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Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13
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Creating and Protecting Retirement Income_ Finding Income in Unexpected Places_2011_01_13

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Planning for retirement takes more than simply saving or a buy and hold approach to investing. This presentation provides practical tips on how to plan for your income needs and turn your portfolio …

Planning for retirement takes more than simply saving or a buy and hold approach to investing. This presentation provides practical tips on how to plan for your income needs and turn your portfolio into a sustainable cash flow machine. By using diversified portfolios that include alternative income sources, you can help protect your investments from inflation. By having a plan for withdrawing money, you can help protect yourself from running out of it.

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  • 1. Plan Well. Invest Smart. Live Better 12 Amidon Avenue, Amesbury, MA 01913 | (978) 388-0020 Creating and Protecting Your Retirement Paycheck – Finding Steve Stanganelli, MSF, CFP®, CRPC® Principal Income in Unexpected Places Steve@ClearViewWealthAdvisors.com Using Alternative Investments to Preserve and Grow Wealth Clear View Wealth Advisors, LLC www.ClearViewWealthAdvisors.com
  • 2. Steve Stanganelli, MSF, CFP®, CRPC® Principal Steve@ClearViewWealthAdvisors.com Plan Well. Invest Smart. Live Better 12 Amidon Avenue, Amesbury, MA 01913 | (978) 388-0020 Today’s Presentation: 1. Living in Retirement: Some Retirement Facts to Consider 2. Practical Tips on Preparing Your Portfolio for Retirement 3. Generating Income from Your Portfolio 4. Limiting Your Risk 5. A Sound Strategy for Efficient & Sustainable Withdrawals Clear View Wealth Advisors, LLC www.ClearViewWealthAdvisors.com
  • 3. Principal of the Firm Steve Stanganelli, MSF, CFP®, CRPC® – Over 20 years experience advising individuals – Former mortgage banker – Graduate of UMass – Lowell and Bentley – Member of Financial Planning Association © Clear View Wealth Advisors, LLC. 2010
  • 4. Clear View Wealth Advisors: The Firm Who is Clear View Wealth Advisors, LLC? •Clear View Wealth Advisors, LLC is a Massachusetts-registered investment advisory firm serving individuals, couples and business enterprises with comprehensive planning and investment services. •Established in 2010 •Located: Amesbury and Wilmington, Massachusetts •Primary Goal: To protect client wealth through proactive and ongoing planning combined with risk-controlled investing. •Investment Strategy: Clients win by not losing. A multi-bucket approach is used combining strategic and tactical asset allocation. The long-term bucket is focused on an absolute return strategy that includes the use of convertible bonds, MLPs and Alternatives. © Clear View Wealth Advisors, LLC. 2010
  • 5. Living in Retirement: Facts & Concerns Retirement Facts to Consider 1.) Americans are living longer, healthier lives 2.) Today’s retirees have the most healthy and active retirement of any generation 3.) Retirees face formidable financial challenges Common Retirement Concerns 1.) Income 2.) Health related matters 3.) Outliving their money © Clear View Wealth Advisors, LLC. 2010
  • 6. Living in Retirement: The Truth About Retirement Costs • 1.) Experts¹ estimate 70–80% of pre-retirement income will be needed to support a comparable lifestyle • 2.) Healthcare expenses tend to rise with age • 3.) Low interest rates affect savings growth • 4.) Inflation will erode purchasing power • 5.) Taxes do not go away 1. Source of data: U.S. Department of Labor, Employee Benefits Social Security Administration www.Dol.gov/ebsa © Clear View Wealth Advisors, LLC. 2010
