financial challenges
TRANSCRIPT
FINANCIALCHALLENGES
Presents
17/1/2012
CLIENTS
2
GOALS
3
MONEY
4
IntroIntro
More Goals
MORE GOALS THAN MONEY
MOST PEOPLE HAVE …
Multiple GoalsLimited Amount of Money
MORE GOALS THAN MONEY
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MORE GOALS THAN MONEY
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MORE GOALS THAN MONEY
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MORE GOALS THAN MONEY
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MORE GOALS THAN MONEY
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MORE GOALS THAN MONEY
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MORE GOALS THAN MONEY
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MORE GOALS THAN MONEY
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MORE GOALS THAN MONEY
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If Tax Deferred or TaxDeductible (IRA/403b, etc.)Taxes are Delayed, But StillImpact Your Investments!
TAXES
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TAXESTaxes Make A Difference
TAXESTaxes Impact Rate of Return
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The process of using security analysis in an attempt to obtain
returns higher than those offered by the market
ACTIVE MONEY MANAGEMENT
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ACTIVE MONEY MANAGEMENTMore Risk To Break Even With The Market
An active manager must outperform an index by the total of the additional
costs of 90 – 250 BP (1) just to match its
performance!
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ACTIVE MONEY MANAGEMENTActive Management Facts
• S&P 500 outperformed active large-cap funds by 2/3rds.• S&P MidCap 400 outperformed active mid-cap funds by 75%.• S&P SmallCap 600 outperformed active small-cap funds by 63%.
“Most Active Funds Continue to Trail Index Performance”. US News, 2011.
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(CAPTURE THE MARKET)
Exchange Traded Funds are a form of indexing and represent PASSIVE MANAGEMENT
● Don’t attempt to beat the market with selective stock picks● Don’t attempt to time the market
PASSIVEINDEX
EQUITYFUNDS
PASSIVEADVANTAGE
Large Cap Growth 5.17% 4.00% 1.17%
Mid Cap Growth 8.52% 5.91% 2.61%
Small Cap Growth 6.26% 4.81% 1.45%
Fixed Income OUTPERFORMED 1-5% PER ANNUMFOR INVESTMENT GRADE BOND FUNDS
Source: Standard & Poor’s, CRSP. Periods ending June 30, 2011
ACTIVE MONEY MANAGEMENTActive Money Management vs. Passive
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Inflation
Inflation is the increase in the cost of living
INFLATION
1913 -- $1,0001950 -- $1,000
INFLATIONHow Much Has The Cost of Living Increased?
Source: Consumer Price Index Data 1913 - 2011
2011 -- $22,870.812011 -- $9,395.06
COST IN COST IN
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From 1945 -- 2010
From 1950 – 2010
Future
INFLATIONInflation and Investments
Source: Historical Inflation Rates: 1914 - 2011
3.93%3.64%
?
TIME INFLATION RATE
YOUR INVESTMENTS SHRINKBY THE RATE OF INFLATION
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• Don’t coordinate with your situation• Amount of investment not right for goal• Incorrect product type• Aren’t based on an objective and detailed financial analysis of your personal values• “Pre-asset allocation” decisions balancing your assets and savings with your goals haven’t been made
INAPPROPRIATE SOLUTIONSInappropriate
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• Have high expenses and fees• ALL possible strategies aren’t evaluated and implemented• Limited or NO flexibility• Have surrender penalties that limit your ability to improve your financial options• Provide limited or NO service• Aren’t compatible to your risk tolerance
INAPPROPRIATE SOLUTIONSInappropriate Solutions
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• Investment Risk• Insurance Related Risk
•Life•Health•Disability•Long Term Care•Property and Casualty
Risk
RISKTypes of Risk
RISKLittle Knowledge of Direct Relationship
Between Risk and Return
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RISKVolatility and Price Fluctuation Not Understood
RESULTING IN PANIC!
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RISKLack of Diversification and
Inappropriate Asset Allocation
• How much capital is needed• How long capital is needed• How will the capital need change over time?
