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  • Review slide with participants.
  • Build a solid spending and savings foundation Develop a relationship with a financial provider Include your spouse or life partner in managing your finances Balance your priorities and make tradeoffs Invest for growth potential while managing risk Safeguard your health and well-being Protect your earnings potential Focus on family and intergenerational topics Expand your life experiences Give Back
  • You budget to gain control of your financial life and give yourself financial security. By looking closely at your expenses, you have the opportunity to make adjustments to your spending so that you can contribute more to savings. Become more aware of day-to-day cash flow and expenses Pay down debt, especially high-interest debt Consider health care and insurance options Set up an emergency fund
  • Government Guaranteed Mortgage Loans The FHA loan is a fixed rate mortgage that is designed especially for the first time home buyer of moderate or low income. Guaranteed by the Federal Housing Administration, these loans can be easier to qualify for than a traditional FRM and allow a smaller down payment than most other home loans, generally about 3 percent. Interest rates are usually lower than standard fixed rate loans, and programs are available for the purchase of single family homes or multi family homes, as long as they are to be owner occupied. VA loans are another government guaranteed mortgage. To be eligible for a VA loan, one must have a history of active military service or be the surviving spouse of an active service member. Often, a veteran can obtain a VA loan with little or no down payment, but must demonstrate the ability to make monthly payments. The USDA Rural Development Guaranteed Housing Loan is another government guaranteed home loan option. This type of home mortgage loan is provided to low and moderate income individuals who are purchasing a home in an area designated as a Rural Development eligible area. No down payment or mortgage insurance is required with this loan program, and qualification can be much easier than your average home loan, allowing consumers with less than perfect credit to obtain financing for home purchases. Option ARMs Also referred to as flexible payment ARMs, Option adjustable rate loans have an interest rate that adjusts every month with no adjustment caps. These loans allow borrowers to make very low mortgage payments initially, but these monthly payments will rise over time, often quite steeply. Balloon Mortgages Balloon mortgages are structured with a payment schedule similar to that of a thirty year fixed rate loan, although the term of the balloon loan is shorter, most often spanning five to seven years. At the end of the loan term, the outstanding balance must be paid in one lump sum, either out of pocket or by refinancing the home. Interest Only Mortgages Interest only mortgages are loans that allow the borrower to pay only the interest on the loan for a predetermined period of time. The principle of the loan is not paid down during this period at all, leaving the homeowner a lower monthly payment to meet over the short term. However, once this initial interest only period expires the payments increase to include repayment of the principle and are steeper than a standard loan, as the principle must be paid over a shorter time period. The longer the interest only period, the higher the payments will rise after its expiration. Biweekly Mortgages Biweekly mortgages are loans in which the borrower makes payments every two weeks instead of the typical monthly payment arrangement. The result of this practice is a slightly shorter repayment term. Paying biweekly results in 26 payments a year, which is equivalent to thirteen monthly payments, rather than the twelve payments made with a standard monthly mortgage payment. Bimonthly Mortgages Bimonthly mortgage plans do not require any extra payments, but save slightly on interest by advancing the payment by half the month. On average, these types of arrangements only shorten the loan term by approximately one month on a thirty year mortgage. While each option may prove itself best for a segment of loan seeking consumers, none will be a perfect fit for everyone. Depending upon personal finances, the length of time one intends to reside in the home to be purchased, and many other factors, the perfect home loan option will vary widely from one consumer to another.
  • Your life is probably hectic. And juggling a variety of personal and professional obligations most likely leaves little time for the additional responsibility of overseeing your investment needs. But taking greater control can be essential to your long-term financial security. When it comes to investing, there are some things you can do to help ensure that your investment management needs are met: Learn about investing. You don’t need to be an expert, but you do need to be comfortable. Identify your financial goals. Take the time to look at your life and determine your expectations, your wants and your needs for the future. Work with a Financial Advisor. At Merrill Lynch, we are committed to understanding your specific needs so we can help you develop a strategy that fits your goals, risk tolerance, investing style and time horizon. As I’ve mentioned previously, monitor your portfolio. As your needs and market conditions change, you may have to make changes to keep your portfolio aligned with your overall goals. Don’t procrastinate. Get involved now and take control of your financial future.