  • 7. Living in Retirement: Life Expectancy Longer Life Expectancy 1.) In 2005, men and women reaching age 65 had an 1 average life expectancy 82 and 85 years respectively 2.) A couple reaching 65 today has a better than 50% chance that at least one of them will be alive until age 90 3.) The older population (65+) numbered 35 million in 2000, 2 an increase of 3.7 million (or 12%) since 1990 4.) By the year 2030, the older population will more than double to 70 million 1. 2005 OASDI Trustees Report; Social Security Administration; 2. Department of Health & Human Services, Administration on Aging 2005 © Clear View Wealth Advisors, LLC. 2010
  • 8. Living in Retirement: Healthcare Costs Longer Life Expectancy 1.) The availability of employer-sponsored retiree health benefits continues to decline 2.) It is estimated that between 30% and 40% of all 1healthcare expenses are incurred during the last years of life 3.) 44% of Medicare beneficiaries need 2nursing home care with an average duration of 2–5 years 4.) In 2003 the average annual cost of nursing home care was 3 $57,700 5.) Medicare does not pay nursing home benefits 1. Source of data:Health Services Research, December 2002. 2. Source of data: “New Estimates for Nursing Home Use” Medical Care 2002 Urban Institute. 3. Source of data: Kpplinger’s Retirement Report, March, 2004. © Clear View Wealth Advisors, LLC. 2010
  • 9. Living in Retirement: Inflation Matters 1978: $6,379 Auto 2010: $28,050 Source: NADA Industry Analysis Division, May, 2005 340%+ 1978: $37,229 College Tuition (not including boarding and books) 2010: $88,328 Source: The College Board, 2005 116%+ 1978: $62,500 Home 2010: $235,000 Source: US Census Bureau, 2005 260%+
  • 10. Living in Retirement: Inflation Matters What Will It Cost to Maintain Your Lifestyle? Through the 15 Year Period Ending 2004, Inflation Averaged 2.85% Be Prepared to Double Your Money If You’re Retired for 25 Years What 3% Inflation Can Do to a $30,000 Per Year Standard of Living? 5 Year $34,778 10 Years $40,317 15 Years $46,379 20 Years $54,183 25 Years $62,813 © Clear View Wealth Advisors, LLC. 2010
  • 11. Practical Tips to Prepare Your Portfolio for Retirement 1.) Set a Realistic Budget for Your Retirement Lifestyle Needs 2.) Assess Your Risk Tolerance – Try www.MyRiskProfile.com 3.) Stay Invested But Be SMART in Limiting Risk 4.) Control What You Can: Costs, Emotions & Allocation 5.) Have a Plan for Withdrawals 6.) Don’t Forget About Income Alternatives © Clear View Wealth Advisors, LLC. 2010
  • 12. Historical Bear Markets: DJIA Year Number of Bear Markets Percent Decline 1900s 3 46%, 49%, 27% 1910s 3 24%, 40%, 47% 1920s 1 89% 1930s 3 23%, 49%, 41% 1940s 1 24% 1950s 1 19%, S&P 500 fell 22% 1960s 3 27%, 26%, 36% 1970s 2 45%, 27% 1980s 2 24%, 36% 1990s 1 21% 2000s 2 38%, 53% All numbers are approximate. All percent declines are declines in the Dow Jones Industrial Average.
  • 13. Generating Income For Retirement Standard Options: Fixed Income Investments - CDs, Treasury Bills & Bonds, Corporate Bonds, Municipals There’s more to diversified income investing than stocks and bonds 1. Bonds: Go Beyond the US 2. Consider Hybrids like Convertible Bonds 3. Add Income-Paying Stocks: US & Foreign 4. Add Master Limited Partnerships © Clear View Wealth Advisors, LLC. 2010
  • 14. Generating Income for Retirement: Convertibles Convertibles have the characteristics of three asset classes: 1. Bonds 2. Equities 3. Options © Clear View Wealth Advisors, LLC. 2010
  • 15. Convertibles Beat Equities Over the Long Haul Cumulative Total Returns 12/73 – 6/10 Source: BofA Merrill Lynch Convertible Research 6/30/10 An asset class that has been utilized for over 150 years © Clear View Wealth Advisors, LLC. 2010
  • 16. Appendix: Convertibles as an Asset Class 1 Year 3 Years 5 Years 10 Years All US Convertibles (VXA0)* 22.64% -6.79% 17.70% 22.84% VXA0 Underlying Equities* 28.38% -30.78% -6.73% -27.19% S&P 500 14.43% -26.62% -3.90% -14.77% Russell 2000 21.50% -23.65% 1.93% 34.99% Through 6/30/10 *Source: BofA Merrill Lynch Convertible Research 6/30/10 © Wellesley Investment Advisors, Inc. 2010 Please see Wellesley performance notes in appendix.
