Financial empowernment for educators

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  • Introduce yourself and welcome your guests Review the agenda for the seminar Travelers: Smith Barney is a member of TravelersGroup, a leading diversified financial services company listed on the New York Stock Exchange under the symbol TRV. Travelers was ranked #5 on the 1997 Business Week 50 list, its honor roll of the best performing companies in the S&P 500. Travelers is a component of the Dow Jones Industrial Average. Other members of the TravelersGroup family include: Commercial Credit, Primerica Financial Services, Travelers bank and Travelers Life & Annuity...among others. As you know, Travelers recently announced a merger with Citicorp. The new firm will be the largest financial services firm in the world. When the merger is complete, probably in several months, our parent corporation will be known as Citigroup. Smith Barney: Last fall, Smith Barney acquired Salomon Brothers, bringing expanded global research, trading and investment banking capabilities to the firm and our clients. One of the largest brokerage firms in the U.S. 430 branches with $650 Billion in client assets (details about your branch, i.e. # of FCs, average length of service, how long your branch has been in your town, etc.)
  • 2 Despite today’s information overload, wealth can be created in the century ahead exactly as it has in the past – through insight and discipline. The secret to success is to adopt an investing discipline and stick with it. You can succeed by trusting in: – Your financial representative. – The financial markets. – Time-tested investing disciplines. – Investing math. (What’s investing math? Valuable odds in the market. The power of compounding. Prices follow profits.)
  • 3 The main point of this chart is to put the returns of the bull market of the 1990s into perspective and help manage client expectations. Nobody can predict the short-term direction of the markets. But, the chart shows that if an investor was willing to hold quality investments long term, the simple compounding of gains and dividends at their historical rates would have made the disciplined investor a profit. So, for long-term money, why not have it largely in stocks?
  • 4 When you look at this chart, what is obvious? There have been almost as many bear markets as bull markets! All bull markets will end. And all bear markets will end. It hurts more to miss a bull market than a bear market. A lot more.
  • 5 This table shows data from 1928 through December 31, 2007, and reinforces the previous slide’s story. Note that over this period, we have experienced, on average, a decline of 5% or more 3 times a year and that its average length has been 38 days.
  • 6 As you can see by this chart, the stock market has had only 13 down years in more than half a century. Investors’ number one fear is that the day they decide to invest in the market, it will go down. Investors’ number two fear is that if the market goes down, it will never go back up. Yet in the last half century, even the most unlucky, ill-timed investor was made whole again in comparatively short order. Only the stubborn bear market of 2000-2002 took longer.
  • 7 Bonds and interest rates move in the opposite direction. People want to know why they move in the opposite direction. Bond prices always move in the opposite direction of interest rates.
  • 8 A extensive survey conducted from 1987 - 2006 found that a typical mutual fund investor, largely buying and selling according to his or her emotions (or trying to time the market), experienced an average annual return during this period of 4.3%. The survey also revealed leaving all of your money in the broad stock market (represented by the middle bar) or using a classic allocation between stocks and bonds (right-hand bar) would have produced returns that were almost three times greater. Why? Investors behaving emotionally. The only way out of this destructive cycle is to replace emotion with discipline. Be sure to learn the Golden Rule by heart.
  • The same analysis can be done for asset combinations. The results shown here are for different blends of stocks and bonds over a 20-year period. Note: Stock proxy is S&P 500 Index. Bond proxy is Ibbotson Government Bond Index. The portfolio at the bottom is 100% bonds. The next point on the line is 90% bonds and 10% stocks. The next is 80% and 20%. And so on. Notice that the line is not straight, but rather curves up and to the left before swinging around towards the all-stock portfolio. This shows the diversification advantage. Let’s take a closer look.
  • 10 Despite George and Martha initially investing $100,000, Martha came out way ahead for her retirement…because she diversified. Financial representatives equate risk with reward. Investors equate risk with loss. Do you see a problem? Performance is personal, not just an impersonal benchmark index return. In general, investors could afford more risk with their portfolios. Investors don’t have to strike it rich with every investment. Remember, your clients need to take enough risk to give themselves a fighting chance to reach their personal investment goals.
  • 11 Proper diversification is the key to striking the proper balance between reward and risk. Successful investing takes an understanding of the different asset classes, ranking of your investment options from most conservative to most aggressive, and understanding yourself! It is critical that investors understand why they are investing the way that they are. Your financial representative can help you develop a plan that best fits your needs. Investors should note that diversification does not assure against market loss and there is no guarantee that a diversified portfolio will outperform a nondiversified portfolio.
  • 12 Investors fantasize that they could have made “millions” by nimbly switching from one investment to the next. As the chart shows, no single investment is always dominant; one asset class outshines the other for a period of time. Remember, don’t chase investment performance. Foreign investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risks.
  • 13 In the chart on the left, the investor began the year with $10,000 in each of four different mutual funds (A, B, C and D). Each fund is invested in a different asset class. Fund A lost 10%, and the others had positive gains of 5%, 20%, and 50%, respectively, during the year. As a result, by December 31, the investor’s portfolio had strayed from its original allocation of 25% in each fund. To remedy this, the portfolio was rebalanced (see chart on right) so that all four funds began the year once again allocated as desired. Rebalancing is easy. It keeps your portfolios from straying from their intended allocation. Rebalancing may cause tax consequences, such as capital gains, from the selling of funds in the portfolio. Rebalancing does not assure a profit nor protect against loss. Investors should bear in mind there are certain tax implications involved when selling funds for rebalancing purposes.
  • 14 Despite catastrophic world events and their negative affect on the stock market, $10,000 invested in 1941 would have resulted in over $1.7 million as of 12/31/07. There will always be reasons to give up on stocks, but history has shown that patience and persistence pay off.
  • 15 One of the greatest fears investors have is “losing what they have already earned.” Let’s look at three portfolios and how they are affected when the market corrects. The reality is that markets have gone down a little quite frequently. But markets have gone down a lot only rarely. Determine your risk tolerance and allocate accordingly.
  • 16 It’s easy to destroy investment returns by behaving emotionally. Emotional investors sell after a significant pullback in the market and decide to jump back in after most of the market recovery. Most people buy an investment and expect it to go up. The next slide will show that patience is a virtue when it comes to investing.