  • Your investment strategy should be defined by your goals. And at various stages of your life, you will probably have multiple goals that need to be addressed. I can help you make investment choices depending on your answers to questions such as: What are your goals? Are you looking to buy a home or additional property? Do you have another type of major purchase in mind, such as a vacation home, a boat or collectibles? Are you planning for your child’s college education? Is your retirement planning adequate? What is your timetable for your investment goals? Are you buying property within the next five years? Do you have less than 10 years before your child starts college? What about retirement—do you see yourself retiring in 10, 20 or 30 years? Concerning investment, what is your tolerance for risk? Once you answer these questions, you and I can work together to determine the balance of stocks, bonds and cash you are most comfortable with and that can help you pursue your investment goals. If your goals, timetable and risk tolerance change, we can revise your investment strategy and rebalance your portfolio as needed. Let’s take a look at how we can start.
  • Your goals, timetable and tolerance for investment risk will help determine your asset allocation. Here are some hypothetical asset allocations by investor profile—Conservative, Moderately Conservative, Moderate, Moderately Aggressive and Aggressive. Keep in mind that these are for illustrative purposes only and are not specific recommendations. On the far left is an example of a conservative investor’s asset allocation that is mostly weighted in bonds, with less than half split between cash and stocks. By contrast, on the far right, the aggressive investor’s asset allocation shows a high concentration of stocks with very little weight given to bonds and even less to cash. Remember, there is no “typical” investment strategy. Each individual’s goals and preferences are different. I can help you select an asset mix that is appropriate for your situation.
  • As we mentioned earlier, the country’s Baby Boomers are retiring in record numbers. As the population ages, the number of people receiving benefits from Social Security versus the number who are paying into the system has changed dramatically over the years: * In 1950, there were more than 16 individuals paying into the Social Security system for each individual receiving benefits. * In 2010, there were only 3.3 workers for each person receiving benefits. * With both the aging population and slowing birth rates, that ratio is projected to worsen to 2.3 workers for every beneficiary by 2025. Changes to Social Security are being debated, but I think we can all agree that we cannot rely on government benefits the way our parents’ generation did.
  • Albert Einstein is often credited with saying that the power of compounding is the 8 th wonder of the world. Even if Einstein did not say this, I am certain he would agree that compounding possesses significant power. This slide shows the hypothetical pre-tax growth of a series of annual $5,000 contributions to an IRA. Over the course of 35 years, these contributions can grow to nearly three quarters of a million dollars (again assuming no taxes and a 7% annual return over 35 years). That $5000 annual contribution may sound like a big number, but it amounts to less than $100 per week. What small change could you make in your spending in order to direct that weekly $100 to your IRA? Think of it as paying yourself first.
  • The sooner you start contributing to an IRA, the better. Take a look at this hypothetical example. It shows the pre-tax difference in account values for 70 year-old investors, comparing those who began their savings plan just one year apart. The 25 year-old earns $112,000 more than someone who starts saving at age 26. Even those who don’t start an IRA until their 40s can benefit from that single year’s jump-start. The 45 year-old earns $29,000 more than the 46 year-old by the time he or she reaches age 70. For those who think it’s too late to start an IRA, these numbers are a useful reminder that today is the first day of the rest of your life.
  • Many people wonder about the differences between a traditional IRA and a Roth IRA. While both can help you build wealth for retirement, they offer different advantages depending on your age, current income and distribution goals. In general, a traditional IRA offers a tax-deductible contribution and the ability to defer taxes until retirement. A Roth IRA requires that you pay taxes at the time you make a contribution, but qualified withdrawals are taken tax-free. In addition, there is no age limit to open a Roth IRA, and no required minimum distributions once you reach age 70½. With a traditional IRA, you must begin taking required minimum distributions at age 70½.
  • Although the company pension plan is a distant memory for many investors, the defined contribution or 401(k) plan offers some opportunities that are worth taking advantage of. Many companies offer employees a match on a certain percentage of their contributions. It may make good financial sense to contribute up to the match limit in order to earn what is in essence an instant return. Those who do not meet their company’s match in the 401(k) plan are leaving money on the table.

