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The Financial Survival Guide to Retirement

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Title: The Financial Survival Guide to Retirement


1
The Financial Survival Guide to Retirement
  • William Klinger
  • Assistant Professor
  • Raritan Valley Community College

2
The Financial Survival Guide to Retirement
  • Investment Basics

3
Introductions
  • Me
  • Class
  • Name
  • Occupation?
  • Years to retirement?
  • Favorite dessert
  • What do you want from the course?

4
Course Objectives
  • Understand the basics of investing
  • Understand basic retirement strategies
  • Know the whys
  • Why should one invest in something or not
  • Why retirement strategies work or dont
  • Why investment strategies may or may not be good
  • Be able to guide own retirement or interact
    intelligently with advisors
  • Course will work with generic profile
  • Class is welcome to share information, may be
    anonymous
  • No one will be required to share private
    information

5
Course Outline
  • Retirement Basics
  • How to predict the future
  • Simple model
  • Retirement Strategies
  • Investment Basics
  • Investments and Retirement
  • Applying What Youve Learned
  • Critique retirement seminars
  • Discuss articles
  • Analyze portfolios

6
Disclaimer
  • William Klinger is not a registered or certified
    investment advisor, financial planner, or
    broker/dealer. This material is solely for
    educational and informational purposes. William
    Klinger does not purport to tell or suggest which
    investment securities you should buy or sell for
    yourself and nothing in this talk should be
    construed as investment advice, either on behalf
    of particular investments or in regard to overall
    investment strategies. You should always conduct
    your own research and due diligence and obtain
    professional advice before making any investment
    decision. You are solely responsible for your own
    investment decisions.
  • William Klinger receives no compensation of any
    kind from any investment companies that may be
    mentioned in this talk but may hold positions in
    the securities mentioned. Any opinions expressed
    are subject to change without notice.
  • Securities investments are risky and past
    performance doesn't guarantee future results. All
    securities investments entail the risk of great
    and sudden financial loss. Returns vary and you
    may have a gain or loss when you sell your
    securities. No assurance is given that anything
    described here will be successful.

7
Investment Basics
  • Questions to be answered
  • How should one invest? And why?
  • Invest in what?
  • How does one invest?
  • What are the mechanics?

8
What to Invest In The Basics
  • Asset Classes
  • Stocks
  • Bonds
  • Cash

There are others but these are the
fundamental asset classes. Start with these
before getting fancy.
9
Asset Classes
  • Stocks
  • Ownership in a corporation
  • Bonds
  • Corporate and government debt
  • Must be repaid
  • Cash
  • Checking, savings accounts
  • Money market accounts
  • CDs
  • US Treasury Bills

10
Stocks vs. Bonds
  • How stocks work
  • Capital gain/loss
  • Optional dividends
  • How bonds work
  • Maturity date, principle
  • Capital gain/loss
  • Interest rate
  • How cash works
  • Interest rate (APR)

11
Types of Stock
  • Common stock
  • Preferred stock
  • Convertible

12
Types of Bonds
  • Corporate
  • Debenture
  • Federal Government
  • Treasury Bonds (T-Bonds, Treasuries)
  • Municipal bonds
  • General obligation
  • Revenue

13
Risk
  • In finance, typically defined as standard
    deviation of returns.
  • What are the risks for
  • Stocks
  • Bonds
  • Cash

14
Asset Allocation
  • What percent of your money should be in each
    asset class?
  • For example
  • 70 stock, 25 bonds, 5 cash, or
  • 30 stock, 65 bonds, 5 cash
  • The answer depends upon
  • Your investment objective
  • Your tolerance for risk
  • Common rule-of-thumb stock 100 - your age

15
Investment Objectives
  • Possible objectives
  • Must you have the money without a loss?
  • Do you want to generate current income?
  • Do you want the money to grow over a long time?
  • Which asset class is best for each?

16
Risk
  • How much risk can you tolerate?
  • Can you stomach a 30 loss? A 50 loss?
  • One of investors biggest risks is themselves.
  • Risk of Greed and Fear
  • End up buying high and selling low the worst
    possible strategy

17
Risk By Asset Class
Worst Annual Return Since 1925 Average Annual Return Since 1925
Stocks -43.4 (-67.6 worst 12 mo.) 9.6(162.9 best 12 mo.)
Bonds -7.8 5.5
Cash .1 3.7
Sources personal.fidelity.com, Morgan Stanley,
www.efficientfrontier.com, Federal Reserve St.
Louis
18
Typical Portfolio Allocations
Stocks Bonds Cash
Conservative 20 55 25
Moderately Conservative 40 50 10
Moderate 60 35 5
Moderately Aggressive 70 25 5
Aggressive 80 15 5
19
Special Risk for Retirees
  • Inflation
  • Insidious risk for those on fixed income
  • Inflation rate Years to halve purchasing power
  • 2 36 years
  • 4 18 years
  • 6 12 years

20
In Practice
  • Most common approach is stock/bond allocation
  • Typically 60/40 split
  • Many advise using 100 YourAge percent stocks
    to own
  • Can continue to get diversification and returns
    with other investments
  • Foreign stocks
  • Foreign bonds
  • TIPS

21
Summary
  • Asset allocation is the single biggest
    determinate of portfolio results
  • Major asset classes
  • Stocks
  • Bonds,
  • Cash
  • How you allocate your investments depends upon
    the returns you need and risk you can take
  • Rule-of-thumb stock 100 - age

22
Homework
  • Inventory your assets
  • What are your total investable assets?
  • What are they invested in? By percentages.

23
Sources of Information
  • Basics
  • Money Magazine money.cnn.com
  • Tip use your frequent flyer miles to subscribe
  • personal.vanguard.com/us/planningeducation/educati
    on
  • personal.fidelity.com/misc/gettingstarted/gs-fund-
    allocate.shtml.cvsr
  • William Gross on Investing, William Gross
  • Thought Provoking
  • Fooled by Randomness, Nassim Taleb
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