  • 17 Most people buy an investment and expect it to go up. The goal of this slide is to give investors a historical perspective and to persuade investors to look at down years as opportunities instead of threats. The worst four consecutive years are highlighted in burgundy, 1929, 1930, 1931, 1932 – the market crash and the Great Depression. On the chart in your booklet, can you find the next 4 years: 1933, 1934, 1935, 1936? As you can see, 1933 ranked number 1 with a return of 73.6%; 1934 ranked 46th with a 8.1% return; 1935 ranked 5th with a 43.8% return and 1936 ranked 12th with a 30.3% return. It is important to remember that down years in the stock market are normal, healthy and required.
  • 18 If you look at the last 20 years, virtually all of the stock market’s return came from the best 60 days. Can anybody tell me when the best 60 days in the next 20 years will be? Statistically speaking, most days have no meaning whatsoever. They simply “cancel” each other out.
  • 19 Ignoring inflation – even mild inflation – could ruin long-term financial holdings. Historically, stocks have grown almost twice as fast as bonds and cash. Remember, while you’re not looking, consumer prices double every 24 years. Historically stocks have been the best long-term inflation fighter.
  • 20 The investors’ role is easy. They really have only 4 basic questions to answer. The role of the financial representative is critical in helping them with the answers. Here are your 4 basic questions. And, by the way, the answers count. Question 1...
  • 21
  • 22
  • 23 Will you stay disciplined, which can help you reach a comfortable retirement? Or will you be undisciplined and maybe have to keep working? Investors should note that systematic investing does not assure a profit or protect against losses in a declining market. There are greater risks associated with investments that have the potential to provide greater returns.
  • 24 Compounding works! The Rule of 72 shows how long it takes for a sum of money to double. Simply divide an assumed rate of growth, say 9%, into 72 and you’ll find that your money will double every eight years. Using this $31,250 figure and an assumed annual return of 9%, the power of compounding will eventually allow this hypothetical investment to reach $1 million after 40 years. But keep in mind that this is a hypothetical example.It assumes that you’ll hold this same investment posture for the entire 40-year time span in a tax qualified plan which has accumulated tax deferred with no withdrawals or taxes paid. Also, investors should note that volatility, including fluctuating prices and the uncertainty of rates of return inherent in investing in stocks and bonds (as used in the example above) over extended periods of time, will affect the actual return received. This example does not represent the actual return of any investment.
  • 25 The chart and the narrative say it all: Start now! It is important to restate that systematic investing does not assure a profit or protect against losses in a declining market.
  • Financial empowernment for educators

    1. 1. Seminar Financial Empowerment for Educators Alan Sitkoff First Vice President – Wealth Management Financial Advisor
    2. 2. <ul><ul><li>D I G N I T Y </li></ul></ul>
    3. 3. What Does a financial Counselor do? <ul><li>Questions from Young Couples </li></ul><ul><ul><li>To marry or not to marry? </li></ul></ul><ul><ul><li>What are the costs of fertility treatments and adoption? </li></ul></ul><ul><ul><li>Should spouses have separate accounts? </li></ul></ul><ul><ul><li>What’s the cost of divorce? </li></ul></ul><ul><ul><li>Should I have a prenup if I marry? </li></ul></ul><ul><li>Questions form Kids </li></ul><ul><ul><li>How much does it cost to raise a child </li></ul></ul><ul><ul><li>How much should I pay a babysitter or caregiver: </li></ul></ul><ul><ul><li>What is the best way to save for college costs? </li></ul></ul><ul><ul><li>Should I allow my teen to have a credit card? </li></ul></ul><ul><ul><li>How much is auto insurance for a teen? </li></ul></ul><ul><ul><li>How do I choose a guardian for my kids if I die? </li></ul></ul>Questions ….. So many Questions!!!
    4. 4. What Does a financial Counselor do? Cont’d <ul><li>Questions about Financial Security? </li></ul><ul><ul><li>Should I pay off my mortgage or save more for my retirement? </li></ul></ul><ul><ul><li>Is my family spending too much? </li></ul></ul><ul><ul><li>How much debt can I afford? </li></ul></ul><ul><ul><li>How many credit cards should we have? </li></ul></ul><ul><ul><li>How can I protect my family if I lose my job? </li></ul></ul><ul><ul><li>How do I keep illness from depleting my assets? </li></ul></ul><ul><li>Questions about Estate Planning? </li></ul><ul><ul><li>How can I talk to my elderly parents about their finances? </li></ul></ul><ul><ul><li>Do I have enough life insurance? </li></ul></ul><ul><ul><li>How do I choose my beneficiaries? </li></ul></ul><ul><ul><li>Do I need a will, a trust, proxies? </li></ul></ul><ul><ul><li>How can I cut him out of my will? </li></ul></ul><ul><ul><li>Should I pass my wealth down now or after I die? </li></ul></ul>
    5. 5. Source of Income for Retirees
    6. 6. LIFE EXPECTANCY <ul><li>A Healthy 65-year-old has a: </li></ul><ul><li>60% chance of living to age 85 </li></ul><ul><li>44% chance of living to age 90 </li></ul><ul><li>27% chance of living to age 95 </li></ul><ul><li>A recent survey quoted in The Wall Street Journal found that 67% of retirees and 61% of working-age people underestimate the life expectancy of people their age. </li></ul><ul><li>Source: Estimates based on Annuity 2000 table with Projection G weighted 100% male, 0% female. </li></ul>
    7. 7. <ul><li>LESSONS FOR A </li></ul><ul><li>LIFETIME OF INVESTING </li></ul>
    8. 8. The Value of Sound Advice <ul><li>How can investors deploy their investment dollars without costly missteps? </li></ul><ul><li>Part of the solution is to pair with an investment professional. </li></ul><ul><li>Investors’ biggest challenge is adopting an investing discipline and committing to it. </li></ul><ul><li>Rely on your financial representative to provide the insight and wisdom to keep you on track. </li></ul><ul><li>That wisdom is what this presentation is all about. </li></ul>There can be no assurance that working with a financial advisor will improve investment results. © 2008 Mulberry Communications.
