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AAFM Basics on Investing, Financial Markets and Financial Planning 


By George S. Mentz, JD, MBA 




Guide to Financial Statements . 3  

The Basics . 3  

“Show me the money!”3  

Balance Sheets . 4  

Income Statements . 5  

Earnings Per Share or EPS . 6  

Cash Flow Statements . 6  

Operating Activities . 7

Investing Activities . 7  

Financing Activities . 7  

Read the Footnotes . 7  

Read the MD&A . 8  

Financial Statement Ratios and Calculations . 8  

Saving and Investing . 10  

Define Your Goals . 10  

Making a Financial Plan . 10  

Figuring Out Your Finances . 10  

Your Net Worth Statement11


Small Savings Add Up to Big Money . 12  

Pay Off Credit Card or Other High Interest Debt12  

Risk Tolerance . 13  

Savings . 13  

Investing . 14  

Diversification . 14  

Risk Tolerance . 15  

Investment Products . 15  

Stocks and Bonds . 16

Mutual Funds . 16  

What is a mutual fund? . 17  

Mutual Funds Without Active Management17  

Watch "Turnover" to Avoid Paying Excess Taxes . 17  

Selecting a Financial Professional18  

What If I Have a Problem? . 19  

Investment Products Other20  

What Is a Variable Annuity? . 20  


How Variable Annuities Work . 21

The Death Benefit and Other Features . 22  


Variable Annuity Charges . 23  

Tax-Free “1035” Exchanges . 25  


Bonus Credits . 25  



Ask Questions Before You Invest27  

US Treasury Investments . 28  

The Basics of Treasury Securities . 28

Online Investing . 32  

What You Need to Know About Trading In Fast-Moving Markets . 32  

Online trading is quick and easy, online investing takes time . 33  

Set your price limits on fast-moving stocks: market orders vs. limit orders . 33  

Online trading is not always instantaneous . 33  

Know your options for placing a trade if you are unable to access your account online . 34  

If you place an order, don't assume it didn't go through . 34  

If you cancel an order, make sure the cancellation worked before placing another trade . 34  

If you purchase a security in a cash account, you must pay for it before you can sell it34

If you trade on margin, your broker can sell your securities without giving you a margin call34  

No regulations require a trade to be executed within a certain time . 35  

More Information . 35  

What To Do If You Have a Complaint35  

Stocks and Financial Research . 35  

Getting Info About Companies . 36  

Corporate Reports . 36  

Other Types of Information . 36  

Mutual Funds . 37  

Key Points to Remember37

How Mutual Funds Work . 38  

What They Are . 38  

Advantages and Disadvantages . 39  

Different Types of Funds . 40  

How to Buy and Sell Shares . 42  

How Funds Can Earn Money for You . 42  

Factors to Consider43  

Degrees of Risk . 43  

Fees and Expenses . 43  

Classes of Funds . 46

Tax Consequences . 46  

Avoiding Common Pitfalls . 47  

Sources of Information . 47  

Past Performance . 49  

Looking Beyond a Fund's Name . 50  

Bank Products versus Mutual Funds . 50  

If You Have Problems . 51  

Glossary of Key Mutual Fund Terms . 51  

Retirement Planning . 54  

10 Tips for Retirement56

Home Mortgages and Loans for your Home . 58  

How the USA Economy Works . 66  

The USA Stock Markets and Financial Markets . 75  

Financial Glossary . 83  







Guide to Financial Statements 


The Basics 

If you can read a nutrition label or a baseball box score, you can learn to read basic financial statements. If you can follow a recipe or apply for a loan, you can learn basic accounting. The basics aren’t difficult and they aren’t rocket science.  

This brochure is designed to help you gain a basic understanding of how to read financial statements. Just as a CPR class teaches you how to perform the basics of cardiac pulmonary resuscitation, this brochure will explain how to read the basic parts of a financial statement. It will not train you to be an accountant (just as a CPR course will not make you a cardiac doctor), but it should give you the confidence to be able to look at a set of financial statements and make sense of them.  

Let’s begin by looking at what financial statements do.  

“Show me the money!” 

We all remember Cuba Gooding Jr.’s immortal line from the movie Jerry Maguire, “Show me the money!” Well, that’s what financial statements do. They show you the money. They show you where a company’s money came from, where it went, and where it is now.  

There are four main financial statements. They are: (1) balance sheets; (2) income statements; (3) cash flow statements; and (4) statements of shareholders’ equity. Balance sheets show what a company owns and what it owes at a fixed point in time. Income statements show how much money a company made and spent over a period of time. Cash flow statements show the exchange of money between a company and the outside world also over a period of time. The fourth financial statement, called a “statement of shareholders’ equity,” shows changes in the interests of the company’s shareholders over time.  

Balance Sheets 

A balance sheet provides detailed information about a company’s assets, liabilities and shareholders’ equity.  

Assets are things that a company owns that have value. This typically means they can either be sold or used by the company to make products or provide services that can be sold. Assets include physical property, such as plants, trucks, equipment and inventory. It also includes things that can’t be touched but nevertheless exist and have value, such as trademarks and patents. And cash itself is an asset. So are investments a company makes.  

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