Financial Planning
on a Napkin
If you don’t know where you
are going , how will you know
if you get there?
If you want to travel YOUR plan,
you u!t P"#N your travel$%
?
&oal 'etting
?
(a!h Flow and )udgeting
?
*!tate Planning
?
Incoe +a, Planning
?
Ri!k - In!urance #naly!i!
?
Inve!tent Planning
?
Retireent Planning
.ho!e Financial Plan I! It?
?
/ow any road! will get you to (hicago fro
Ft% "auderdale?
?
'oe folk! take the e,pre!! lane%$%%other! take
the !cenic route, window! down, en0oying
the !cenery
?
Our 0o1 i! to educate you and provide choice!
?
Your 0o1 i! to choo!e 2 and live with the
con!e3uence!
?
It’! not Our plan, it’! Your plan
It’! # )rand New &ae
•
Throughout 99% of history, the average
life expectancy was fewer than 18 years
•
Two thirds of all men and women who
have lived beyond the age of 6, are
alive today
Your .arranty Run! Out "ong
)efore You +hink4
!verage "ife #xpectancy
•
1$$6 % & years of age
•
18$6 % '( years of age
•
1989 % $ years of age
•
1999 % $$ years of age
.hy 5evelop a Financial &ae
Plan?
?
!ccording to the )nited *tates +overnment,
9% of all people fail to reach age 6
independent of social security,
?
To be in the % who succeed, you must-
?
P"#N *#R"Y
?
P"#N *FF*(+I6*"Y
.hat are Your Per!onal
&oal!.
•
#chieving financial independence?
•
)eating ta,e!?
•
Incoe ta,e!?
•
5eath ta,e!?
•
Inflation 7the 8invi!i1le9 ta,:?
•
)uilding an efficient, diver!ified portfolio?
•
Providing children with a 3uality
education?
•
Protecting your!elf fro ri!k!.
.hy 5o ;o!t People Fail to #chieve
+heir &oal!?
?
Failure to establish goal! and philo!ophy
?
Fear of lo!ing oney
?
"ack of tru!t in u!ing out!ide profe!!ional!
?
Failure to take re!pon!i1ility
?
Per!onal want! - need! e,ceed availa1le ca!h flow
?
"ack of a 1urning de!ire
?
Previou! defeat! e,perienced
?
"ack of 3uality long ter inve!tent !trategy
(a!h Flow and )udgeting
It’! our 0o1 to find the oney to fund your goal!<
?
Refinance Re!idence = lock in low rate!
?
'hop for in!urance = property, health and life
?
Inve!t in 3ualifying dividend! 2 >?@ ta, rate
?
/arve!t ta, lo!!e! = to off!et capital gain!
?
Fund IR#’!, AB>7k:’!, '*P’!, 'iple’! = to take
advantage of 8free oney9 fro the governent
?
;a,iiCe copany retireent plan atch = ore
free oney fro the 1o!!
?
IteiCe every other year
?
Pinch pennie! 2 !ave dollar!
*!tate Planning
?
Inte!tate = 5o you really think the !tate know! 1e!t?
?
)a!ic .ill 2 I love you too4
?
Revoca1le +ru!t = ;ake it ea!y on your relative!
?
"iving .ill 2 You want e to read that whole thing fir!t?
?
5ura1le Power of #ttorney 2 You u!t really tru!t e4
?
/ealth (are 'urrogate 2 &o ahead, pull the plug4
?
*lder (are = ;edicare, ;edicaid, "+( = 7If I knew I wa!
going to live thi! long, I would have taken 1etter care
of y!elf or 1ought the e,tended warranty4:
?
&ifting 2 (RU+!, (R#+!, &R#+! = &ive it to your
favorite charitie!, otherwi!e Uncle 'a will ake the
choice for you4
Ri!k - In!urance #naly!i!
?
/hat is the purpose of insurance.
0rovide economic protection against losses due
to chance events % 1eath, 2llness or !ccident
?
3andling 4is5 6 7our choices are- !voidance,
4eduction, 4etention or Transfer 8to ins, co,9
?
