK EXCHANGE COMPOSITE tracks all stocks traded on the NYSE.

NASDAQ COMPOSITE tracks all stocks traded on the NASDAQ exchange. It generally has more volatility than other indexes.

AMEX INDEX tracks the companies listed on the AMEX exchange.

RUSSEL 2000 tracks the smallest two thirds of the 3,000 largest companies.

WILSHIRE 5000 tracks all stocks traded on the exchanges.

Investors should watch the indicators to keep a general idea of the state of the economy and the direction that it is heading. An individual who invests blindly without regard to the direction of the economy is one who will eventually invest badly.

THE EFFECTS OF INFLATION

One dollar invested in 1925 would be worth approximately the following before inflation: In large company stocks, $2,351.89; in long term corporate bonds, $61.34, long term government bonds, $44.18; treasury bills $14.94.

One dollar invested in 1925 would be worth approximately the following after inflation: large company stocks, $257.12, long term corporate bonds, $6.71; long term government bonds, $4.83; treasury bills, $1.63.

One hundred dollars a month invested at an annual rate of return of 10% turns into $227,000 after 30 years. At 3% annual inflation it is worth only $117,000. (Source: Investors Business Daily)

If you had stuffed $500 in your mattress in 1971 it would be worth about $113 in 1998. (Source: American Century)

The rate of inflation has a significant effect on purchasing power of your money. At 3% inflation over 25 years the purchasing power of $10.00 becomes $4.80. At 5% over 25 years the purchasing power of ten dollars is only $3.00.

Generally inflation and higher interest rates causes the price of stocks to fall. It eats away at the fixed income of bonds and increases the value of real estate and the cost of maintaining it. It depresses the housing and automobile markets.

Look for signs of inflation in monthly government reports, the Producer Price Index, Consumer Price Index and the price of futures contracts for crude oil, cotton, copper, cattle and gold. Rather than try and track and understand all the indicators yourself why not just watch CNBC and let the professionals keep you informed. While there is always a difference of opinion concerning which way things are going to go, by listening to professionals analyze the current situation and the possibilities and watching what happens you increase you knowledge.

THE RULE OF 72 To find out the number of years it will take for prices to double take the number 72 and divide it by the annual inflation rate.

7 BASIC RULES OF INVESTMENT SECURITY

1. Dont discuss the amounts of your investments with anyone. Its all right to discuss investments generally with close friends if you are comfortable with that type of conversation but amounts should not be discussed. If one party has a great deal more than the other does it might create hard feelings that might come back to haunt you should they some day become an enemy.

2. Dont brag about your investments in front of acquaintances or strangers. You can never tell who is a criminal or acquainted with criminals or who may someday be a dire enemy. Put yourself up as a wealthy individual and you might be the target of a burglary or worse. Brag about your investments and someone might think youre so rich you keep loads of cash and valuables lying around your house.

Keep in mind there are other types of theft besides burglary. Every computer sends an electronic signal each time you press a key. A receiver hooked to a laptop computer can pick up these signals and duplicate them on the screen. Be known as a wealthy online trader and some day someone may be parked outside your house with the proper electronic equipment recording you type away. It has happened.

3. Never trade on a network computer or touch-tone trade on a phone hooked up to a network. Anyone with a bit of computer knowledge can get your user name and password. If the network isnt set up for an audit trail you wont know who got in. With an audit trail you will know which computer but not necessarily who. An enemy doesnt have to steal your money in the conventional sense. They can just sell your stock and buy you a handful of bad stocks it will take you a lot in trading fees to get out of and more to get back into what you wanted.

4. Dont allow anyone you dont know extremely well to use the computer you trade on unattended. They can put a program in there to record your keystrokes and pick it up later or search for files containing that information if you are not present.

5. Use camouflage for your investment records if a safe or secure place isnt available. If you use the record sheets provided in The Money Tree to keep track of your investment information, keep the Money Tree with other binders or in a bookcase. Keep financial statements somewhere other than a desk drawer or file cabinet.

(6) Invest in a paper shredder for all financial documents that are to be thrown out. Grabbing someones garbage is probably the easiest way to find financial records.

7. If you sell your computer remember that when you save or delete files, copies remain on your hard drive until they are overwritten or wiped clean. When floppy disks from one computer are used on another computer whatever is brought up is saved to the hard drive. Erase the C drive if you sell the computer.