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2008 Seminar Ppt 2
 

2008 Seminar Ppt 2

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Panic Is Not An Investment Strategy....

Panic Is Not An Investment Strategy....

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    2008 Seminar Ppt 2 2008 Seminar Ppt 2 Presentation Transcript

    • “ Panic Is Not An Investment Strategy” Straight answers for high net worth investors facing a volatile market Welcome
    • 1. Independent Registered Investment Advisor 2. Fee-Only Advisor 3. Use Pure No-Load Mutual Funds, ETFs, Stocks & Bonds 4. Design Portfolios to Reduce Risk 5. Motivated by Making YOU Successful 6. Service is the Bottom Line! Who is All Star Financial?
    • Who is All Star Financial?
      • Robert Klefsaas
      • Maren Aipperspach
      • Bruce Bonner
      • Kris Collins
      • Paul Sommerstad
      • Nick Hohn
      • Jeff Elavsky
      • Evan Klefsaas
      • Valerie Moorhead
      • Teri Neff
      • CFP ® , AIF ® , President
      • CFP ® , Vice President
      • CFA ® , Portfolio Manager
      • CPA ® , Tax adviser
      • Account Executive
      • Account Executive
      • Account Executive
      • Paraplanner
      • Executive Assistant
      • Office Manager
    • Who is All Star Financial?
      • As independent, fee only advisors, we achieve your goals through “SAFER GROWTH.”
      • In order to accomplish this, we believe that “It’s not what you make – it’s how much you KEEP!”
      • Our Unique Value Proposition:
      • We customize a clear and efficient game plan, through a disciplined value-driven money management approach, to retain and build wealth for individuals and corporations. We are passionate about our commitment to reduce risk while still achieving your goals.
    • What Does All Star Financial Do?
      • Personal and Corporate Investment Planning
      • Cash Flow Management
      • Financial Planning
        • College
        • Retirement
      • Estate Preservation
      • Estate Liquidation
    • What Does All Star Financial Do?
      • Personal and Corporate Asset Management
      • Non Qualified Assets ($300 Million)
      • Cash Flow Money
      • Taxable Accounts
      • Trusts
      • Deferred Compensation Plans
      • Qualified Assets ($2.2 Billion)
      • IRA
      • SEP IRA
      • 401k
      • Pension/ Profit Sharing Plans
    • What Happened?
      • Nothing that has not happened before!
    • What Happened?
      • Panic prompted by failure of Ohio Life & Trust Company
      • 5,000 businesses failed within a year
      1857
    • What Happened?
      • Panic prompted by failure of largest bank in the United States
      • The government decided to no longer back its currency with silver (starting the “gold standard”)
      • Post Civil War bubble
      1873
    • What Happened?
      • Panic prompted by failure of Unites States Reading Railroad
      • The “railroad bubble” was very similar to the “tech bubble” that popped in 2000.
      • A Run on gold contributed to the panic
      1893
    • What Happened?
      • Known as the “Bankers’ Panic”
      • The stock market dropped 50% from the previous year’s high
      • Many banks became illiquid and there was no Central Bank to boost liquidity at that time
      • J.P. Morgan intervened to help stabilize the banking system
      1907
    • What Happened?
      • Post World War I Recession
      • Influx of labor from returning troops caused high unemployment
      • Factories eventually recovered by producing radios and cars
      1918
    • What Happened?
      • Great Depression started with Black Thursday on Wall Street
      • Stock markets crash worldwide and the United States Banking System failed
      • Economic slowdown lasted for 10 years
      1929
    • What Happened?
      • Post Korean War Recession
      • Poor monetary policy – restricted due to inflationary fears
      1953
    • What Happened?
      • Auto sales fell 31% in the United States and unemployment reached 20% in Detroit
      • Monetary policy was restricted for two years prior to 1957
      1957
    • What Happened?
      • Oil Crisis Recession
      • Inflation soared in the United States once OPEC started its oil embargo
      • Vietnam War
      1973
    • What Happened?