    9. 9. Realistic Expectations History of Financial Markets (%) Past performance is no guarantee of future results. Average annualized rates of return. Investors should note that Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, while corporate bonds and stocks are not. Stocks also tend to be the most volatile, while bonds offer a fixed rate of return. In general, the higher the risk, the higher the potential return. Returns calculated by Mulberry Communications using data provided by Global Financial Data, Inc. Used with permission. Stocks are represented by the Wilshire 5000 ® Index, bonds by 10-year U.S. Treasury Bonds and Treasury bills by U.S. 90-day Treasury bills. Inflation is represented by the Department of Labor all Urban Consumer Price Index. This chart is for illustrative purposes only and does not represent the performance of any specific investment. 1948-2007 1968-2007 1988-2007 1998-2007
    10. 10. Waiting Out the Storms Has Been Worth It 86 mos. 50 mos. 43 mos. 26 mos. 32 mos. 24 mos. 33 mos. 60 mos. 31 mos. 113 mos. 3 mos. 65 mos. 7 mos. 18 mos. 3 mos. 3 mos. 20 mos. 18 mos. 21 mos. 18 mos. 8 mos. 6 mos. 15 mos. S&P 500 ® Cumulative Total Return 450% 350 250 150 50 0 -50 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2007 Bull and Bear Markets (June 13, 1949 – December 31, 2007) Past performance is no guarantee of future results. Bars represent cumulative total returns. All data are monthly averages except for the initial and terminal months of the cycle, which are the S&P 500 ® close for that date. Source: Security Price Index Record, Statistical Service and S&P Corporation. The S&P 500 ® Index is an unmanaged index commonly used to measure stock market performance that is not available for direct investment. © 2008 Mulberry Communications.
    11. 11. Waiting Out the Storms Has Been Worth It Declines in the S&P 500 ® 1928 – 2007 5% or more 264 38 3.3 per year 10% or more 87 103 1.1 per year 15% or more 38 198 1 every 2 years 20% or more 23 305 1 every 3 years Average Length Decline # Declines (Days) Frequency Past performance is no guarantee of future results. Source: Ned Davis Research, Inc.
    12. 12. Time Can Help Heal All Wounds Past performance is no guarantee of future results. Bar charts represent annualized total returns for the S&P 500 ® Index, an unmanaged index commonly used to measure stock market performance that is not available for direct investment. © 2008 Mulberry Communications; Global Financial Data, Inc., Ibid. The 13 Down Years Since the End of WWII... Where Investors Stood Three Years Later...
    13. 13. What About Bonds? © 2008 Mulberry Communications. Interest Rates Interest Rates Bond Prices Bond Prices
    14. 14. Emotions Cost Money The Average Investor Falls Short Past performance is no guarantee of future results. The Golden Rule of Investing™ does not necessarily mean a 65/35 equity/bond allocation. This example is hypothetical and does not reflect the actual return of any investment. There can be no guarantee that any particular yield or return will be achieved for any investment. Data for the first bar is from a 2007 survey conducted by DALBAR, Inc. The U.S. Stock Market is measured by the Wilshire 5000 ® . The final bar assumes that the equity segment of the portfolio was composed of the Wilshire 5000 ®. and the bond portion was composed of 10-year government bonds. © 2008 Mulberry Communications. ™
    15. 15. Risk and Return Results for Stock and Bond Blends Twenty Years Ending December 2007 Source: Citi Smith Barney 9% 10% 11% 12% 6% 8% 10% 12% 14% Standard Deviation Annualized Return 100% Stocks 50% Stocks 100% Bonds
    16. 16. Taking Enough Risk: The Power of Diversification George and Martha Prepare for Retirement These allocations are hypothetical and are not recommendations or predictions of actual results. Assumes $100,000 is invested continuously for 25 years. Martha’s example assumes that $100,000 is divided into four $25,000 segments. Investors should note that diversification does not assure against market loss and there is no guarantee that a diversified portfolio will outperform a nondiversified portfolio. There can be no assurance that the rates of return cited in the example will be attained, and there are greater risks associated with investments that have the potential to provide greater returns. © 2008 Mulberry Communications. $100,000 $338,635 $25,000 $25,000 $25,000 $25,000 $805,528 5% Return 12% Return 10% Return 5% Return 0% Return Initial Investment 25 Years Later Initial Investment 25 Years Later Martha George
    17. 17. Which Investments Should I Own ? Investors should note that diversification does not assure against market loss and there is no guarantee that a diversified portfolio will outperform a non-diversified portfolio. These allocations are hypothetical and are not recommendations or predictions of actual results. The eight investment classes cited in the chart above range from lower risk (e.g., Stable Asset) to higher risk (e.g., Aggressive Growth). Overall portfolio risk is determined by the investor’s allocations to specific investment classes. © 2008 Mulberry Communications. Stable Asset 25 % 12 % 5 % 0 % ___% Intermediate Bonds 25 12 5 0 ___ High Yield 5 12 10 10 ___ Balanced 10 16 10 10 ___ Large-Cap Growth 15 12 20 20 ___ Mid-Cap Value 5 12 20 20 ___ International 10 12 15 20 ___ Aggressive Growth 5 12 15 20 ___ 100 % 100 % 100 % 100 % 100% Hypothetical Allocations Moderate Conservative Aggressive Very Aggressive Your Allocation
