Advanced Family Finance Students:

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3 Δεκ 2013 (πριν από 3 χρόνια και 6 μήνες)

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Financial Planning for
Women, May 2013

Dr. Jean
Lown
, FCHD Dept., USU

Advanced
Family
Finance Students:

Erica Abbott

Chelsie

Jenkins


You can invest with small $ amounts


Even small $ grow to BIG $$$ with time


It’s easy to get started


Delaying is CO$TLY!


Your financial security is in your hands
-



Shift to “retirement self
-
reliance” (CFP
E
lizabeth
Jetton)

2


Today is the first day of the rest of
your life


Regret has no place in planning for
the future!

3



Investing in an IRA is the
first step to turning your
retirement dreams into
reality!

5


Tax
-
advantaged investing


Account growth is
not taxed while it is
growing


When withdrawn $

may or may not be taxed
depending on whether it is a Traditional or
Roth


Must have earned income
(or spouse with
earned income)


Contribute up to $5,500/year


+ extra $1,000 for age 50+

6


Contributions are
not

deductible


$ grows tax
-
free


$

not

taxed when withdrawn
in
retirement


after age 59 ½


Traditional

IRA offers upfront tax
deduction but Roth is better option

7


Higher risk
(volatility) =
higher
potential
returns


Historic
average

annual rates of return


Stocks: 8
-
9% (but can be VERY volatile)


Bonds: 4
-
5%


Cash
equivalents:
3%


Inflation averages
3.1%/year


So cash gets you nowhere after taxes


CDs are no way to invest for long term goals


For much more detail on IRAs: FPW website:
www.usu.edu/fpw

click on: “past presentations”


IRAs March 2006


IRAs convert to Roth Nov. 2009

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A company
pools
money from many
investors to buy a variety of
securities
(stocks, bonds, etc.)


Each investor owns a pro
-
rata share of
diverse
portfolio


Easy to match your investment
objective


Easy to purchase/sell shares


Professional management



What is your favorite
cookie?


Chocolate
chip?


Stocks


Peanut butter?


Bonds


Oatmeal raisin?


Stocks &
bonds


Other flavors…


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Diversification


Across
asset classes (stocks, bonds, cash)


Within asset
classes (US & international securities; small,
medium & large companies)


Never know which asset category will perform best in
future


Callan

Table:
http://www.callan.com/research/download/?file=periodi
c%2ffree%2f548.pdf


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ALL
funds
charge
management
fees (expense ratios)


%
of fund
assets (~.10%
-

2.0%)


Subtracted
from fund assets before gains are distributed to
investors


Compare Expense Ratios (%)


Lower is
better!

14


Load funds charge
commissions


~5% of
every dollar you invest, every time you invest


Financial
salespersons
sell load funds


No
-
load (no commission) funds


Sold directly to
investor (avoid middleman)


web sites


800 phone number


mail

15

Index


Simply follows selected
index (i.e., S&P 500,
DJIA)


Buy & hold


Low management
f
ees


Low
turnover

Actively Managed


Higher management
fees


Higher
turnover =
higher trading costs


Heavily advertised for
beating its index… in a
selected year


No guaranteed rate of return


Returns follow market ups & downs

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“Past performance is no guarantee of future returns.”


Very
difficult to beat “the market” in any 1

year
&
even
harder to do
consistently


The only thing you know about the future is the
expense ratio.

18


Most funds
require a minimum opening deposit of
$1,000
-
$3,000


Lower
subsequent investments once in the
door

19


Funds charge investors fees &

expenses


A high
cost
fund
must outperform a
low
-
cost fund to
generate the same
returns


Even
small differences in fees can translate into large
differences in
returns


FINRA Fund
Analyzer


http://apps.finra.org/fundanalyzer/1/fa.aspx

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Invest
$10,000


8
%
annual return before expenses


annual fund expenses
of
1.5%


after
20
years: $


But
if fund expenses = 0.5%


then
you would
have $


18% more $!


