Advanced Family Finance Students:

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When withdrawn $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taxed when withdrawn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

8

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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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11

•
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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13

•
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

16

17

•
“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

24

•
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

35

•
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


36

•
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


37

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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!



40

•
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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