    18. 18. Investing at the Right Place and Time Past performance is no guarantee of future results. Foreign investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risks. This example is for illustrative purposes only and is not a prediction or guarantee of actual results or intended to represent the performance of any investment. Average annualized rates of return. Highlighted areas represent the best-performing area for that year. © 2008 Mulberry Communications. Growth stocks: Wilshire 5000 Growth Index. Value stocks: Wilshire 5000 Value Index. U.S. stocks: S&P 500 ® Index. Foreign stocks: MSCI EAFE Index. These indices are unmanaged and not available for direct investment. Source: Morningstar, Ibid . Blue indicates the winning style for that particular year Growth Value U.S. Foreign % Return of Stocks 2.9 18.1 1993 10.1 32.6 2.7 -2.0 1994 1.3 7.8 37.2 38.4 1995 37.5 11.2 23.1 21.6 1996 23.0 6.1 30.5 35.2 1997 33.4 1.8 38.7 15.6 1998 28.6 20.0 33.2 7.4 1999 21.0 27.0 -22.4 7.0 2000 -9.1 -14.2 -20.4 -5.6 2001 -11.9 -21.4 -27.9 -15.5 2002 -22.1 -15.9 29.8 30.0 2003 28.7 38.6 6.3 16.5 2004 10.9 20.3 5.3 7.1 2005 4.9 13.5 9.1 22.2 2006 15.8 26.3 11.8 -0.2 2007 5.5 11.2
    19. 19. Rebalancing: A Classic Investment Discipline This rebalancing example is hypothetical and does not represent the performance of any investment. Rebalancing does not assure a profit nor protect against loss. Investors should bear in mind there are certain tax implications involved when selling funds for rebalancing purposes. Your allocation may be different than four equal 25% allocations, and you may choose to rebalance with a frequency other than annually. © 2008 Mulberry Communications. December 31 Ending Balances January 1 After Rebalancing Fund A Fund B Fund C Fund D Fund A Fund B Fund C Fund D $15,000 12,000 10,000 9,000 6,000 3,000 0 Original $10,000 Investment
    20. 20. The Real Story of the Stock Market 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2007 This example is hypothetical and are not recommendations or predictions of actual results. Calculations assume money is invested in a tax-qualified retirement plan. Chart is based upon total returns for the Wilshire 5000 ® Index from 1941 to 2007. © 2008 Mulberry Communications. The Value of Patience Over Panic $1,731,837 Value on 12/31/07 1941 Pearl Harbor $1,000 Initial Investment 1/1/41 1993 World Trade Center bombing 1987 Stock market crashes 1974 President Nixon resigns 1963 President Kennedy assassinated 1950 Korean War 1961 Berlin Wall built 1998 Asian financial crisis sends market tumbling 2002 Iraq war 2001 World Trade Center attack
    21. 21. What Happens When the Market Corrects? Portfolios Past performance is no guarantee of future results. Stock market change is represented by the Wilshire 5000 ® . Bond market change is represented by 10-year government bonds. The indices are unmanaged and not available for direct investment. Source: Global Financial Data, Inc., Ibid . On average, conservative investors would have experienced a positive 1% change during the stock market’s worst years during the past three decades. This chart is for illustrative purposes only. Stock market change is represented by the Dow Jones Industrial Average. Bond market change is represented by the Lehman Brothers Long U.S. Government Index. © 2008 Mulberry Communications. Stock Market Conservative Moderate Aggressive Down Years Stocks Bonds Portfolio Portfolio Portfolio (since 1971) % % Change % Change % Change % 1973 -19 +3 -3 -8 -12 1974 -28 +4 -6 -12 -19 1977 -3 0 -1 -1 -2 1981 -4 +4 +2 0 -1 1990 -6 +8 +4 +1 -2 2000 -11 +17 +9 +3 -2 2001 -11 +6 +1 -3 -6 2002 -21 +15 +4 -3 -10 Average all down years -13 +7 +1 -3 -7 Stocks Bonds 30% 70% Conservative 50% 50% Moderate 70% 30% Aggressive
    22. 22. Destroying Returns the Easy Way The High Cost of Short-Term Investing Past performance is no guarantee of future results. Daily index values of the S&P 500 ® from October 1, 2002 to October 21, 2002; Bloomberg. The index is unmanaged and not available for direct investment. This example is for illustrative purposes only. © 2008 Mulberry Communications. 900 875 850 825 800 775 Excitement Fear Anxiety Euphoria 10-21-02 10-09-02 Panic Emotional investors sell here when they are pessimistic Emotional investors buy here when they are optimistic again 10-01-02
    23. 23. Why Down Years Are “Good” Past performance is no guarantee of future results. Figures shown are annual total returns. Source: Dow Jones & Company, Inc. © 2008 Mulberry Communications. 1933 73.6% 1928 55.4 1954 51.3 1975 44.7 1935 43.8 1958 39.3 1995 36.8 1985 33.5 1938 33.2 2000 - 4.9% 1960 - 6.1 1962 - 7.4 1940 - 7.9 1957 - 8.6 1941 - 9.9 1969 - 11.8 2001 - 11.9 1977 - 12.8 1973 - 13.3% 1929 - 13.6 2002 - 15.0 1966 - 15.8 1932 - 16.8 1974 - 23.6 1937 - 28.9 1930 - 30.3 1931 - 49.0 Dow Jones Industrial Average (Best to Worst) 1989 32.2% 1945 31.6 1936 30.3 1996 28.8 2003 28.3 1999 27.2 1982 27.1 1986 27.1 1955 26.6 18 Best Years 18 Worst Years
    24. 24. What You Must Know About Market Timing Average Annual Return S&P 500 ® 1/88 – 12/07 Past performance is no guarantee of future results. Returns cited exclude dividends. © 2008 Mulberry Communications. 5,043 Trading Days Without the 60 Best Days
    25. 25. Combating Inflation 1/1/26 – 12/31/07 Past performance is no guarantee of future results. Data since 1926. Stocks: Wilshire 5000 ® . Bonds: 10-year government bonds. Cash: 90-Day T-bills. This chart is for illustrative purposes only and is not indicative of any specific investment and is not a prediction of actual results. Investors should note that Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest. Stocks tend to be most volatile while bonds offer a fixed rate of return. In general, the higher the risk, the higher the potential return. There can be no assurance that the rates of return cited in the example will be attained, and there are greater risks associated with investments that have the potential to provide greater returns. The Global Financial Data, Inc., Ibid . Historically, stocks have always stood tall . . . . . . but after inflation they tower over bonds and cash U.S. Stocks Gov’t Bonds 90-Day T-bills U.S. Stocks Gov’t Bonds 90-Day T-bills 2.0x 2.5x 3.0x 9.0x
    26. 26. The Retirement Equation © 2008 Mulberry Communications The kitchen remodeling and a new fishing boat come before saving any more right now. How much will you save and invest? 1 I will pay myself first. What I save I won’t spend. Your answer to these four questions will determine the quality of your retirement.