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Index fund


Target
retirement date fund


Diversified “Fund of Funds”


Buy and hold all the securities (or representative
sample) that comprise the chosen index


Follow ups and downs of selected index


Can be very volatile


Very low expense ratios due to low
management
costs


Common indexes:


S&P 500


Dow Jones Wilshire Total US stock index


Various international stock or bond indexes

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Objective


Track the
Dow Jones US Total
S
tock
Market index


Very diversified among US companies


Expect high
volatility!


$
100
Initial
investment /$1 subsequent


0.09%
e
xpense ratio (ultra low!)


http
://www.schwab.com/public/schwab_oldpublicsite/research_strateg
ies/mutual_funds/summary/schwab/at_a_glance.html?&ticker_sym_nm
=SWTSX&schwabplan1=&type=



Vanguard Target Retirement 2045 Fund

VTIVX

By
Chelsie

Jenkins

27


D
iversified portfolio of stocks, bonds & cash


“Fund of funds”


Composed of multiple funds from same ‘family’


Target date: year investor plans to retire


5 year increments: 2025, 2030, 2035, etc.


Assets
are automatically re
-
allocated


Allocation gradually changes from aggressive to
conservative as retirement nears


Income Fund

Bond Fund

Growth Fund

500 Index Fund

Mid
-
Cap Fund

Large Cap Fund

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Diversified among 3+
index

MFs:


US stocks: total stock market index fund


International stocks: total international stock


Bonds: total bond market index fund


Additional funds as retirement nears


$1,000 minimum initial; $100 subsequent*



0.18
% expense ratio


https://personal.vanguard.com/us/funds/vanguard/TargetRetirementList


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automatic
investments: waives $20 annual fee <$10,000 & min. subsequent
investment


Vanguard
Total Stock
Market Index


Vanguard Total International Stock Index


Vanguard Total Bond Market II Index


Expense ratio is 0.18%


$20
annual
account service fee if balance is
less than $10,000


Fee waived with automatic monthly
deposit



$1,000 minimum initial deposit


$100 minimum subsequent


BUT… no minimum subsequent amount with automatic plan

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Based on sound investment principles


Asset allocation


Diversification


Automatic rebalancing


Become more conservative as retirement nears


Little account maintenance required


Set up automatic deposits


4 min. video


https
://
personal.vanguard.com/us/funds/vanguard/Ta
rgetRetirementList


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Fund of Funds: 11 actively managed funds


Broad diversification


Stable asset allocation: 60
%
stocks/
40
%
bonds


$1,000 minimum initial; $100 subsequent



0.34%
expense
ratio


https://personal.vanguard.com/us/funds/snapshot?FundId=
0056&FundIntExt=INT


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If you can afford $1,000
& like TDR fund:


Vanguard Target Retirement Fund


To
start with low
minimum

($100):


Schwab Total Stock Market Index Fund


For broadest diversification:


Vanguard Star


See previous May FPW presentations for more
fund
recommendations:
http://www.usu.edu/fpw/schedule/powerpoints.htm

39


Consider a Mother’s Day Gift


Give mom an IRA for Mother’s Day!


Lasts longer than flowers


Less fattening than chocolate


If mom is not earning but Dad is, she is eligible for
a spousal IRA


Starting at age
27

Laura invested $5,000/yr. @ 8%
for only
10 years


Starting at age
37

Jane invested $5,000/yr. @ 8% for
20 years


Age 67:


Laura has $778,000 (invested $50,000)


Jane has $494,000 (invested $100,000)


Difference = $234,000!



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June
13: Preparing to buy your first home


Preliminary steps to get your finances in order


July 11: 529 college savings


August: on vacation


Sept. 11: Social Security
-

when to claim


Financial planner Suzanne
Dalebout

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Blog replace the newsletter


http
://fpwusu.blogspot.com
/


Facebook:
https://www.facebook.com/FinancialPlanningforWomen
?fref=ts

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