      • Recession – Monetary Policy
      • Iranian Crisis (New Leadership) – Energy supply down
      • Tight monetary policy to control inflation
      • High unemployment levels through 1981
      • The prime rate reached 21.5% in June 1982
      1980
    • What Happened?
      • Panic based on Savings & Loan Crisis
      • Cost tax payers $124 billion and the Savings & Loan companies $29 billion to fix
      • Money paid back through restructuring the bad debt by our government
      1987
    • What Happened?
      • Recession was short lived
      • Industrial production and manufacturing sales slid
      • The United States felt more Worldwide competition
      • Japanese Real Estate Bubble
      1990
    • What Happened?
      • Recession – collapse of the dot.com bubble
      • September 11 th attack and accounting scandals also contributed to the slowdown
      2000
    • What Happened?
      • Housing Bubble – Financed with excessive and poorly regulated mortgage debt (subprime)
      • Housing prices tumble
      • Delinquencies and foreclosures lead to downward spiral of debt liquidation
      • Leads to even lower housing prices
      • Lead to Investment Banking Collapse – GREED!
      2008
    • What Happened?
      • Banking Act of 1933 (Glass-Steagall Act)
      • Separated bank types according to commercial and investment banking
      • Passed by Congress to prohibit banks from owning full service brokerage firms and vice versa.
      • Investment Banking activities, underwriting, corporate, municipal, and mortgage securities, couldn’t be called into question and also to insulate bank depositors from risks of the stock and bond market collapse which precipitated the Great Depression.
    • Glass-Steagall Act: Debated from 1985-1999
      • Conflict of Interest avoided
        • Both granting credit (lending) and use of credit (investing)
      • Depository Institutions = Power
        • Limit control of people’s money to ensure soundness and competition in market for funds (loans or investments)
      • Securities are risky
        • Losses could force government to pay over and above insured sum (Integrity of deposits goes away)
      • Depository Institutions are supposed to limit risk
        • Management not conditioned to prudently operate more speculative securities
      • Losing market share to other banks worldwide that do both
      • Conflicts can be prevented by enforcing legislation
      • Can reduce risk by diversifying
      • Most of the world does both
        • Simultaneously lessons learned from them will help us.
      PRO CON
    • What Happened?
      • The Glass-Steagall Act was repealed in 1999.
      • Deregulation allowing commercial banks and investment banks the freedom to act as one.
      • One of President Clinton’s last bills he signed
      • Encourages/Requires lending practices to be more liberal
      • Mortgage “products” go from 3 basic options to hundreds of options.
      • Unregulated – Mortgage Broker business expands rapidly during a decreasing interest rate environment.
      • Consumers were sold inappropriate loans.
      • Consumers got greedy – bought too much house!
    • How Long Will This Last?
      • 1907 Banking Crisis was solved quickly because of transparency (locked in a room).
      • Transparency comes from legislation
        • Need for more disclosure
        • This makes the most efficient markets (fewer surprises)
      • Allows for opportunity to not be as “surprised” as we are today.
        • Creates a more settled, although complex, credit market
    • How Long Will This Last?
        • Western democratic capitalism is like a three legged
      • stool, resting on political freedom, economic freedom, and
      • moral restraint (lack of greed). Take away moral restraint
      • (add greed) and the stool collapses.”
      • Theologian – Michael Novak
      Quote
    • How Long Will This Last?
      • Last 10 recessions - starting in June 1946
        • Average length = 11 months
        • S&P peak to start of recession = 8 months
        • Start of recession to trough = 7 months
        • Total Peak to Trough = 15 months
        • Total S&P Decline from peak to trough = -32.6%
        • Next 12 months average rebound = 30.8%
        • Average months for an expansion = 68 months
        • Average bull market return = 176%
    • How Long Will This Last?
    • How Long Will This Last? 1970s Vietnam War Nixon Devalues Dollar OPEC Oil Embargo Nixon Resigns Iran Hostage Crisis 1980s Reagan Shot U.S. Becomes Debtor Nation Insider-Trading Scandal S&L Bailout U.S. Invades Panama 1990s Gulf War Orange County Default Oklahoma City Bombing Government Shutdown Asian Economic Crisis Russian Bond Default New Millennium Crash of the Dot-coms 9/11 Corporate Accounting Scandals War in Iraq Subprime Mortgage Fallout Credit Crisis in the U.S.
