Personal Finance for Everyone

…90 minutes that will change your future

While we wait for folks to log on, try looking up the “expense ratios” of the funds you are currently invested in.

Would you rather….

Have 3.5 million dollars up front?

Start with a penny and have your balance double every day for one month?

or

Where my approach/advice comes from

Although I have a passion for these topics, the views expressed are not intended to serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities. This should not be interpreted as tax advice and please consult your personal tax advisors if you have any questions.

Housekeeping

Who I am

Who I’m not (Disclaimer)

Topics Behavioral Finance

Understanding your current situation

Credit Scores

Retirement, the time value of money, & 401k / 403b

Investing 101

Savings accounts & fees

Love & Money

Home ownership, mortgages, refinancing, & renting

Tax strategy

Life insurance / Health Insurance

Tactical next steps

Happiness & Wealth

Wealth

Happin

ess

Why we need an automatic plan…

People are not rational with financial decisions (susceptible to framing, prospect theory, anchoring, choice architecture, & the default option)

Study: the more often you check your portfolio the worse you do

We don’t like losing! (Prospect Theory) (DMR) Commitment devices!

Google’s anchoring experiment (3% increase)

Why we need an automatic plan (cont.)“Save More Tomorrow” (12% vs 4%)

Allocation decisions & 1/n:

Scenario 1:

Fund A: StocksFund B: Bonds

54% allocation to stocks

Scenario 2:

Fund A: StocksFund B: ½ Bonds ½ Stocks

73% allocation to stocks

Scenario 3:

Fund A: ½ Bonds ½ StocksFund B: Bonds

35% allocation to stocks

Prior to the webinar20 mins - capture your “Net Worth” (all assets & debts)

Use Mint.com; connect banking & investment accounts, student/car loans Include property (homes & cars)

Homes: zillow.comCars: edmunds.com

10 mins - understand your credit score Signup for CreditKarma Pull a free credit report from annualcreditreport.com; Experian

in Jan, TransUnion in Apr, Equifax in Aug

15 mins – analyze your current investments and get free advice: www.FutureAdvisor.com

(optional) 30 mins - create a spending plan (aka budget) Can be in Mint or even Excel Savings must be a part of your plan

Understanding your current situation

Check Mint often

Spend < make

Save xx% of your income

“Pay yourself first” – schedule savings

DebtsCredit Cards & student loansBT offers

Understand your current allocation & fees

Credit ScoresCredit Scores have 5 components:

(300 850 scale, >720 is good)

1. On Time Payments: 35% (Use Auto-Pay)

2. Credit Utilization: 30% (use < 10%)

3. Length of history: 15% (keep old cards!)

4. Types of credit used: 10%

5. Recent inquiries: 10% (hard vs soft pulls)

Credit Scores affect mortgage rates, auto insurance, credit card rates, student loans, apartment rentals

“I’ll worry about retirement later…”

Time Value of Money is HUGE!

Frick & Frack brothers

The “Rule of 72”

$$ saved from 25-35 > $$ saved 35 on

Everyone should have a (ROTH) IRA & 401k!

Are you on-track?~75% of ending salary per year

Share this!See handout

Retirement AccountsIRA

• 2014 Limit: $5,500

• No matching

• Hold at any institution

• Thousands of investment options

• Only contribute cash

• Income limits • Different for Roth vs Trad

• Jan 1 – Apr 15 (of following year) open period

401(k) / 403(b)

• 2014 Limit: $17,500

• May get matching

• Hold at company’s chosen firm

• Limited choices

• Only contribute from payroll

• No income limits

• May get a Roth option

• Jan 1 – Dec 31 open period

Uncle Sam will always get paid

Roth

• After-tax contributions (pay tax now)

• Earnings grow tax-free

• Roth IRA’s have no RMD’s

• Roth IRA income limit: < $114k

• “Backdoor Roth” option

Traditional

• Pre-tax contributions (get a tax break now)• $120k salary, contribute max

amount of $17,500• Taxable income now $102,500• 28% x $17,500 = $4,900

• Taxed on the way out

• Traditional IRA’s have RMD’s

• Really depends on tax bracket now vs. retirement• Beliefs on long-term tax brackets / code / law• Solution: have some in each

Investing 101 & active vs. passive

Stocks, Mutual Funds, ETF’s, Bonds

Write down your financial principles / guidelines

20-25% for “fun” if you must

Active vs. Passive Investing: research shows ~80-90% of active funds underperform their benchmark

8,000 2,000 500 125

20% most actively traded accounts performed much worse -men worse than women

Past fund performance has very little predictive power to future performance!