1o you have 1isability 2nsurance.
?
1o you have an )mbrella policy.
?
!re you under insured or over insured.
?
3ave you put your insurance out to bid. :a5e your
agent do the wor5 for you;
?
3ave you considered "T< insurance. !ren=t you
worth it.
Inve!tent Planning
+he Re!earch Indicate!……...
)uilding .ealth +ake!<
?
5i!cipline
?
'acrifice
?
/ard .ork
>ut above all ??,,
…………'#6IN& ;oney
2@A"!T2B@
•
The invisible tax
•
The cancer that destroys wealth
•
The reason why 1((% bond portfolios
do not wor5
3ow inflation beats you
•
uilding a safe portfolio
•
!rticulate your needs and goals
•
)nderstand investment principles and ris5
•
*elect from the menu of investment vehicles %
this is called Fasset allocationG
•
>uild specifically tailored portfolio and modify
as needed
onds
*toc5s
!sset allocation is the process
of combining asset classes such
as stoc5s, bonds, and cash in
a portfolio in order to meet
your goals,
/hat 2s !sset !llocation.
!sset !llocation 0olicy
100
!sset !llocation 0olicy H
:ar5et Timing
!sset !llocation 0olicy H
:ar5et Timing H *ecurity
*election
!sset !llocation 0olicy H
:ar5et Timing H *ecurity
*election H Bther
91.5%
93.3%
97.9%
100%
80 60 40 20 0
0ercent
/hy 2s !sset !llocation 2mportant.
DEB=FBBA% Portfolio! pre!ented are 1a!ed on odern portfolio theory%
Stocks and bonds: risk versus return
Adding some equities to the asset allocation actually REDUCES the
risk!
Ri!k
R
e
t
u
r
n
19$(6I(('
D@
>B@
>>@
>F@
>G@
>B@ >>@ >F@ >G@ >A@ >?@ >H@ >E@ >I@
a,iu ri!k portfolio = >BB@ !tock!
>BB@ 1ond!
F?@ E?@ = iniu ri!k portfolio
?B@ ?B@
HB@ AB@
IB@ FB@
DEB=FBBG
(apital appreciation
Incoe
Reinve!tent of incoe
?@
>A@
I>@
)ond!
EB@
FI@
F@
'tock!
>onds produced greater income
19$(6I((&
4evisit the F4ule of $I=sG
! mathematical analogy that tells you how long it ta5es to double your money,
1ivide the number $I by a constant rate of return to calculate the number of years
until your money is doubled;
3ow long does it ta5e to double your
ney?
$I K 6% L 1I 7ears
$I K 8% L 9 7ears
$I K 1(% L $,I 7ears
Ainding your BB@
H? fifteen2year period!
4is5 of stoc5 mar5et loss over time
Period! with gain
E>@
FD@
ED one2year period!
Period! with lo!!
>DFH=FBBA
E? five2year period!
Period! with lo!!
>G@
Period! with gain
IE@
The *toc5 :ar5et
)1973 to 2004+9
:ar5et is )p 69%
8II out of &I years9
:ar5et is down I6%
88 out of &I years9
:ar5et is #ven %
8I out of &I years9
9 !s measured by the *C0 ((
!hhh, retirement
.ill You Outlive Your Pile?
#re your current action! leading
you toward your goal!?
•
!re you maximiNing your contributions
to your retirement plan.
•
!re you living below your means.
•
!re you living li5e the Millionaire Next
Door. 84ead this boo5 by Thomas P *tanley 0h,1,
C /illiam 1 1an5o, 0h,1,9
Retireent Realitie!
:
"onger "ife #xpectancies
•
re !mbitious +oals
•
urden %ving from
#mployer to #mployer
•
/ho of )s *aves #nough.
+hree 'tep Plan
1…. #stimate 3ow :uch 7ou @eed to *ave
F$% 2dentify a *avings +oal for 4etirement
G$% 1evelop 7our 2nvestment *trategy
+hi! i! all you need to know4
•
3ow many years before your invested money is
needed.
•
3ow much do you want to live on in retirement.
