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When withdrawn $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taxed when withdrawn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
9
•
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…
10
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
12
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
20
•
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 $!
21
•
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
29
•
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
30
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
38
•
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
41
•
Blog replace the newsletter
◦
http
://fpwusu.blogspot.com
/
•
Facebook:
https://www.facebook.com/FinancialPlanningforWomen
?fref=ts
42
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