iym financial planning fall...
TRANSCRIPT
TODAY’S LINE-UP
• What is Financial Planning?
• Goals & Assumptions
• Know Your Resources (Net Worth)
• Spending plan (Budget)
• Risk Management (Insurance)
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• Investments
• Tax Planning
• Retirement Planning
• Estate Planning
• Why Have a Financial Planner?
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• How much money will I need to save for the future? • When can I retire? • If retired, how do I insure against running out of
money? • Are my investments diversified? • Have I protected my family against risks? • Are my assets going to pass efficiently?
SELF-ASSESSMENT QUIZ?
• Goals and Assumptions • Net Worth, Cash Flow, & Budgeting • Retirement Planning • Risk Management & Insurance • Tax Minimization • Investment Planning • Estate Planning
WHAT IS FINANCIAL PLANNING?
The Web
Risk Management/ Insurance
Tax Minimization
Net Worth, Cash Flow &
Budgeting Retirement
Planning Estate Planning
Investment Planning
• Accumulating
• Spending / Protecting
• Transferring
PLANNING STAGES
Accumulation Stage
Buying Stuff Houses, Cars,
etc. Fortify Your Savings
Prepare for the “What Ifs” of Life
Develop Estate Plan
Determine Best Tax Strategy
Plan for the Costs of College
Look After Kids and Take Care of Aging
Parents
Managing Risk
(Income / Property))
Spending & Protecting Stage
Maintain Estate Plan
Financially Empower Children
Explore Heath Care
Options
Monitor Tax Strategy
Enjoy Philanthropic
Gifting
Social Security
Strategies Review Risk
Management Strategies
Make Retirement Money Last
GOALS
ESTABLISH YOUR GOALS
• Formulate goals (with spouse/partner).
• Make them realistic / achievable
• Be specific! Include a dollar amount and a date.
• Rank or prioritize goals.
• Develop a written plan
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ESTABLISH YOUR GOALS
If you are having trouble, try these questions: 1. If you had enough money for all of your needs, how would
you live your life? Would you change anything? 2. You’ve received a terminal diagnosis with 5-10 years left to
live. What will you do with your time? 3. You’ve received a terminal diagnosis with 24 hours left to
live. What do you regret most? What did you miss? What did you not get to do?
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NET WORTH & CASH FLOW
What You Own = Current Assets + Invested Assets + Personal Use Assets (less)
What You Owe = Current Liabilities + Long-Term Liabilities
Net Worth/Balance Sheet
STATEMENT OF NET WORTH
Tip: Know “Good Debt” (15-year mortgage, 3-year auto loan) from “Bad Debt” (Credit Card balances)
STATEMENT OF CASH FLOWS
Income = Earned Income + Dividends
+ Rental Income + 1099 Income + Capital Gains (less)
Expenses = Fixed Expenses + Variable Expenses + Savings
Surplus (Commonly Accumulation Stage) OR Shortage (Commonly Spending & Protecting Stage)
Tip: Consider where you can reduce monthly/annual expenses
INVESTMENT PLANNING
RISK and RETURN
Risk
Retu
rn
0
It’s impossible for an investment to have a high expected return and also have low risk
Stocks • Ownership in a company • Stockholders rewarded by dividends and increases in stock value
Bonds • Loans made to a company or government • Short, intermediate, or long term • Investment grade or junk
Cash • While working: 3-6 months of living expenses • At retirement: 2 yrs of living expenses
INVESTMENTS
DIVERSIFICATION
HOW MUCH OF MY PORTFOLIO SHOULD BE INVESTED IN STOCKS?
Ability Willingness
Need
Ability to take risk
1. Liquidity needs
2. Investment horizon
3. Stability of earned income
Need to take risk 1. What are your goals?
2. Saving or spending?
3. Return objective
Willingness to take risk 1. The stomach acid test
2. Will you stay in the boat?
MUTUAL FUNDS
• Advantages over buying individual securities
• Professional management • Diversification • Liquidity • Cost efficiency • Service
• Disadvantages over buying individual securities
• Professional management doesn’t necessarily mean good management
• Not all mutual funds provide adequate diversification
• All mutual funds charge a fee to pay for the services provided
• Is the fee worth it?
MUTUAL FUNDS Which factors are reliable predictors of mutual fund returns?
Manager tenure?
10-15 yr past performance?
3-5 yr past performance?
Manager with own money in fund?
Morningstar rating?
“I like/trust the manager”
MUTUAL FUNDS
• The real answer: Expenses
INVESTMENT PLANNING 6 KEY STEPS
Choose an appropriate stock allocation.
Diversify broadly.
Minimize expenses – use low cost mutual funds.
Be tax aware.
Rebalance after large market shifts. Manage Emotions.
1 2 3 4 5 6
MANAGE EMOTIONS
MISTAKES ARE COSTLY
Tip: Missing only a few days of strong returns can drastically impact overall performance.