  • 17. Convertibles as an Asset Class Get Paid While You Wait Convertible bonds combine the stated repayment dates and yields of bonds and the upside potential of stocks. Convertible bonds offer investors the potential to get paid with interest during market corrections or bear markets while they wait for the next market recovery or bull stock market. © Clear View Wealth Advisors, LLC. 2010
  • 18. Convertibles as an Asset Class Convertible Bond Advantages: a) Yield advantage over equities b) Capital appreciation potential c) Low correlations with stocks and bonds which enhances diversification d) History of strong risk-adjusted returns e) Track record of capital preservation f) Unlike other types of bonds, convertible bonds have generally performed well during periods of rising interest rates g) Convertible bonds have generally performed well in inflationary periods © Clear View Wealth Advisors, LLC. 2010
  • 19. Convertibles as an Asset Class Who Should Invest in Convertible Bonds? a) Bond holders seeking less exposure to Treasury bonds, municipal bonds or ‘straight’ corporate bonds with greater potential upside b) Investors wanting reduced equity exposure without giving up stock market upside c) Investors looking for a non-correlated asset class for more diversification d) Investors fearful of rising interest rates on ‘straight’ fixed income products
  • 20. Performance Record Year WIA S&P 500 MLV0A0 1995 20.05% 37.58% 24.75% 1996 10.15% 22.96% 14.30% 1997 22.92% 33.36% 18.98% 1998 16.56% 28.58% 8.21% 1999 19.60% 21.04% 44.32% 2000 17.32% -9.10% -11.70% 2001 11.74% -11.93% -3.95% 2002 3.08% -22.06% -4.95% 2003 15.28% 28.68% 25.80% 2004 6.58% 10.88% 8.49% 2005 3.60% 4.91% -0.34% 2006 9.57% 15.80% 12.75% 2007 7.33% 5.49% 4.12% 2008 -11.09% -37.00% -33.02% 2009 36. 58% 26.46% 47.19% 2010 0.12% -6.65% -0.34% Annualized 11.72% 7.29% 8.11% Annualized returns are from January 1995 to June 30, 2010. Please see performance notes in appendix. The BoA / ML V0A0 represents the US Convertible Market excluding mandatory convertibles. All numbers are approximate.
  • 21. Convertibles as an Asset Class Complete Market Cycle Performance (Annualized): © Clear View Wealth Advisors, LLC. 2010
  • 22. Investing with Convertibles Convertibles can be structured as a Core Principal Protected Equity Strategy Or an Enhanced Fixed Income Strategy © Clear View Wealth Advisors, LLC. 2010
  • 23. What Lost Decade? What Would Happen to $1 Million Placed in WIA Convertibles VS the S&P 500? Wellesley Investment Advisors S&P 500 Total Return Annual 5% Annual 5% Year % Inc (Dec) Balance Withdrawal Year % Inc (Dec) Balance Withdrawal 1999 1,000,000 1999 1,000,000 2000 17.32 1,173,235 58,662 2000 -9.10 909,000 45,450 2001 11.74 1,245,423 62,271 2001 -11.93 760,528 38,026 2002 3.08 1,219,538 60,977 2002 -22.06 563,118 28,156 2003 15.28 1,335,634 66,782 2003 28.68 688,389 34,419 2004 6.58 1,352,372 67,619 2004 10.88 725,122 36,256 2005 3.60 1,331,048 66,552 2005 4.91 722,689 36,134 2006 9.57 1,385,530 69,277 2006 15.80 795,030 39,752 2007 7.33 1,412,692 70,635 2007 5.49 796,743 39,837 2008 -11.09 1,193,158 59,658 2008 -37.00 476,851 23,843 2009 36.58 1,548,089 77,404 2009 26.46 572,874 28,644 Total Return: 145.63% Total Return: - 9.10% © Wellesley Investment Advisors, Inc. 2010
  • 24. Convertibles as a Fixed Income Replacement Wellesley VS Pimco Growth of $1,000,000 : January 1995 – June 2010 WIA $5,572,662 Total WIA Advantage: 90.89% PTTAX $2,919,320 Sources: PIMCO Total Return Fund A – Ticker Symbol: PTTAX Please see performance notes in appendix. © Wellesley Investment Advisors, Inc. 2010 All numbers are approximate.