    27. 27. The Retirement Equation How long will you let your money grow? 2 I will start now. Time, not timing, is my strategy. I have a million projects. When I’m done, I’ll start putting more money away. What’s another year? © 2008 Mulberry Communications
    28. 28. The Retirement Equation © 2008 Mulberry Communications What will you invest in? 3 I invest in stocks. I don’t time the market. I see myself as a long-term owner of many quality businesses. I don’t understand the stock market. So, I’ll keep my money in the stable asset or money market fund.
    29. 29. The Retirement Equation © 2008 Mulberry Communications. Investors should note that systematic investing does not assure against a profit or protect against losses in a declining market. There are greater risks associated with investments that have the potential to provide greater returns. I stay disciplined. I buy quality investments, diversify, patiently hold and rebalance when necessary.” I don’t consider myself a hotshot investor. I just play it by ear. What else can you do? How disciplined will you be? 4 Plan for a Comfortable Retirement? No Plan for Retirement?
    30. 30. The Rule of 72 The Power of Compounding This hypothetical example assumes you will hold this investment posture during the entire 40 years and does not represent the actual return of any investment. Please note that volatility, including fluctuating prices and the uncertainty of rates of return inherent in investing in stocks and bonds (as used in this example) over extended periods of time will affect the actual return received. Calculations assume money was invested in a tax-qualified plan. We assumed a portfolio of 75% stocks averaging 10% growth annually and 25% bonds averaging 6% annually for an average annual total return for the portfolio of 9%. With a 9% growth rate, the portfolio would double approximately every 8 years. © 2008 Mulberry Communications. $31,250 $62,500 $125,000 $250,000 $500,000 $1,000,000 Today 8 16 24 32 40 Years Based on historical investment returns, how long will it take your money to double?
    31. 31. The High Cost of Waiting This example is hypothetical and are not recommendations or predictions of actual results. There can be no guarantee that any particular yield or return will be achieved from any investment. The assumed rate of return is a constant 8% annual growth rate in this hypothetical example. © 2008 Mulberry Communications. $63,138 $0.00 And retire after 40 years with the same amount. Or You can put off saving for 8 years, save a little, then save $2,000 each year for the next 31 years. You can begin early, and save $2,000 for 8 years, save a bit more, then nothing for the next 31 years. $279,781 $279,781 $16,862 $16,862 $0.00
    32. 32. 2007 Top Investment Scams cont. <ul><li>Most Common Investment Scams </li></ul><ul><li>Members of the North American Securities Administrators Association’s ( NASAA ) and the Washington State Department of Financial Institutions (DFI) identified the most common investment scams for 2007. The list is in no order of prevalence or seriousness. </li></ul><ul><li>Affinity Fraud </li></ul><ul><li>Members of closely knit religious, political, or ethnic groups are targeted frequently by con artists. Their pitch is essentially, “since I am like you and believe like you, you can believe in me and in what I say.” When an investment is presented in this context, the potential investor should be extremely wary. This pitch seeks to substitute an emotional appeal for careful analysis and critical thought. More information on Affinity Fraud. </li></ul><ul><li>Churning </li></ul><ul><li>An abusive sales practice in which unethical securities professionals make unnecessary and/or excessive trades in order to generate commissions. Most churning occurs where a broker has discretion to trade the account. In such cases, it is not necessary that the broker receive prior approval from the client to complete a transaction. </li></ul><ul><li>Equity Indexed Certificates of Deposit </li></ul><ul><li>Remember the days of FDIC-insured, bank-issued certificates of deposit with guaranteed principal and interest? Equity Indexed CDs are not the same product. These hybrid securities products offer an interest coupon payment or return that is based on a stock market index, usually the S&P 500. Returns are not FDIC insured. They are dependent on the performance of the stock market. These are complex securities that promise a rate of return calculated over a defined period of time based upon some form of securities market index. A declining stock market means the possibility of no return on your investment. As a result, these products pose liquidity problems and are therefore, not suitable for seniors who may need the money for retirement living. </li></ul><ul><li>Oil and Gas Investment Fraud </li></ul><ul><li>High oil prices mean oil and gas scams will continue to attract victims. Oil and gas deals are complicated investments that generally require a significant investment, often requiring a minimum deposit of thousands of dollars. Increasingly, these deals are being promoted via the Internet with claims of attractive tax advantages. Sales materials with “official-looking” surveyor maps and “geologist” opinion letters touting the likelihood that the “managers” of the drilling enterprise will hit pay dirt are sent regularly to prospective investors more than 1,000 miles from the region being “prospected.” Overall, these deals are highly risky, but the lure of high profits often proves irresistible to investors. </li></ul>
    33. 33. 2007 To Investment Scams Cont’d <ul><li>Personal Information Scams </li></ul><ul><li>The first step in separating a victim from his or her money is convincing the victim to divulge personal financial information. When the sales agent is a local tax preparer or unaffiliated insurance agent, he or she enjoys a position of trust in the community. Con artists not enjoying such a position of trust frequently style themselves as “senior specialists” or adopt a pretext of preparing “living will” or a “living trust.” A pretext that is of current concern to insurance and securities regulators is the offer to help senior citizens qualify for prescription benefits by preparing forms. In the guise of filling out forms, the scamster may ask unnecessary questions about personal financial assets. To the con artist, this information provides a comprehensive laundry list of what is available for the taking. </li></ul><ul><li>Prime Bank Schemes </li></ul><ul><li>These schemes often promise high-yield, tax-free returns that are said to result from “off-shore trades of bank debentures.” Investors are told that only very wealthy people can get the benefit of these programs but the promoter is able to make it available to the victim. Sometimes the victim is required to execute a “confidentiality agreement” in order to invest and is told not to consult an attorney, accountant