RISKInsurance Related Risk
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CONFLICTING RECOMMENDATIONS
• Mutual Funds• Variable Annuities• Stocks• Bonds• General Inv Products
Sales Person Bias
SECURITIES REGISTEREDREPS SELL…
• Retirement• College Planning• IRA, 401k, 403b (TSA)• Annuities• Mutual Funds• Long Term Care
SPECIALISTSSELL…
• Life Insurance - Fixed/Variable• Annuities - Fixed/Variable/Equity Indexed• Long Term Care• Disability• Health• Property & Casualty
INSURANCE AGENTSSELL…
Conflicts
CONFLICTING RECOMMENDATIONSTelevision – Radio “Personalities”
• Broad General Information• May Be Misleading• Not Specific To Your Personal Situation and Values• No Effective Way to Challenge Statements They Make
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CHANGE
• A Goal (Change or Eliminate)• Amount of Investments & Savings• Specific Investment & Savings Solutions• Time Horizon• Employment / Career• Life Style• Risk Management Decisions (Investment & Insurance)
Changes That YOU CHOOSE To Make
Change
CHANGE
• Tax Laws• Income (Loss or Gain)• Job Loss• Economic• Health
Changes Where You May HaveLITTLE OR NO CHOICE
EXPENSES & FEESAll Investments Have Expenses & Fees
NON DISCLOSED
PARTIALLY DISCLOSED
FULL DISCLOSURE
Expenses
EXPENSES & FEESNon Disclosed
• CDs• Fixed Annuities
EXPENSES & FEESPartially Disclosed
• Mutual Funds• Variable Annuities
DISCLOSED
Expense RatioSales Related Commission
NON-DISCLOSED
Trading CostBid-Asked SpreadMarket ImpactPotential Embedded Capital Gains
EXPENSES & FEESFull Disclosure
• Exchange Traded Funds
Source:1. MorningStar 2009. Average Expense Equity Funds. Higher cost for Small Cap International, etc..2. “Scale Effects in Mutual Fund Performance: The Role of Trading Costs” 2007.3. “How Much Does That Annuity Really Cost” Charles Stanley.4. This is an average of the Industry average range of 1.25% - 1.45%.5. Bid-asked spread N/A utilizing window trades6. Market Impact not applicable based on size of an individual’s buy or sell order7. Based on size account
EXPENSES & FEESMutual Funds and Variable Annuities
Expenses & Fees Comparison
ANNUAL EXPENSES MUTUAL FUNDS VARIABLE ANNUITIES ETFs
EXPENSE RATIO 1.45% (1) .88% (1) Avg .20%
COMMISSIONS (TRANSACTIONS) 1.44% (2) .45% (2) .10% - .30%
BID-ASKED SPREAD .40% (3) .40% (3) N/A (5)
MARKET IMPACT .40% (3) .40% (3) N/A (6)
DISTRIBUTION EXPENSE (LOAD) 1.50% (3) 1.35% (4) .50% - .95% (7)
TOTAL 4.99% 3.48 .80% - 1.45%
TOTAL (NO LOAD) 2.70% PLUS .80% - 1.45%
POTENTIAL SURRENDER FEESAVG. 7% (reduced over time)
The Client
THE CLIENTFACTS
Annual Personal Savings Rate
• December 1, 1981 – 11.4% ----- December 1, 2011 – 4.0%• 43% of American workers have less than $10,000 in savings• 70% of someone’s retirement funds need to come from Personal Savings!Source:(1) Department of Commerce: Bureau of Economic Analysis(2) Sutton, Chavon. “Most Americans are Still Unprepared for Retirement” http://money.cnn.com/2010/03/09/PF/RETIREMENT_CONFIDENCE/index.htm , March 2010
THE CLIENTFACTS
20 Years – 1991 - 2010
Source: Dalbar, Inc. Quantitative Analysis of Investor Behavior Study, 2011 Update.
THE CLIENTFACTS
What Does it Mean in Actual Dollars?
Source: Dalbar, Inc. Quantitative Analysis of Investor Behavior Study, 2011 Update.
20 Years – 1991-2010Gain on $100,000 After Inflation (3.00%/yr)
THE CLIENTFACTS
Source: Dalbar, Inc. Quantitative Analysis of Investor Behavior Study, 2011 Update.
Average Investor Mutual Fund Holding Period
3.27 YEARS
THE CLIENTOther Obstacles
or Why It’s Hard To Do It Yourself
• Try to Beat the Market• Don’t Begin Investing Soon Enough• Procrastination• Risk/Reward Principle Isn’t Understood and They Panic• Confusing Information and Overload
THE CLIENTOther Obstacles
or Why It’s Hard To Do It Yourself
• Don’t Diversify Correctly• Don’t Seek Appropriate Help• Don’t Have or Take the Necessary Time• Finances Unorganized• No Written Plan with Specific Goals• Limited Understanding and Knowledge of Financial Matter
Disclosures
For Investment Professional Use Only
Although the statements of fact and data in this presentation have been obtained from, and are based upon, sources believed to be reliable, SW CARES does not guarantee their accuracy, and any such information may be incomplete or condensed. Information contained in this presentation does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information on products and services. A professional advisor should be consulted before implementing any of the options presented. Information presented in this presentation should not be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. All opinions included in this presentation constitute the judgment of SW CARES as of the date of this report and are subject to change without notice. Copyright © Someone Who CARES 2012. All rights reserved. 7/1/2012.