  • 25. Fed Tightening Cycles How Do Convertibles Perform When The Fed Tightens? © Clear View Wealth Advisors, LLC. 2010
  • 26. Fed Tightening Cycles Merrill Lynch Fed Policy Rate S&P 500 V0A0 Index Duration Interest Rate Start Date End Date (months) Start Value End Value Increase Change (%) Change (%) 03/29/88 02/24/89 11 6.50 9.75 3.25% 10.38% 11.20% 02/04/94 02/01/95 12 3.00 6.00 3.00% 0.13% -8.46% 06/30/99 05/16/00 11 4.75 6.50 1.75% 6.80% 26.47% 06/30/04 06/29/06 24 1.00 5.25 4.25% 11.58% 8.67% Source: Fed data provided by Deutsche Bank. V0A0 data provided by Merrill Lynch/Bank of America. All numbers are approximate.
  • 27. Notable Convertible Quotations Quote from Forbes Magazine “If you stay out of stocks, you might miss the rally. If you buy stocks, you might get creamed in another slump. But convertible(s)…let you have it both ways. Making good selections from among convertible securities with so many variables is challenging, but very rewarding. Finding the right convertibles is like a game where you can win or, alternatively, get your money back – with interest.” © Clear View Wealth Advisors, LLC. 2010
  • 28. Generating Income: Dividend Payers Value of Dividends in Retirement • Historically Higher Yields than Bonds: 3.54% vs 3% • Historically Higher Total Return than Bonds – Dividend Payors Benefit from Stock Appreciation Potential • Historically Higher Income, Price Appreciation & Total Return Compared to S&P 500 Stock Index: 11% vs 8.4% Annualized Total Dividend S&P 500 Return Period Aristocrats Index 1990-94 12.58% 10.4% 1995-99 19.48% 28.54% 2000-04 9.79% -2.29% 2005 – 9/2009 2.32% -0.08% 1990 – 9/2009 10.97% 8.41% © Clear View Wealth Advisors, LLC. 2010
  • 29. Generating Income: Alternative Investments Alternatives Provide Income & Protection • Historically Provide Protection Against Inflation • Cash Flows • Typically Low Correlation to Stocks Types of Alternatives to Consider • Real Estate Investment Trusts (Global) • Commodities • Master Limited Partnerships (MLPs) • Managed Futures © Clear View Wealth Advisors, LLC. 2010
  • 30. Generating Income: Master Limited Partnerships Master Limited Partnerships (MLPs)– The Toll Roads for Commodities • What Are They?:Build and Operate Pipelines and Distribution Networks for Commodities Like Oil and Gas • Cash Flows: Predictable Cash Flows Not Impacted By Commodity Price • Inflation Hedge: Over Time Distributions Have Grown Outpacing Inflation • Performance: Strong Historical Record Compared to Other Assets • Tax Preferred: Distributions Considered Return of Capital © Clear View Wealth Advisors, LLC. 2010
  • 31. Generating Income: Master Limited Partnerships Master Limited Partnerships (MLPs)– Solid Income Producing Asset Class © Clear View Wealth Advisors, LLC. 2010
  • 32. Sustainable Withdrawals Creating Your Paycheck: A Multi-Bucket Approach stions. 1. Add Up Your Income Sources (Social Security, Pension, Jobs) 2. Consider Your Retirement Expenses 3. Calculate the Gap (if any) 4. Have a Solid Plan for Taking Money Out – Be Tax Wise! 5. Stay Globally Diversified 6. Have a Cash Flow Reserve Bucket Note: See Part 7 of “Road to Retirement” © Clear View Wealth Advisors, LLC. 2010
  • 33. Sustainable Withdrawals When You Start and How Much You Draw Matters stions. Source: Fidelity Investments. Hypothetical value of assets held in an untaxed balanced portfolio of 50% stocks, 40% bonds, and 10% short-term investments and inflation-adjusted withdrawal rates as specified. Average rates of return for stocks, bonds, short-term investments and inflation are based on the risk premium approach. Actual rates of return may be more or less. The chart is for illustrative purposes only and is not indicative of any investment. Past performance is no guarantee of future results.