•
3ow long do you expect to live.
•
!dd up financial assets and proQect the reDuired
future siNe of your FpileG 8using an 301I<
calculator9 assuming a reasonable rate of return on
your invested Fpile,G
•
;ultiply your future pile 1y A@ to ?@
Assumptions for John and Mary Doe
?
O1((,((( current life style need
?
&% inflation
?
OI((,((( future lifestyle
?
*tart- age &
?
Ainish- age 6(
?
"ive until age 9'
?
*ave O'6,((( annually 8profit sharing O'(R H 24!=s O659
?
!t a 1(% return
?
Auture F0ileG reDuired to build L O&,((,(((
Savings Plan Projection
Pohn and :ary 1oe
459765361 4525396 151505000 465000 59 25
454775965 4075088 15 1045000 465000 58 24
356125979 3285453 150125000 465000 56 22
258985115 2635465 9205000 465000 54 20
253075318 2095756 8285000 465000 52 18
158195056 1655369 7365000 465000 50 16
154155534 1285685 6445000 465000 48 14
150825045 985368 5525000 465000 46 12
8065434 735312 4605000 465000 44 10
5785656 525605 3685000 465000 42 8
3905410 355492 2765000 465000 40 6
2345835 215349 1845000 465000 38 4
;1065260 ;95660 ;925000 ;465000 36 2
2u"u!at#%e
7ear En'
10% 4nnua!
2u"u!at#%e
2ontr#but#on
4nnua!
2ontr#but#on
4ge 7ear
/ealth !ccumulation at
O'6,(((Kyear at different growth rates
@otice what little difference the rate of return ma5es in the 1
st
6%8 years of FsavingG .
850895105 459765361 356315903 25
452075616 258985115 252735454 20
352085473 253075318 158605528 18
251005900 156075688 153485917 15
153335296 150825045 9425784 12
8015308 6875122 6205382 9
4325614 3905410 3645449 6
1775091 1675486 1615281 3
;515980 ;505600 ;495680 1
13% 10% 8% /#"e
on a Napkin
If you don’t know where you
are going , how will you know
if you get there?
If you want to travel YOUR plan,
you u!t P"#N your travel$%
?
&oal 'etting
?
(a!h Flow and )udgeting
?
*!tate Planning
?
Incoe +a, Planning
?
Ri!k - In!urance #naly!i!
?
Inve!tent Planning
?
Retireent Planning
.ho!e Financial Plan I! It?
?
/ow any road! will get you to (hicago fro
Ft% "auderdale?
?
'oe folk! take the e,pre!! lane%$%%other! take
the !cenic route, window! down, en0oying
the !cenery
?
Our 0o1 i! to educate you and provide choice!
?
Your 0o1 i! to choo!e 2 and live with the
con!e3uence!
?
It’! not Our plan, it’! Your plan
It’! # )rand New &ae
•
Throughout 99% of history, the average
life expectancy was fewer than 18 years
•
Two thirds of all men and women who
have lived beyond the age of 6, are
alive today
Your .arranty Run! Out "ong
)efore You +hink4
!verage "ife #xpectancy
•
1$$6 % & years of age
•
18$6 % '( years of age
•
1989 % $ years of age
•
1999 % $$ years of age
.hy 5evelop a Financial &ae
Plan?
?
!ccording to the )nited *tates +overnment,
9% of all people fail to reach age 6
independent of social security,
?
To be in the % who succeed, you must-
?
P"#N *#R"Y
?
P"#N *FF*(+I6*"Y
.hat are Your Per!onal
&oal!.
•
#chieving financial independence?
•
)eating ta,e!?
•
Incoe ta,e!?
•
5eath ta,e!?
•
Inflation 7the 8invi!i1le9 ta,:?
•
)uilding an efficient, diver!ified portfolio?
•
Providing children with a 3uality
education?
•
Protecting your!elf fro ri!k!.
.hy 5o ;o!t People Fail to #chieve
+heir &oal!?
?
Failure to establish goal! and philo!ophy
?
Fear of lo!ing oney
?
