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Successful Financial Planning…
Vance L. Falbaum, CIMA®Senior Vice President – Financial Consultant
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The future belongs to those who believe in the beauty of their dreams.
Eleanor Roosevelt
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Today’s Agenda
• Setting Goals
• Developing a Plan
• Monitoring the Plan
• Challenges to Your Success
• Where to get the best caddy for THIS game
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But first a word on…words!
For purposes of this presentation:
Retirement is having the CHOICE of whether or not to go to work today
Safety is achieving your goals
Volatility is the daily movements of an investment
Risk is something outside your personal comfort level
Goals are a wish with a time line and are written down
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Setting Goals
• Think in today’s dollars
• Consider inflation
• Prepare for the unavoidable inevitable
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Developing a Plan
• What is YOUR safety net
• Determining the correct buckets to use
• How much can you save
• What should you expect to earn based on the investment decisions you make
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The Safety Net
Cash
Insurance
Wealthy Parents or Kids
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Where and how is the best place to save and invest?
Earnings
Pre-Tax
Savings
After-Tax
Savings
BankBrokerage
Firm401(k) Plan SIMPLE Plan IRA’s
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How Much to Save?!
In 1980 the average saving rate for an American was 8.2% of their wage
By the end of the 1990’s that had dropped to less than 1%!
Center for a New American Dream
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“The most powerful force in the universe is compound interest”
Albert Einstein
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Historical Growth of $1January 1926 – June 2010
Asset Ending Averag
e
Class Balance Return
Small Cap $7,058 11.1%
Large Cap $2,417 9.7%
LT Gov''t Bonds $95 5.5%
Treasury Bills $21 3.7%
Inflation $12 3.0%
Small Cap Equities: Represented by the Russell 2000 Index.
Large Cap Equities: Represented by the S&P 500 Index.
Long Term Gov’t Bonds: Represented by the Citigroup USBIG Treasury 10+ Year Index.
Treasury Bills: Represented by the Citigroup 3-month T-Bill Index.
$0
$1
$10
$100
$1,000
$10,000
1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Small Cap Equities
Large Cap EquitiesLong Term Gov't Bonds
Treasury BillsInflation
Inflation: Represented by the Consumer Price Index – All Urban Consumers (CPI-U).Past performance does not guarantee future results.Data Source: Ibbotson Associates and Zephyr Associates.
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- 50
- 40
- 30
- 20
- 10
0
10
20
30
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Perc
en
t D
iffere
nce
U.S. Stocks vs. U.S. BondsCalendar Year Returns
Returns through September 2010.
U.S. Stocks represented by the S&P 500 Index.
U.S. Bonds represented by the BarCap Intermediate Government Credit Index.
Data Source: Zephyr Associates.
U.S. Stocks Outperform U.S. Bonds
U.S. Stocks Underperform U.S.
Bonds
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Balancing Savings Against Time
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Monitoring the Plan
Frequency?
What to look at?
Manage risk
not returns!
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Challenges to Your Success
• Potentially Bad Information – The Media
• Cognitive Biases
• Inflation
• Taxes
• Yourself
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Media Effects…and the DJIA
March 9th, 2009
October 13th, 2008
September 14th, 1998
November 7th, 1987
Source – Bloomberg through 12/2010
86.1%
31.9%
93.1%
975.6%
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Biases
Conditioning
Overconfidence
Fear
Recency
Herding
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The New 1040 Tax form…
Line 1 – How much did you make? $_______
Line 2 – Send it in!
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Protecting yourself from…yourself
Average Return S&P 500 1989-2008
8.35% 1.87%
Average Equity Investor
Return 1989-2008
Data Source: Standard & Poor's Financial Services LLC
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Get connected with an RBC Wealth Management Financial Consultant
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THANK YOU!