  • 34. Sustainable Withdrawals Two Options: Lifestyle vs Endowment stions. 1. Lifestyle: Rule of Thumb of 4% to 5% of Portfolio – Pros: Simple – Cons: May not be sustainable especially in times of a bear market 2. Endowment Spending: Acting Like the Big Boys - Pros: Allows for more controlled withdrawals with a built-in “smoothing rule” that will work well - Cons: Takes more time to master; Requires “belt tightening” during bear markets – This is a blended approach that combines prior year’s spending levels with current portfolio performance – Smoothing Rule: 90% is determined by prior year’s spending PLUS 10% from the current portfolio value – Ties a portion of spending to current portfolio value – Works especially well at preserving portfolio during periods of inflation © Clear View Wealth Advisors, LLC. 2010
  • 35. What You Should Do Next • 1.) Learn More. Sign up for the ViewPoint Financial Planning Strategies e-newsletters. • 2.) Check out www.moneylinkpro.wordpress.com and www.ClearViewWealthAdvisors.com for more information and resource links. • 3.) Log onto the Free Money Road Map Program to complete your own starter financial plan at www.ClearViewWealthAdvisors.com or www.BabyBoomerRetirementPro.com • 4.) Call 978-388-0020 or 617-398-7494 for a complimentary Money Tune Up, Portfolio Review or College Money Assessment • Call 978-388-0020 to discuss any questions. © Clear View Wealth Advisors, LLC. 2010
  • 36. What You Should Do Next • Call 978-388-0020 to discuss any questions. SPECIAL OFFERS • Save $75 on the Focused Plan 2-Hour Brain Drain Strategy Session. • 2-Hour focused strategy session to answer any questions on ANY financial question you have. • 20% Off Advisor On Call • Phone and Email support throughout the year to help you with ANY financial planning questions. Flat rate. No time billing. Call to redeem. • 17% Off Quick Start Road • Up to $100 Off Your Personal Plan. Get your personal integrated plan that focuses on your 2 or 3 highest priority planning issues (Retirement, Investing, Budgeting, Credit, Debt, Insurance or Benefits). Includes 3 hours of Adviser Phone/Email Support. © Clear View Wealth Advisors, LLC. 2010
  • 37. What You Should Do Next 388-0020 to discuss any questions. SPECIAL OFFER – Quick Start Sustainable Retirement Income Planner • We'll compare your current portfolio to your target asset mix so you can evaluate areas that may need adjustment. • Learn how to get your investments on track. • We'll suggest an investment mix to help you to better align your portfolio with your goal. What You Get: Personal Financial Score: Ever wish you could have a check up for your finances? • A 'Prescriptive Financial Plan' for lifetime financial goals • Risk Capacity Index for personal investment suitability • Targeted Asset Allocation © Clear View Wealth Advisors, LLC. 2010
  • 38. About Steve Stanganelli, CFP®, CRPC® Chief Personal Portfolio Strategist & Money Coach Steve Stanganelli, MSF, CFP®, CRPC® (978) 388-0020 or (617) 398-7494 Steve@ClearViewWealthAdvisors.com Steve Stanganelli is a five-star rated, board-certified financial planning professional who has over 20 years of experience coaching individuals and businesses on ways to improve and protect their personal or business bottom line. Steve has worked with numerous individuals and businesses as a mortgage banker, business owner, business finance consultant and now as a CERTIFIED FINANCIAL PLANNER ™ Professional. His practice encompasses retirement income planning, investment management, divorce settlement analysis and college funding strategies. He is a published author and regularly presents on these topics to businesses, civic groups and community organizations. Steve works with a variety of individuals and families with a special focus on Baby Boomer pre-retirees, business owners, corporate executives and medical professionals. Steve earned his Master of Science degree in Finance (MSF) from Bentley College with high distinction. He is also an honors graduate of the University of Massachusetts – Lowell. Steve holds the designations of CERTIFIED FINANCIAL PLANNER ™ and CHARTERED RETIREMENT PLANNING COUNSELOR ™ awarded after completion of extensive, in-depth studying and exam requirements. Steve is an executive officer of the Greater Merrimack Valley Estate Planning Council. Steve, formerly of Methuen, is a resident of Amesbury where he lives with his wife, Kristin, a Registered Dietitian, and their infant son, Spencer. He is an avid competitive cyclist.
  • 39. About Clear View Wealth Advisors & The Tool Kit for Money Clear View Wealth Advisors, LLC is a fee-only state-registered investment adviser. The firm provides personalized financial planning advice on a broad range of topics with an emphasis on retirement income planning, self-directed IRA strategies, college funding and financial aid strategies, and divorce planning and settlement analysis. Money management tools are available including customized investment programs for individuals. We offer a tool kit for money and help people make smarter money moves for life. Clear View: Who We Serve We work with individuals or couples in need of trusted guidance while going through transitions like a job change, retirement, divorce or other life-changing event. We strive to make our services accessible to busy professionals and their growing families to assist with retirement planning, elder care or college funding issues.