    • How Do We Know We Will Not Go Into a Depression?
      • Not saying things are not serious, but depression? NO.
      • Data Confirms
      • 1929: DJIA plunges 40% in two months – Now only 24%
      • Jobless rate jumped to 25% by 1933 – Now only 6%
      • GDP shrank by 25% during early 1930s – Now GDP has been up 2.5% in the last 12 months
      • Consumer prices fell by 30% from 1929-1933 – Ours still rising
      • Home prices dropped more than 32% - Now down 16%
      • 41% of all mortgages were delinquent by 1934 – Only 4 or 5% today
      • 1930s over 9,000 banks failed – Fewer than 25 in last 2 years
    • How Do We Know We Will Not Go Into a Depression?
      • Remember
        • Federal Reserve made a mistake – Decreased money supply by one third
        • Instead of lowering taxes – Herbert Hoover raised them
        • New Tariff Act kept foreign products out – provoked our trading partners to do the same
      • Add to this today’s automatic stabilizers
        • Unemployment Insurance and Social Security
        • FDIC to insure deposits (will increase to $250K)
        • Circuit breakers to keep stocks from falling too quickly
      • Depression Ahead? No!
    • Is This a Bailout of “Fat Cats” on Wall Street? No!
      • Infusion of capital to unclog the financial markets.
      • Benefits everyone, business and consumers.
      • $700 billion will be used as Treasury Secretary needs the money – line of credit
      • $700 billion total assumed cost could be significantly less –no cost?
    • Be Prepared
      • Enlist the support of professional experience and know-how. Disciplined Process
      • Know your investment goals and get a realistic picture of your finances
      • Work with your advisor to plan an investing strategy based on your goals, risk tolerance, and solid investing principles. Diversify!
      • Manage for less risk. Asset Allocation!
      • Stay the course.
    • The Five Star All Star Financial Process
      • Identifying objective and risk tolerance
      • Analysis and Allocation
      • Implementation
      • Monitoring
      • Reporting
    • Two emotions drive investment decision making. The stock market is an emotional place to keep your money. Asset Allocation
    • GREED motivates the investor to buy. The stock market is an emotional place to keep your money. Asset Allocation
    • GREED motivates the investor to buy. The stock market is an emotional place to keep your money. Asset Allocation FEAR motivates the investor to sell.
    • Asset Allocation During a given economic cycle there are many opportunities to make poor investment decisions. GREED GREED GREED FEAR FEAR FEAR GREED
    • Asset Allocation During a given economic cycle there are many opportunities to make poor investment decisions. Strategic Asset Allocation helps investors manage their emotions of fear and greed. GREED GREED GREED FEAR FEAR FEAR GREED
    • Asset Allocation A diversified investment portfolio typically will not grow as fast... + - + - +
    • Asset Allocation - - + - + Which investor is in a better position when the market turns around? A diversified investment portfolio typically will not grow as fast… However, a diversified investment portfolio will not go down as fast.