"ack of tru!t in u!ing out!ide profe!!ional!
?
Failure to take re!pon!i1ility
?
Per!onal want! - need! e,ceed availa1le ca!h flow
?
"ack of a 1urning de!ire
?
Previou! defeat! e,perienced
?
"ack of 3uality long ter inve!tent !trategy
(a!h Flow and )udgeting
It’! our 0o1 to find the oney to fund your goal!<
?
Refinance Re!idence = lock in low rate!
?
'hop for in!urance = property, health and life
?
Inve!t in 3ualifying dividend! 2 >?@ ta, rate
?
/arve!t ta, lo!!e! = to off!et capital gain!
?
Fund IR#’!, AB>7k:’!, '*P’!, 'iple’! = to take
advantage of 8free oney9 fro the governent
?
;a,iiCe copany retireent plan atch = ore
free oney fro the 1o!!
?
IteiCe every other year
?
Pinch pennie! 2 !ave dollar!
*!tate Planning
?
Inte!tate = 5o you really think the !tate know! 1e!t?
?
)a!ic .ill 2 I love you too4
?
Revoca1le +ru!t = ;ake it ea!y on your relative!
?
"iving .ill 2 You want e to read that whole thing fir!t?
?
5ura1le Power of #ttorney 2 You u!t really tru!t e4
?
/ealth (are 'urrogate 2 &o ahead, pull the plug4
?
*lder (are = ;edicare, ;edicaid, "+( = 7If I knew I wa!
going to live thi! long, I would have taken 1etter care
of y!elf or 1ought the e,tended warranty4:
?
&ifting 2 (RU+!, (R#+!, &R#+! = &ive it to your
favorite charitie!, otherwi!e Uncle 'a will ake the
choice for you4
Ri!k - In!urance #naly!i!
?
/hat is the purpose of insurance.
0rovide economic protection against losses due
to chance events % 1eath, 2llness or !ccident
?
3andling 4is5 6 7our choices are- !voidance,
4eduction, 4etention or Transfer 8to ins, co,9
?
1o you have 1isability 2nsurance.
?
1o you have an )mbrella policy.
?
!re you under insured or over insured.
?
3ave you put your insurance out to bid. :a5e your
agent do the wor5 for you;
?
3ave you considered "T< insurance. !ren=t you
worth it.
Inve!tent Planning
+he Re!earch Indicate!……...
)uilding .ealth +ake!<
?
5i!cipline
?
'acrifice
?
/ard .ork
>ut above all ??,,
…………'#6IN& ;oney
2@A"!T2B@
•
The invisible tax
•
The cancer that destroys wealth
•
The reason why 1((% bond portfolios
do not wor5
3ow inflation beats you
•
uilding a safe portfolio
•
!rticulate your needs and goals
•
)nderstand investment principles and ris5
•
*elect from the menu of investment vehicles %
this is called Fasset allocationG
•
>uild specifically tailored portfolio and modify
as needed
onds
*toc5s
!sset allocation is the process
of combining asset classes such
as stoc5s, bonds, and cash in
a portfolio in order to meet
your goals,
/hat 2s !sset !llocation.
!sset !llocation 0olicy
100
!sset !llocation 0olicy H
:ar5et Timing
!sset !llocation 0olicy H
:ar5et Timing H *ecurity
*election
!sset !llocation 0olicy H
:ar5et Timing H *ecurity
*election H Bther
91.5%
93.3%
97.9%
100%
80 60 40 20 0
0ercent
/hy 2s !sset !llocation 2mportant.
DEB=FBBA% Portfolio! pre!ented are 1a!ed on odern portfolio theory%
Stocks and bonds: risk versus return
Adding some equities to the asset allocation actually REDUCES the
risk!
Ri!k
R
e
t
u
r
n
19$(6I(('
D@
>B@
>>@
>F@
>G@
>B@ >>@ >F@ >G@ >A@ >?@ >H@ >E@ >I@
a,iu ri!k portfolio = >BB@ !tock!
>BB@ 1ond!