Tag Young Professionals - Merrill Lynch Presentation Tag Young Professionals - Merrill Lynch Presentation Presentation Transcript

  • It’s Your Future: Strategies for a Healthy Financial Life Christina Perley, Financial Advisor Andrew Senfield, Financial Advisor Benjamin Josephson, Wealth Management Banker
  • Merrill Lynch Life Agency Inc. is a licensed insurance agency and a wholly owned subsidiary of BAC. © 2011 Bank of America Corporation. All rights reserved. The information in this presentation is intended to be a general introduction of Merrill Lynch’s approach to wealth management. It is not intended to be either a specific offer by any Merrill Lynch entity to sell or provide, or a specific invitation to apply for, any particular product or service. Merrill Lynch offers a broad range of brokerage, investment advisory (including financial planning) and other services. There are important differences between brokerage and investment advisory services, including the type of advice and assistance provided, the fees charged, and the rights and obligations of the parties. It is important to understand the differences, particularly when determining which service or services to select. Any information presented about tax considerations affecting client financial transactions or arrangements is not intended as tax advice and should not be relied upon for the purpose of avoiding any tax penalties. Neither Merrill Lynch nor its Financial Advisors provide tax, accounting or legal advice. Clients should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with their personal professional advisors. While Financial Advisors may discuss healthcare costs as part of a client’s retirement plan and provide general information on social security options, Financial Advisors do not provide specific advice on healthcare coverage or social security. If you have questions regarding your particular situation, please contact your legal or tax advisor. Asset allocation, diversification and rebalancing do not assure a profit or protect against a loss in declining market. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Merrill Lynch Wealth Management makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a registered broker-dealer and member SIPC, and other subsidiaries of Bank of America Corporation (“BAC”).   Investment products offered through MLPF&S and insurance and annuity products offered through Merrill Lynch Life Agency Inc.: 451002PM-0811 ARD0T3N4 Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value Are Not Deposits Are Not Insured by Any Federal Government Agency Are Not a Condition to Any Banking Service or Activity
  • Today’s Discussion
    • Current Market and Economic Update
    • Christina Perley, Financial Advisor
    • Financial Planning- Basics for Young Investors
    • Andrew Senfield, Financial Advisor
    • Buy vs. Rent?
    • Interest Rate Environment
    • Benjamin Josephson, Wealth Management Banker
    • IV. Wrap Up, Q&A
  • 3 rd Quarter Market Review
    • Brutal 3 rd Quarter for Risk Assets
    • ~ Global equities and high yield bonds suffered their greatest losses since the fourth quarter of 2008
      • Fears of a global recession
      • EU debt default
      • Policy impotence
    • ~ Commodity prices collapsed
    • ~ 10-year Treasury yield fell to a record low
    • ~ Equity volatility at its highest since March ’09
    • ~ Investors pricing in a hard landing in China
      • Intensifying the risk-off sentiment
  • October was a treat, but ends with a trick 3 rd best October for S&P since 1928 October was a treat, but ends with a trick With a return of 10.8% for the S&P 500, October was a treat for investors. It was the third best October and the 23rd highest monthly return for the S&P since 1928. But, renewed concerns over the lack of a solid plan to resolve the European sovereign debt crisis have turned the equity markets to a trick from a treat. The drop of 5.2% from the 28 October high in the S&P 500 has generated two 90% down days on a pick-up in volume. This bear market behavior has tricked the bullish seasonal pattern, but the risk is that Europe’s sovereign debt issues trump bullish year-end seasonals. Key levels to watch – 1200 area support The bad news is that the S&P 500 is back below the 200-day moving average near 1274 . While below this moving average, the bullish seasonal bias into year-end is called into question. The good news is that the S&P is testing support at 1230-1200, which is the breakout area of the recently completed double bottom off the 1100-1074 lows. Holding this support would keep the breakout intact with an upside pattern projection of 1350-1360 to as high as 1385. But, with the exception of projected Fibonacci support at 1184-1158, there is not much support ahead of 1100-1074 on a decisive break below 1200.