In fact, expense ratios are the best predictor

Expense Ratios (the enemy)

Industry average (0.80% 2.50%)

Low cost options (0.06% 0.50%)

Get angry…it’s your money!

Use the calculator

Why “Rollover”

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” – Upton Sinclair

Asset allocation & rebalancingWith proper allocation, you should reduce risk

(volatility) and outperform the S&P 500 Rebalancing: meeting long-term policy target

weights

Use it as a disciplined way of buying low and selling high

“..shunning the loved & embracing the unloved. Most people do the opposite.” (Swensen)

“Contrarian behavior lies at the heart of most successful investing programs.” (Swensen)

Example: 1990-2012 portfolio: +0.5% difference in return, -2% difference in volatility

My target allocation:

Precedence of Saving1. Matching 401(k) or 403(b)– Max it!

2. Emergency fund (~6-9 months)

3. Pay down debt(s)

4. Roth IRA / Roth 401(k) or TSP

5. Taxable account

6. Alternatives (exotics)

Invest in yourself too!

Savings accounts & feesATM reimbursements

Never pay monthly service fees for savings/checking

CapitalOne 360:doubled-ended bonusemergency fund

“Direct deposit” & ACH pushes

Home ownership & mortgagesUp to a $300/month because of credit score

Real estate is a key component

Consider NOT holding your mortgage with the same bank as your investments

Typically 20% down, qualify for a home 3x your annual gross income

Closing costs, points

Refinancing

Being a landlord can be tough!

RentRent : Income < 30% (rule of 36)

Impact in high-rent markets (SF / NYC)

Have rental package ready Credit pullAsk for a copy of credit report

Security deposit & interest

Zillow’s “zestimate”

Tax strategyLook for ways to reduce your taxes

Traditional 401k / IRA Mortgage interest (& property management fees)Education expenses

Consider capital gains (realize gains if you ever find yourself in the 10 or 15% tax bracket. 0% long term gains)

IRA conversions

Donate to charity with appreciated stock

Hire a professional – taxes are “grey” – ask questions!

Life insuranceTypically don’t need it until you have a family,

but some people “lock” it in while they are healthy

Term vs. Whole

$500k for $42/month

Nice way to leave a gift

Auto & Health

Other random advice… Never go without health insurance!

“Exotic” or “alternative” asset classes

Careful with your contracts

Always look for discounts Cell phone bills (15%-20%) AAA, movies, restaurants, museums, parks Driving habits Avoid buying a new car

Remember: smart investingis not very exciting, but it isvery rewarding!

Fatwallet Cash Back

Tactical next stepsAutomate your savings (pay yourself first)

Open a (ROTH) IRA

Enroll in your company’s 401k

Stick to low-cost index funds

Help a friend (ER) or 19 yr old cousin

Company stock plans

Don’t let inaction win!

Student loans vs. savingPaying down student loans vs. saving for

retirementMax matching contributionsConsider interest rates

loan rate: <2% Invest >10% pay down

2%-10% calculate

Both are urgent!Save some to build the habitConsider tax deductionWindows are closed for good!

Grandma’s inheritance

My favorite personal finance resources

Fatwallet Finance Forums

Bogleheads

Blogs: Mr. Money Mustache, Oblivious Investor

Networth IQ | Investopedia

*Bonus Material*Tax Loss Harvestingthe Credit Card game

Questions?

What is FutureAdvisor? Free product – analysis & advice Premium product – does it all for you + Tax-Loss Harvesting –

for 0.5%

How do you differ from the competition? We are holistic – they are not! Where you have to hold your $$

Why would I pay 0.5% for this service? Because it’s 1/2 to 1/3 the price of a traditional advisor Because it will actually get done! (80% fact)

What funds do you use & are there commissions?

Sign up for a FREE account for a diagnosis!www.FutureAdvisor.com