F?@ E?@ = iniu ri!k portfolio
?B@ ?B@
HB@ AB@
IB@ FB@
DEB=FBBG
(apital appreciation
Incoe
Reinve!tent of incoe
?@
>A@
I>@
)ond!
EB@
FI@
F@
'tock!
>onds produced greater income
19$(6I((&
4evisit the F4ule of $I=sG
! mathematical analogy that tells you how long it ta5es to double your money,
1ivide the number $I by a constant rate of return to calculate the number of years
until your money is doubled;
3ow long does it ta5e to double your
ney?$I K 6% L 1I 7ears
$I K 8% L 9 7ears
$I K 1(% L $,I 7ears
Ainding your BB@
H? fifteen2year period!
4is5 of stoc5 mar5et loss over time
Period! with gain
E>@
FD@
ED one2year period!
Period! with lo!!
>DFH=FBBA
E? five2year period!
Period! with lo!!
>G@
Period! with gain
IE@
The *toc5 :ar5et
)1973 to 2004+9
:ar5et is )p 69%
8II out of &I years9
:ar5et is down I6%
88 out of &I years9
:ar5et is #ven %
8I out of &I years9
9 !s measured by the *C0 ((
!hhh, retirement
.ill You Outlive Your Pile?
#re your current action! leading
you toward your goal!?
•
!re you maximiNing your contributions
to your retirement plan.
•
!re you living below your means.
•
!re you living li5e the Millionaire Next
Door. 84ead this boo5 by Thomas P *tanley 0h,1,
C /illiam 1 1an5o, 0h,1,9
Retireent Realitie!
:
"onger "ife #xpectancies
•
re !mbitious +oals•
urden %
ving from#mployer to #mployer
•
/ho of )s *aves #nough.
+hree 'tep Plan
1…. #stimate 3ow :uch 7ou @eed to *ave
F$% 2dentify a *avings +oal for 4etirement
G$% 1evelop 7our 2nvestment *trategy
+hi! i! all you need to know4
•
3ow many years before your invested money is
needed.
•
3ow much do you want to live on in retirement.
•
3ow long do you expect to live.
•
!dd up financial assets and proQect the reDuired
future siNe of your FpileG 8using an 301I<
calculator9 assuming a reasonable rate of return on
your invested Fpile,G
•
;ultiply your future pile 1y A@ to ?@
Assumptions for John and Mary Doe
?
O1((,((( current life style need
?
&% inflation
?
OI((,((( future lifestyle
?
*tart- age &
?
Ainish- age 6(
?
"ive until age 9'
?
*ave O'6,((( annually 8profit sharing O'(R H 24!=s O659
?
!t a 1(% return
?
Auture F0ileG reDuired to build L O&,((,(((
Savings Plan Projection
Pohn and :ary 1oe
459765361 4525396 151505000 465000 59 25
454775965 4075088 15 1045000 465000 58 24
356125979 3285453 150125000 465000 56 22
258985115 2635465 9205000 465000 54 20
253075318 2095756 8285000 465000 52 18
158195056 1655369 7365000 465000 50 16
154155534 1285685 6445000 465000 48 14
150825045 985368 5525000 465000 46 12
8065434 735312 4605000 465000 44 10
5785656 525605 3685000 465000 42 8
3905410 355492 2765000 465000 40 6
2345835 215349 1845000 465000 38 4
;1065260 ;95660 ;925000 ;465000 36 2
2u"u!at#%e
7ear En'
10% 4nnua!
2u"u!at#%e
2ontr#but#on
4nnua!
2ontr#but#on
4ge 7ear
/ealth !ccumulation at
O'6,(((Kyear at different growth rates
@otice what little difference the rate of return ma5es in the 1
st
6%8 years of FsavingG .
850895105 459765361 356315903 25
452075616 258985115 252735454 20
352085473 253075318 158605528 18
251005900 156075688 153485917 15
153335296 150825045 9425784 12
8015308 6875122 6205382 9
4325614 3905410 3645449 6
1775091 1675486 1615281 3
;515980 ;505600 ;495680 1
13% 10% 8% /#"e