or financial planner because they keep these programs for the “big boys” and will deny that they exist. There are no such programs, no such debentures and no such high-yield trades. These prime bank schemes are the securities equivalent of a purse snatch. Once the seller has your money, it’s gone “off shore” forever. </li></ul><ul><li>Pump and Dump Schemes </li></ul><ul><li>Unethical broker-dealers frequently “pump” up the value of low-priced securities traded on the NASDAQ “pink sheets” and then “dump” the stock after naïve investors have purchased the stock at inflated prices. The balloon breaks when the promoters no longer maintain the myth that there is value in the shares and investors are left holding worthless shares. These schemes frequently appear through unsolicited e-mail messages. </li></ul><ul><li>Recovery Rooms </li></ul><ul><li>Scam artists buy and sell the names and financial information of victims who have lost money to “recovery room” operators who promise, in return for a fee that the victim must pay in advance, to recover the money lost in a worthless investment. These “sucker lists” are bought by crooks who know that people who have been deceived once are vulnerable to additional scams; especially scams that give hope of recovering lost money. If you have been the victim of a fraud, never give out your credit card or other personal information to someone who contacts you with a promise to recover your money. Remember, in the scam world this caller is known as a “reloader” and he is setting you up for a second bite at the apple. </li></ul>
    34. 34. 2007 Top Investment Scams Cont’d <ul><li>Registered High-Interest Promissory Notes Publicly Advertised </li></ul><ul><li>Generally, the higher the return promised, the greater the risk to your money. A track record of paying high interest and repaying principal is not an assurance that you will get your money back if the company fails. These notes are not suitable for retirement funds. </li></ul><ul><li>Sale and Leaseback Contracts </li></ul><ul><li>In an attempt to avoid the investor protections of securities laws, some investments are structured to resemble the sale of a piece of equipment such as a payphone, ATM machine or Internet booth located at a remote venue where the investor cannot service and maintain the equipment and must enter into a servicing agreement. In order to make the deal more attractive, investors are told that after a given period the equipment can be sold back to the seller at the investor’s original purchase price. The investor is also promised a specific rate of return. In a variant of this scheme, a real estate interest such as a long-term lease in a resort community is sold instead of physical equipment. Frequently the equipment or property does not exist and the seller lacks the financial capacity to keep the promise of repurchase. </li></ul><ul><li>Self-Directed Pension Plans </li></ul><ul><li>Many types of securities fraud require the victim to remove funds from legitimate investments such as stock brokerage accounts, mutual funds, insurance policies, deferred compensation plans and mutual funds so that they can be invested in a worthless scam. This scam may begin with advice to convert an employer-sponsored pension into a self-directed pension plan. While these plans may serve legitimate investment purposes, all too often they only serve to benefit the scam artist. </li></ul><ul><li>Unsuitable Recommendations </li></ul><ul><li>Just as every investor is different, so too are investments. What may be a suitable investment for one investor may not be right for another. Securities professionals must know their customers’ financial situation and refrain from making recommendations of securities that they have reason to believe are unsuitable. When securities professionals fail to live up to applicable ethical standards, great harm can be done to individual investors. </li></ul><ul><li>Variable Annuities </li></ul><ul><li>Variable annuities are tax-deferred investments that typically place mutual funds inside of an insurance wrapper for tax deferred potential investment growth. While these products are legitimate investments, regulators are concerned about their popularity in the sales community. Commissions to those who sell variable annuities are very high, which provides incentive for sellers to engage in inappropriate sales. Variable annuities are only suitable for a very small percentage of the investing public and generally are not appropriate for most seniors. The steep penalties for early withdrawals also make variable annuities unsuitable for short-term investors. Be especially wary of any broker who wants to sell you a variable annuity to hold inside a 401(k) or IRA. You are already getting tax-deferred growth in an IRA or a 401(k), and the variable annuity simply adds a layer of cost with no additional tax benefit. </li></ul>
    35. 35. The Millionaire Next Door <ul><li>The Surprising secrets of </li></ul><ul><li>America’s Wealthy </li></ul>By Thomas J. Stanley, Ph.D. William D. Danko, Ph.D .
    36. 36. <ul><li>Who is the prototypical American millionaire? What would he tell you about himself? </li></ul><ul><ul><li>I am a fifty-seven year old man, married with three children. About 70 percent of us earn 80 percent or more of our household’s income. </li></ul></ul><ul><ul><li>Many of the types of businesses we are in could be classified as dull-normal. We are welding contractors, auctioneers, rice farmers, owner of mobile-home parks, pest controllers, coin and stamp dealers, and paving contractors </li></ul></ul><ul><ul><li>About half of our wives do not work outside the home. The number one occupation for those wives who do work is teacher. </li></ul></ul><ul><ul><li>On average, our total annual realized income is less than 7 percent of our wealth. In other words, we live on less than 7 percent of our wealth </li></ul></ul><ul><ul><li>Most of us (97 percent) are homeowners. We live in homes currently valued at an average $320,000. About half of us have occupied the same home for more than twenty years. Thus, we have enjoyed significant increases in the value of our homes. </li></ul></ul>Portrait of a Millionaire (courtesy of The Millionaire Next Door)