• Performance of the S&P 500 Index, 1970---2015
$89,678
$80,370
$58,214
$33,710
$21,224
$9,195
Gro
wth
of $
1,00
0
Total Period
Missed 1 Best
Day
Missed 5 Best Single
Days
Missed 15 Best Single
Days
Missed 25 Best Single
Days
One- Month
US T-Bills
Annualized Compound Return
10.27% 10.01% 9.24% 7.95% 6.87% 4.94%
RISK MANAGEMENT & INSURANCE
1. Don’t risk more than you can afford to lose.
2. Consider the odds.
3. Don’t risk a lot for a little.
RISK MANAGEMENT
Protect your cash flow • Life Insurance • Health Insurance • Disability Insurance • Long-Term Care Insurance
RISK MANAGEMENT
• How much do I need?
• Term vs. Permanent
o Replace Income - Term
o Pay Estate Tax – Permanent
o Leave Bequest – Permanent
LIFE INSURANCE
Protect your stuff • Homeowner Insurance • Automobile Insurance • Umbrella Insurance • Rider for Collectibles
RISK MANAGEMENT
Tip: Keep liability limits and deductibles high!
Protect yourself • Professional Insurance (E & O) • Corporation, LLC, LLP
TAX PLANNING
Tax Strategies • Defer Income • Accelerate Deductions • Maximize Pre-Tax Savings
Maximize Deductions
• Medical Expenses • Tax (State Income, Property) • Mortgage Interest • Charitable Contributions
TAX MINIMIZATION Accelerate. Defer. Eliminate.
Tip: Meet with CPA in October/November to discuss tax strategies before year end.
RETIREMENT PLANNING
RETIREMENT QUESTIONS
• How much can I spend and not run out of money? • What is the impact of inflation and taxes? • How should you invest to meet your goals? • How do Social Security and Medicare fit in?
• Income • Expenses • Assets • Savings/Withdrawals • Goals
• Health • Inflation • Taxes • Investment Returns
ASSUMPTIONS
Tip: Review annually - Financial Plan vs. Financial Process
7+% Red Light 5-6% Yellow Light 3-4% Green Light
HOW MUCH CAN I SPEND?
SOCIAL SECURITY
• Amount is based on how much you earned while working - Average: $1,328/month - Maximum : $2,639/month (at age 66) • Reduced benefits available at age 62 • Increased benefits for delaying – maxes out at age 70 • Example:
– $1,000/mo at age 66 – $750/mo at age 62 – $1,320/mo at age 70
• Annual benefits increase with inflation • Spouse can claim a spousal benefit
– Work history not required
ESTATE PLANNING
ESTATE PLANNING
• Management during your lifetime • Distribution following your death • Protect loved ones • Preserve property • Avoid conflicts and delays • Reduce costs and taxes
ESTATE PLANNING Important Documents
• Will
• Living Trust
• Durable Power of Attorney
• Property and Health Care
• Advanced Health Care Directive
• Letter of Instruction
Tip: Estate planning documents should be reviewed every 3-5 years.
ESTATE PLANNING - TRUSTS
• Eliminate probate • No delay upon death • Privacy • Simplified administration • Flexibility • Professional management
• Estate Tax Exclusion: $5,450,000 • Estate Tax Rate: 40% • $14,000 Annual Gift Tax Exclusion
ESTATE PLANNING
BIGGEST MISTAKES IN
ESTATE PLANNING
• Procrastination
• Failure to take advantage of exemptions
• Not funding trust
• Incorrect beneficiary designations
• Lack of durable powers of attorney
• Selection of trustees
Tip: Remember that named beneficiaries take priority over those named in will!
FINANCIAL ADVISORS
THE BIG PICTURE
WHY HAVE A
FINANCIAL PLANNER? If you don’t know where you're going, you may wind up somewhere else. -Yogi Berra “ ”
Comprehensive Financial Planning Self Directed I have clear financial direction. 88% 60% I have control of my finances. 87% 71% I am on track to achieve my financial goals. 78% 51% I have financial peace of mind. 81% 70% I feel my goals and dreams are financially secure. 75% 49% I have confidence in my ability to cope with the 82% 57% financial impact of unexpected events.
• Fiduciary Standard • Education & Credentials/Designation • Compensation Structure/Conflicts of Interest • Recent & Relevant Experience • Investment Philosophy • Service Model • No professional disciplinary citations
CHOOSING AN ADVISOR?
Tip: Don’t subscribe to a compensation model that may affect the advice given to you
• Fiduciary Standard • Education & Credentials/Designation • Compensation Structure/Conflicts of Interest • Recent & Relevant Experience • Investment Philosophy • Service Model • No professional disciplinary citations
CHOOSING AN ADVISOR? (cont.)
Tip: Don’t subscribe to a compensation model that may affect the advice given to you
ARE ALL ADVISORS THE SAME?
BROKERCHECK From FINRA’s BrokerCheck, local advisors in or near Orange County: • “assault with deadly weapon” • “client states she had no idea she was investing in a variable annuity” • “impersonating a police officer” • “unsuitable investment into a variable annuity” • “tax lien” • “possession of narcotics” • “personal bankruptcy to escape arbitration award”
MORE INFO: If interested, we would be happy to email a copy of NAPFA’s Questions to Ask an adviser to you. Please sign up on the back table.
• Friends/Family Referrals • Professional Referrals • Professional Resources
– NAPFA (888-Fee-Only) – FPA (800-322-4237) – CFP Board – Fee Only Network
WHERE DO YOU FIND A
FINANCIAL PLANNER?
RS Crum, Inc.
949-428-9696 www.rscrum.com/iym
QUESTIONS?