  • What to expect moving forward
    • Our Research Investment Committee’s base case:
    • ~ Over the medium term:
    • Low growth, Low interest rates, and High liquidity
    • (portfolios tilted toward assets that generate high growth, high yields and high quality)
    • ~ In the short term, tail risks exist (low probability):
    • Disorderly Greek debt default
    • A hard landing in China
    • Slump in global earnings growth
    • ~ If the global economy avoids a recession:
    • Policy stimulus gains traction
    • Yields attract buyers
    • Possible reversal of fortune for risk assets in 4Q11
  • 20-Yr annualized returns by asset class (1990-2009) (1) Barclays Capital US Aggregate Bond Index. (2) Calculated using Dalbar Funds Flow information. Source: JPMorgan (1) (2)
      • Budgeting
      • Investing
      • Retirement Savings
    During today’s seminar we will help you explore: It’s Your Future What We’ll Discuss Today
    • Build a solid spending and savings foundation
    • Develop a relationship with a financial provider
    • Include your spouse or life partner in managing your finances
    • Balance your priorities and make tradeoffs
    • Invest for growth potential while managing risk
    • Safeguard your health and well-being
    • Protect your earnings potential
    • Focus on family and intergenerational topics
    • Expand your life experiences
    • Give Back
    Take the long view and invest in yourself Create the Future You Want
  • Sources: 1 http://projectonstudentdebt.org/files/pub/classof2009.pdf 2 https://www1.salliemae.com/about/news_info/newsreleases/041309.htm
    • The average senior who graduated in 2009 had:
      • $24k in student loans 1
      • $4.1k in credit card debt 2
        • 1 in 5 had over $7k in credit card debt
      • Prioritize what’s important to you
      • Recognize financial realities
        • Live within your means
      • Save as much as you can
        • Pay yourself first
      • Manage liabilities as well as assets
    The Solution Young and in Debt The Challenges Newly Graduated/Newly in Debt
  • 1 http://www.1960sflashback.com/1960/Economy.asp 2 Assumed 2.5% Inflation Rate from 2010 through 2050 Inflation A Necessary Planning Factor $.31 $.49 $.04 $.57 1960 1 2010 $2.73 $3.67 $.44 $1.37 2050 2 $7.33 $9.85 $1.18 $3.68
  • Budgeting
        • Become more aware of day-to-day cash flow and expenses
        • Pay down debt, especially high-interest debt
        • Consider health care and insurance options
        • Set up an emergency fund
    Hypothetical example for illustrative purposes only. Assumed minimum payment is calculated by using 2.5% of the balance Budgeting Develop a Budget and Stick to It Create a budget to help plan for the long term High Interest Debt can be crippling
      • Paying the minimum balance on a $1,000 balance credit card with an 18% APR will take 153 months to pay off and you would have paid $1,115.41 in interest!
  • http://www.smartmoney.com/personal-finance/real-estate/to-rent-or-to-buy-9687/
    • Flexibility (can relocate easily)
    • Can invest money elsewhere (stock market)
    • No upkeep fees (drippy faucets, broken dishwashers, etc.)
    • No Equity
    • Annual rent increase could outpace inflation
    Budgeting Buy or Rent? Renting Pros Cons
    • Tax-break: deduct mortgage interest and property taxes
    • Potential tax-free capital gain
    • Emotional satisfaction
    • Property tax and upkeep
    • Mortgage costs
    • Less flexibility should you want to move; in very bad housing markets, you could lose principal
    Buying
        • The interest rate of this loan is locked in at origination and remains the same throughout the term of the loan
        • These loans have an interest rate that is tied to an index, changing with prevailing market rates
    Adjustable Rate Mortgage Fixed Rate Mortgage Budgeting Financing a Home
        • The FHA loan is a fixed rate mortgage that is designed especially for the first time home buyer of moderate or low income.
        • A VA loan, is designed for men and women with a history of active military service or he/she is the surviving spouse of an active service member.
    Government Guaranteed Loans
  • Investing
      • Learn about investing
      • Identify your financial goals
      • Work with a Financial Advisor
      • Monitor your portfolio
    Taking Control Investors can take greater control of their financial situation.
      • Your goals, timetable and tolerance for risk
      • A balance of stocks, bonds and cash
      • Monitoring and rebalancing your portfolio
      • The more time you have, the more aggressive you can be!