    • Asset Allocation + + - + - “ It’s Not How Much You Make, It’s How Much You Keep” “ Slow But Sure Wins The Race”
    • Compare Two Portfolios Portfolio A $10,000 Year % Return 1 15 2 15 3 15 4 15 5 15 5 Yr Avg 15% Portfolio B $10,000 Year % Return 1 45 2 30 3 0 4 -20 5 20 5 Yr Avg 15% $20,114 $18,096
    • Economic Cycle Recession Start of Recession Stagflation Mature Growth Initial Growth Stabilization 6 12 9 3
    • Economic Cycle Central Banks Begin Restraint 12 Short Term Rates Up Short Term Rates Higher than Long Term Profits Peak Fed Relaxing 3 Raw Materials Costs Falling Short Term Rates Peak New Orders Falling Money Supply Tightens Profits Declining Mature Growth Stagflation
    • Economic Cycle At Least 6 Months Since Stock Market Peak Long Term Rates Peak and Fall Inflation Rates Fall Yields on S&P 500 > 3.7%, P/E Ratios < 14 Bank Loans Shrinking Short Term Rates Low Consumer Spending Down Consumer Confidence Falling News Event May Cause Panic in Market Advertisements Stressing Fear Bankruptcies High 3 6 Start of Recession Recession
    • Economic Cycle Raw Material Prices Up Business Activity Up Income Rising Faster than Prices Monetary Attitude Relaxed Business Activity Moderate Housing Starts up sharply Prime Rate 1st Increase Money Flowing into securities Mortgage Rates Declining New Orders Up Interest Rates Stable Inflation Stable 6 9 Recession Stabilization
    • Economic Cycle Inflation Soars Market Peaks Corporate Expansion Confidence High Labor Costs Increasing High P/E’s Short Term Rates up Prime Rate Up Sharply Short Term Rates Nearer to Long Term Bank Loans Accelerating 12 9 Initial Growth Mature Growth
    • Economic Cycle Recession In Cash Defense Aerospace Utilities Bonds Financial Services Gold, Energy, Natural Resources Service, Technology Leisure, Health Care Blue Chip Basic Industries Out of Cash 6 9 12 3 Mature Growth Initial Growth Stabilization Start of Recession Stagflation
    • Thrill Anxiety Depression Hope Panic Desperation Euphoria Denial Capitulation Relief Optimism Fear Despondency Excitement 3 6 9 12 Recession Start of Recession Stagflation Stabilization Initial Growth Mature Growth Point of Maximum Financial Opportunity Point of Maximum Financial Risk Blue Chip Basic Industries OUT OF CASH Leisure, Health Care SMALL CAPS Service, Technology Gold, Energy, Natural Resources LARGE CAPS INTO CASH Defense, Aerospace BONDS Utilities Financial Services
    • Why You Don’t JUST Diversify - You STAY Diversified B A Initial Allocation Initial Asset Allocation A=$10,000 B=$10,000 $20,000 $10,000 $10,000
    • B A Initial Asset Allocation A=$10,000 B=$10,000 $20,000 $10,000 $10,000 Initial Allocation B A End of First Year $25,000 $5,000 $20,000 1st Year A= -50% (Lost $5,000) B=+100% (Gained $10,000)
    • B A Initial Asset Allocation A=$10,000 B=$10,000 $20,000 $10,000 $10,000 Initial Allocation B A End of First Year $25,000 $5,000 $20,000 1st Year A= -50% (Lost $5,000) B=+100% (Gained $10,000) B A 2nd Year A= +100% (Gained $5,000) B= -50% (Lost $10,000) $20,000 $10,000 $10,000 End of Second Year
    • B A Initial Asset Allocation A=$10,000 B=$10,000 $20,000 $10,000 $10,000 Initial Allocation B A End of First Year $25,000 $5,000 $20,000 1st Year A= -50% (Lost $5,000) B=+100% (Gained $10,000)
    • B A Rediversified Asset Allocation A=$12,500 B=$12,500 $25,000 $12,500 $12,500 End of First Year Rediversified B A End of Second Year $31,250 $25,000 $6,250 2nd Year A= 100% (Gained $12,500) B=-50% (Lost $6,250)
    • B A 2nd Year A= +100% (Gained $5,000) B= -50% (Lost $10,000) $20,000 $10,000 $10,000 End of Second Year No Rediversification B A End of Second Year Rediversified $31,250 $25,000 $6,250 2nd Year A= 100% (Gained $12,500) B=-50% (Lost $6,250)
    • It's NOT how much you MAKE! It's how much you KEEP! $ $ $ $ $ $ $ $ $
    • Questions?
      • Free Portfolio Analysis
        • Where are you today?
        • Is there a more efficient path to take?
        • Call 952-896-3820 to make an appointment or visit our website at www.allstarfinancial.com
    • Thank You!