    37. 37. Portrait of a Millionaire cont. <ul><li>Most of us have never felt at a disadvantage because we did not receive any inheritance. About 80 percent of us are first generation affluent. </li></ul><ul><li>We live well below our means. We wear inexpensive suits and drive American-made cars. Only a minority of us drive the current-model-year automobile. Only a minority ever lease our motor vehicles. </li></ul><ul><li>Most of our wives are planners and meticulous budgeters. In fact, only 18 percent of us disagreed with the statement “Charity begins at home.” Most of us will tell you that our wives are a lot more conservative with money than we are. </li></ul><ul><li>We have a “go-to-hell fund.” In other words, we have accumulated enough wealth to live without working for ten years. Thus, those of us with a new worth of $1.6 million could live longer than that, since we save at least 15 percent of our earned income. </li></ul><ul><li>We have more than six and one half time the wealth of our nonmillionaire neighbors, but in our neighborhood, these nonmillionaires out number us better than three to one. Could it be that they have chosen to trade wealth for acquiring high-status material possessions? </li></ul><ul><li>As a group, we are fairly well educated. Only about one in five are not college graduates. Many of us hold advanced degrees. Eighteen percent have master’s degrees, 8 percent have law degrees, 6 percent have medical degrees and 6 percent PHD.s. </li></ul>
    38. 38. Portrait of a Millionaire cont’d <ul><li>As a group, we believe that education is extremely important for ourselves, our children, and our grandchildren. We spend heavily for the educations of our offspring. </li></ul><ul><li>About two-thirds of us work between forty-five and fifty-five hours per week. </li></ul><ul><li>We are fastidious investors. On average, we invest nearly 20 percent of our household realized income each year. Most of us invest at least 15 percent. Seventy-nine percent of us have a least one account with a brokerage company. But we make our own investment decisions. </li></ul><ul><li>We hold nearly 20 percent of our household’s wealth in transaction securities such as publicly traded stocks and mutual funds. But we rarely sell our equity investments. We hold even more in our pension plans. On average, 21 percent of our household’s wealth is in our private businesses. </li></ul><ul><li>What would be the ideal occupations for our sons and daughters. There are about 3.5 millionaire households like ours. Our numbers are growing much faster than the general population. Our kids should consider providing affluent people with some valuable service. Overall, our most trusted financial advisors are our accountants. Our attorneys are also very important. So we recommend account and law to our children. Tax advisors and estate planning experts will be in big demand over the next fifteen years. </li></ul>
    39. 39. Companies? <ul><li>Acme Brick Company </li></ul><ul><li>Benjamin Moore & Co </li></ul><ul><li>Borsheims Fine Jewelry </li></ul><ul><li>Buffalo NEWS, Buffalo NY </li></ul><ul><li>Clayton Homes </li></ul><ul><li>Cort Business Services </li></ul><ul><li>Flight Safety </li></ul><ul><li>General Rd </li></ul><ul><li>Homeservices of Am, a subsidiary of </li></ul><ul><li>MidAmerican Energy Holdings Co </li></ul><ul><li>Johns Manville </li></ul><ul><li>Shaw Industries </li></ul><ul><li>Geico </li></ul><ul><li>Coca Cola </li></ul><ul><li>American Express </li></ul><ul><li>Wells Fargo </li></ul><ul><li>Budweiser </li></ul><ul><li>Dairy Queen </li></ul><ul><li>Fruit of the Loom </li></ul><ul><li>See’s Candies </li></ul><ul><li>Net Jet </li></ul><ul><li>Washington Post </li></ul><ul><li>Jordan’s Furniture Mart </li></ul><ul><li>Justin Brands </li></ul><ul><li>Nebraska Furniture Mart </li></ul><ul><li>NetJets </li></ul><ul><li>The Pampered Chef </li></ul><ul><li>Shaw Industries </li></ul>
    40. 40. Warren Buffet Quotes <ul><li>BE HONEST </li></ul><ul><ul><li>Buffett told his son Howard: </li></ul></ul><ul><ul><li>“ It takes 20 years to build a reputation and five minutes to ruin it. If you thing about that, you’ll do things differently.” 46 </li></ul></ul><ul><ul><li>“ Money, to some extent, sometimes lets you be in more interesting environments. But it can’t change how many people love you or how healthy you are.” 40 </li></ul></ul><ul><ul><li>“ I don’t try to jump over 7-foot bars: I look around for 1-foot bars that I can stop over.” 23 </li></ul></ul><ul><ul><li>People would rather be promised a (presumable) winning lottery ticket next week than an opportunity to get rich slowly.” 315 </li></ul></ul><ul><ul><li>“ Someone’s sitting in the shade today because someone planted a tree a long time ago.” 53 </li></ul></ul>
    41. 41. Warren Buffet Quotes cont’d <ul><li>ONLY BUY SECURITIES THAT YOU UNDERSTAND </li></ul><ul><ul><li>“ Investment must be rational; if you can’t understand it, don’t do it.” 347 </li></ul></ul><ul><li>STICK WITH QUALITY </li></ul><ul><ul><li>It’s far better to own a portion of the Hope diamond than 100 percent of a rhinestone.” 451 </li></ul></ul><ul><li>“ The definition of a great company is one that will be great for 25 or 30 years.” 448 </li></ul>
    42. 42. About Credit Scores Save the Smart Way As you improve your FICO scores, you pay less when you buy on credit – whether purchasing a home loan, cell phone, a car loan, or signing up for credit cards. For example, on a $150,000 30 year, fixed-rate mortgage: Your Your Your FICO interest monthly Score rate payment 720-850 5.84% $883 700-719 5.96% $895 675-699 6.50% $948 620-674 7.65% $1,064 560-619 8.53% $1,157 500-559 9.29% $1,238
    43. 44. 10 Most Common Estate Planning Mistakes by Thomas E. Gould <ul><li>Mistake #1: Assuming you do not need an estate plan. Estate planning is not just saving taxes. It is also ensuring that your estate is administered quickly, that your family is protected, and special assets such as businesses and real estate are kept in the family. Further, proper estate planning should take into consideration special circumstances such as a second marriage or a troublesome child or spouse of a child and especially minor children. </li></ul><ul><li>Mistake #2: Jointly titling too many assets. Many people do not realize that all assets titled as joint tenants with right of survivorship (JTWROS) automatically pass to the surviving joint tenant, not under the terms of your Will. Valuable tax benefits and asset protection can be lost both during life and at death if too many of your assets are jointly titled. </li></ul><ul><li>Mistake #3: Assuming that life insurance is not included in your estate. Not only is all life insurance you own included in your estate (even if it is paid to a spouse) but it also generates potential estate tax liability. Fortunately, it is the easiest asset to remove from your estate while you are alive thereby bypassing all estate taxes. Finally, many life insurance policies are very outdated and may lapse inadvertently if not reviewed regularly. </li></ul><ul><li>Mistake #4: Not reviewing beneficiary designations on life insurance, annuities, IRA’s, 401K’s and deferred compensation plans. Over the last several years, there have been significant changes in the requirements for beneficiary designations on IRA’s. For instance, having an incorrect designation could lead to taxes amounting to almost 70% of the value of an IRA. Most of those taxes can be deferred for generations if designations are planned correctly. </li></ul>