    A Strategy Defined By Your Goals Your overall investment strategy depends on: ? ? ? STOCKS BONDS CASH
  • Conservative Moderately Conservative Moderate Moderately Aggressive Aggressive Source: Bank of America Merrill Lynch Research Investment Committee (RIC) Report, March, 2011. Models are for illustrative purposes only. Merrill Lynch has changed the allocations for each model in the past and may change the allocations in the future, depending upon research and investment strategy recommendations. Determining An Appropriate Asset Allocation Merrill Lynch Asset Allocation Models 20% 55% 25% 40% 50% 10% 60% 35% 5% 70% 25% 5% 80% 15% 5% Stocks Bonds Cash
  •  
  • 16.5 to 1 3.3 to 1 2.3 to 1 "The 2009 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds," May 12, 2009. Not-so-good News: Social Security Is Threatened by an Aging Population Ratio of Workers to Beneficiaries 2010 2025 1950
    • Private Pension Plans, Participation, and Assets: Update
    • (Data from tabulations of the U.S. Department of Labor's Form 5500)
    Number of Defined Contribution Plans Number of Defined Benefit Plans Not Your Parent’s Retirement Plan
  • There Is Hope “The Rule of 72” "Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it." - Attributed to Albert Einstein
    • The “Rule of 72” is a simple way to determine how long an investment could take to double, given a fixed annual rate of interest.
    • You divide 72 by the annual rate of return, to get an estimate of how many years it could take for the initial investment to double.
    Hypothetical example for illustrative purposes only. Results are not meant to represent the past or future performance of any specific investment vehicle. Actual rates of return cannot be predicted and will fluctuate. Your results may be more or less. Example
      • $100 invested at 10% would take approximately 7.2 years to turn into $200.
  • Start Saving As Soon As You Can The sooner you start, the more money you could potentially have in retirement This hypothetical illustration assumes an annual $5000 IRA contribution made at the beginning of each year for 35 years, a 7% annual rate of return, and no taxes on any earnings within the IRA. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost. (35 Years later) At Retirement $5,000 $739,567
  • Save for Retirement Every Year Even one year can potentially make a difference in your nest egg This hypothetical illustration assumes annual $5000 IRA contribution made at the beginning of each year and beginning one year apart for various ages, a 7% annual rate of return, and no taxes on any earnings within the IRA until the age of 71. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost.
  • Roth IRA Traditional IRA Choose the IRA That’s Right for You
        • Contributions may be tax-deductible
        • Withdrawals taxed as ordinary income
        • Contributions are not tax-deductible
        • Withdrawals are taken tax-free
        • Must be under 70½ to open and contribute
        • Anyone with earned income can contribute
        • No age limit
        • Contribution eligibility is based on income
        • Required Minimum Distributions
        • Distributions prior to age 59½ may incur a 10% additional federal tax
        • No Required Minimum Distributions
        • 10% additional federal tax on early withdrawals applies to earnings only
        • Many companies offer to match a percentage of employees’ 401(k) contributions
        • Investors should consider contributing at least as much as the company is willing to match
        • Don’t leave “free money” on the table by failing to contribute to your company’s 401(k)
    Meet Your Company Match In 401(k) Plans ¹ http://www.bls.gov/news.release/pdf/nlsoy.pdf , September 2010 The average person born in the latter years of the baby boom held 11 jobs from age 18 to age 44 1
  • Reasons to Invest Early Impacts on Your Paycheck A pre-tax contribution to your retirement account reduces your take home pay less than the amount of your contribution.
    • Example
      • Mary is 35 and her annual salary is $50,000. She wants to contribute 5% of her salary to her 401(k) to take advantage of her company’s matching contributions and retire in 30 years.
      • Results
            • Mary’s monthly take-home pay would be reduced by: $156    
            • Her annual income tax bill would decrease by: $625    
            • With an employer match, at age 65 her account would grow to: $395,291
    This hypothetical illustration assumes a 5% contribution rate at the beginning of each year, a 6% annual rate of return, and a 25% federal tax bracket (state and local taxes are not included). It also assumes a company match of 100% for every dollar contributed up to 5% of eligible compensation. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost. Taxes are due upon withdrawal. If you take a withdrawal prior to age 59½, you may also be subject to a 10% additional federal tax.
  • Best Practices to Help You Plan for your Future Save Every Year Pay Down Debt Monitor and Adjust Your Portfolio Start Saving As Soon As You Can Meet Your Company’s 401(k) Match Create A Budget
  • Questions?