  • 40. Wellesley Investment Advisors - Footnotes Footnotes for WIA Convertible Bond Returns 1. This presentation reflects only the convertible bond portion of WIA's client accounts. Returns are based on all convertible bond positions held in accounts of all WIA clients during the periods reflected. Actual client accounts include positions other than convertible bond positions. Such other positions are not included in this performance presentation. Accordingly, the actual return of WIA client accounts is different, in some cases substantially, from the performance information presented for convertible bonds. During the periods reflected, WIA did not manage any other accounts that included convertible bonds in their portfolios. 2. Returns include a 0.00% annual management fee. WIA's standard fee schedule is included in its Form ADV Part II. 3. Past performance is not indicative of future results. 4. No representation is made that the investor will obtain similar results to those shown above. The performance presented may not be representative of investments held in any one client account or performance realized in any one client account. An investor's actual performance may differ from the performance presented above due to timing of investment, contributions and withdrawals. Performance does not reflect the effects of taxation, which result in lower returns to taxable investors. 5. This report is meant for broad discussion purposes only, and is not intended as a recommendation to buy or sell any security. 6. An investment in convertible bonds involves a risk of loss. The value of an investment in convertible bonds may decrease as well as increase. 7. WIA's convertible returns have been calculated using the methodology set forth below. Such methodology includes several assumptions that result from systems limitations on aggregating the convertible bond portion of multiple client accounts. Although information has been obtained from and is based on sources WIA believes to be reliable, WIA does not guarantee the accuracy of the information, and it may be incomplete or condensed. Returns do not reflect reinvestment of interest and dividend income.
  • 41. Wellesley Investment Advisors 8. Methodology for WIA Convertible Bond Returns: (a) Listed the market value of all convertible bonds held on the last day of each month. (b) Determined the weight of each bond holding in the portfolio (individual bond value / total bond value). (c) Determined each bond's return for the month (monthly interest earned plus / minus monthly price change). (d) Assumed that a bond entered the portfolio on the first day of the month in which it was first purchased. (e) When a bond is completely sold out of the portfolio, its prior month end value is adjusted to reflect the final sales price. (f) Weighted each bond's return for the month by the bond's weight in the portfolio. (g) Summed each bond's weighted return for the month to get the portfolio's return for the month. (h) Compounded monthly returns to calculate annual return. Other Footnotes - A complete market cycle is defined either by a top-bottom-top or bottom-top-bottom pattern in the stock market. In the WIA analysis, the S&P 500 was used to define the market cycle of the stock market. - Bond & Average Credit Quality reflects the higher of the ratings of Standard & Poor’s Corporation, Moody’s Investors Service, Inc., and Fitch. If a bond is not rated by any of these organizations, Wellesley Investment Advisors uses their proprietary credit rating system to demonstrate the credit quality of convertible bonds. Ratings are relative, subjective and not absolute standards of quality. - Alpha statistics provided by Morningstar, Inc. as of June 30, 2010.
  • 42. Appendix: A Fairly Balanced Universe of CB Issuers Source: BofA Merrill Lynch Convertible Research 6/30/10 © Wellesley Investment Advisors, Inc. 2010
  • 43. Appendix: Convertibles as an Asset Class Convertibles From an Issuer Viewpoint: Less dilutive than common stock offering, issuer monetizes volatility Less costly than pure debt offering, and potential conversion to common by holders if equity performs  no principal repayment Expand investor base – flexibility, less restrictive covenants Recent innovations provide tax and EPS advantages Exchangeable structure allows for monetizing a stake in another company • Defers capital gains until maturity Part of the classic financing chain Source: Barclays Capital © Wellesley Investment Advisors, Inc. 2010
  • 44. Appendix: Convertibles as an Asset Class Why convertibles cannot be replaced with Equities, Bonds and Options: a) Unlike Bonds and options, many convertible bond holders can obtain a certain amount of underlying shares in exchange for the convertible bond structure at any time. b) Unlike options, most convertible bonds have dividend and takeover protection. c) Convertibles offer optionality for companies where there is no liquid option market. d) Convertible bond market tendency is to offer investors the opportunity to buy volatility exposure at a relatively cheap price e) Convertible bonds offer issues “suboptimal” call features Source: 2007 UBS Global Asset Management (Americas) Inc. © Wellesley Investment Advisors, Inc. 2010

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