    44. 45. 10 Most Common Estate Planning Mistakes, cont’d <ul><li>Mistake #4: Not reviewing beneficiary designations on life insurance, annuities, IRA’s, 4019K)’s and deferred compensation plans. Over the last several years, there have been significant changes in the requirements for beneficiary designations on IRA’s. For instance, having an incorrect designation could lead to taxes amounting to almost 70% of the value of an IRA. Most of those taxes can be deferred for generations if designations are planned correctly. </li></ul><ul><li>Mistake #5: Not reviewing your Will every three years. Significant personal changes such as death, divorce, births or changes in family circumstances, as well as the size and composition of your assets and liabilities will probably have changed within three years since you last prepared your Will. Often existing Wills and Trusts do not anticipate such significant changes. Only an overall estate planning review can identify potential challenges and the options available to meet them. </li></ul><ul><li>Mistake #6: Gifting when you should not or not gifting when you should. Under the current revision of the tax code, each of us can gift $12,000 to an individual each year tax-free. That means a married couple can give away $24,000 a year to any individual. Do you want to benefit a grandchild or child? Are you giving away appreciated stock each year thereby reducing that gift by about 20% because of capital gains taxes (federal and state) the recipient would have to pay? Are you overlooking opportunities to gift assets at a reduced value? These are but a few of a multitude of issues that need to be addressed when gifting away assets as port of your overall estate planning. </li></ul>
    45. 46. 10 Most Common Estate Planning Mistakes Cont’d <ul><li>Mistake #7: Failing to plan for incapacity. Over seventy percent (70%) of us will have a disability before we die. How will the bills be paid? Who will make medical decisions for you? Do you want your life extended artificially? By planning for incapacity and signing proper written documentation you can ensure bills will be paid, medical decisions made and other similar items will be handled efficiently for you and your family in the event of your incapacity. </li></ul><ul><li>Mistake #8: Not getting expert help from a specialist. Estate planning is complex. Families are complex. Life goals are complex. Experience help is needed just to be sure you are not creating traps for you and your family. Do not try to do your planning yourself or rely on an attorney that is a generalist for such important decisions. </li></ul><ul><li>Mistake #9: Forgetting charitable gifting. If you have been regularly giving to your church or your favorite charity, be sure to consider including them in your estate plan as well. Most people would rather gift to the charity of their choice and get a tax deduction for their estate than to rely on government to take their tax dollars and apply them as it sees fit. </li></ul><ul><li>Mistake #10: Procrastinating. Estate planning is easy to put off. However, the negative consequences of not reviewing your plan while you are capable are huge. Do not let your family find out your plan is woefully out of date following your incapacity of death. Call your Estate Planning Specialist Now! </li></ul>
    46. 47. <ul><li>GET PROFESSIONAL HELP </li></ul>
    47. 48. Did you know?
    48. 49. Choosing a Financial Advisor <ul><li>The first question from the advisor should be: What do you want to achieve?” </li></ul><ul><li>Clients Should Ask: </li></ul><ul><ul><li>What is your investment philosophy? </li></ul></ul><ul><ul><li>What is your experience level? </li></ul></ul><ul><ul><li>Is he/she a goal communicator? </li></ul></ul><ul><ul><li>Does he/she work for a company that you recognize and is strong? </li></ul></ul><ul><ul><li>What are the products and services you focus on? </li></ul></ul><ul><ul><li>Do you have specific credentials? </li></ul></ul><ul><ul><li>How are you compensated? </li></ul></ul><ul><ul><li>How often should I expect to hear from you? </li></ul></ul><ul><ul><li>Do you have any complaints </li></ul></ul>
    49. 50. Five Steps of Financial Planning <ul><li>1. Where are you today? </li></ul><ul><li>2. Do you have a cash reserve? </li></ul><ul><li>3. Where do you want to be tomorrow? </li></ul><ul><li>4. How do you allocate assets? </li></ul><ul><li>5. How do you monitor and adjust your portfolio </li></ul>
    50. 51. A Financial Review Checklist for 2007 Year End <ul><li>A FINANCIAL REVIEW CHECKLIST FOR THE 2007 YEAR END </li></ul><ul><li>Name </li></ul><ul><li>Have your goals changed? </li></ul><ul><li>Retirement  Yes  No  Not Sure </li></ul><ul><li>Education  Yes  No  Not Sure </li></ul><ul><li>Estate Planning  Yes  No  Not Sure </li></ul><ul><li>Retirement Information </li></ul><ul><li> Have you fully funded your 2006 IRA contribution? </li></ul><ul><li> Have you fully funded your company sponsored retirement plan, such as a 401(k), for 2007? </li></ul><ul><li> Are you eligible for “catch-up” contributions? (Ask your benefits administrator if you’re not sure) </li></ul><ul><li>Education planning </li></ul><ul><li> Do you want to gift education money through a section 529 plan? </li></ul><ul><li>Insurance </li></ul><ul><li> Do you have enough insurance for the following: </li></ul><ul><li> Income replacement  Home/Rent  Education </li></ul><ul><li> Debts  Emergency  Estate Settlement </li></ul><ul><li>Estate Planning </li></ul><ul><li> Do you have a current will? </li></ul><ul><li> Do you have a living will? </li></ul><ul><li> Have you arranged for medical Power of Attorney? </li></ul><ul><li> Have you stored your will and other important documents in a safe place? </li></ul><ul><li> Does somebody else know where your important documents are located? </li></ul><ul><li>Gifting </li></ul><ul><li> Are there people you want to give money to? </li></ul><ul><li> Are there charities you want to give to? </li></ul><ul><li> Do you have appreciated stock you might want to give to charities? </li></ul><ul><li>Portfolio Review </li></ul><ul><li> Do you believe your current portfolio is best suited for meeting your current goals? </li></ul><ul><li>Tax Planning </li></ul><ul><li> Are your capital losses greater than your capital gains for 2007? </li></ul><ul><li> Do you have 2007 capital losses, especially short-term losses, that you can use to offset capital gains? </li></ul><ul><li>ALAN SITKOFF </li></ul><ul><li>FIRST VICE PRESIDENT-WEALTH MANAGEMENT AND FINANCIAL ADVISOR </li></ul>
    51. 52. Letter from Frank & Sarah
    52. 54. Resources <ul><li>Alan Sitkoff </li></ul><ul><li>First Vice President of Wealth Management </li></ul><ul><li>Financial Advisor </li></ul><ul><li>Smith Barney </li></ul><ul><li>5565 Glenridge Connector </li></ul><ul><li>Suite 1900 </li></ul><ul><li>Atlanta, GA 30342 </li></ul><ul><li>404-459-3854 - Direct </li></ul><ul><li>800-825-7171 </li></ul><ul><li>404-459-3838 – FAX </li></ul><ul><li>NSAD Website </li></ul>

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