financial planning strategies for individuals & families
DESCRIPTION
Presentation Barry Mendelson gave in February to the East Bay Chapter of the American Society of Women Accountants.TRANSCRIPT
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Financial Planning Strategies for Individuals & Families
Barry Mendelson, CFP®Financial Advisor & Partner925-988-0330 [email protected]
As of March 31, 2011
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Opinions expressed are those of Barry Mendelson, CFP® and Just Plans Etc.
This presentation should not be construed as investment advice.
The information contained in this presentation is compiled from sources believed to be reliable.
Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
The markets can remain irrational longer than you can remain solvent.
Disclosures
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Barry Mendelson, CFP®
Local investment and personal finance professional. More than 15 years experience working for leading financial services companies including Charles Schwab, AXA Rosenberg, Neuberger Berman, and Franklin Templeton. Prior to joining Just Plans Etc. in 2010, was a Vice President in Charles Schwab & Co’s $250 billion investment management division. Certified Financial Planner™ certificate holder since 2008. B.A. in Business Economics & Accounting from U.C. Santa Barbara in 1995.
Just Plans Etc.
Founded in 1983 and based in Walnut Creek, California - Just Plans is a fee-only wealth management firm and SEC registered investment advisor. Just Plans provides investment management and financial planning services to more than 100 individuals, families, and companies. The firm specializes in tax-efficient investing and helping investors realize meaningful value from qualified retirement plans, concentrated stocks positions, stock options, and other forms of equity. As a fiduciary, the firm puts the interests of the client above all else.
About
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Agenda
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1. Financial Planning
2. Investment Planning
3. Lessons for the Future
1. Financial Planning
2. Investment Planning
3. Lessons for the Future
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Agenda
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1. Financial Planning1. Financial Planning
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Charles Schwab
More than 30 years ago, Charles R. Schwab founded this firm with a clear mission: to
empower individual investors to take control of their financial lives, free from the
high costs and conflicts of traditional brokerage firms. His vision - to provide the
most useful and ethical financial services in the world - continues to guide or values-
driven approach to growth, client service, community involvement and employee
development.
Google’s mission is to organize the world‘s information and make it universally
accessible and useful.
Don’t be evil. (Unofficial).
Create a (Family) Mission Statement
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Create a Family Mission Statement
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What’s most important about our family?
What do you think our goals should be?
What are our strengths as a family?
How should we take care of relatives who are or become sick or disabled?
How should we resolve our disputes?
How important is the family business to you?
What professionals or structures should we bring in to help us?
What do you think the role of our family should be in helping the community?
What should we be doing individually and as a family with regard to philanthropy?
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Example: Smith Family Mission Statement
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Know that time is our most valuable asset.
Experiences are more valuable than possessions.
Spend time outdoors as a family.
Explore the world and welcome others into our home.
Support (through financial and volunteer efforts) public education and the Cancer Support Community of the Bay Area.
Spend time with those we love and respect – and feel the same way about us.
Learn and work in the family business.
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Define Short & Long-Term Goals
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You
Short-term: 5 Years or less _____________________ _____________________ _____________________
Long-term: 5 years and longer _____________________ _____________________ _____________________
Your Spouse
Short-term: 5 Years or less _____________________ _____________________ _____________________
Long-term: 5 years and longer _____________________ _____________________ _____________________
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Letter to Self
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On February 23, 2011 I/we currently have an available after-tax income stream of $ per month (including spouse if applicable).
My/our current lifestyle costs are $ per month. I/we currently save $ per month in tax deferred accounts and $ per
month in after tax accounts. My/our current net worth is $ . This includes a retirement plan balance
of $ , assets of $ , and personal investments of $ . I plan on retiring in the year 20 , which is years from now. My post retirement lifestyle expenses will be $ per year / $ per
month. Based on living until age , I will need to have accumulated $ by age ,
in pre-tax and post-tax dollars to be comfortable in retirement and potentially leave a legacy to others.
Base on the above information, I need to take the following actions: ,
.
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Not Everything is in Your Control
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CONTROLHow much I saveHow much I spendLifestyle - # of homes, travel, autos.Allocation of assets (amount of risk)When I retireHow much insurance I haveHow much I give to charityHow much I makeBegin Social Security Benefits
NO CONTROLMarketsDeath - geneticsChildren’s behaviorReimbursementsDisabilityInflationTax rates & political conditionsWeatherThe Media
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Define Your Lifestyle Goals
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For each Goal, establish Ideal and Acceptable amounts.
Lifestyle Goals Ideal
Basic Living Expenses $$$
Car $$$
Travel $$$
Boat $$$
Lifestyle Goals Ideal Acceptable
Basic Living Expenses $$$ $
Car $$$ $
Travel $$$ $
Boat $$$ $
Acceptable Range
Lifestyle Goals
Basic Living Expenses
Car
Travel
Boat
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Define Your Lifestyle Goals
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Acceptable Range
Retirement Age Ideal Acceptable How willing are you to retire later?
You 60 66 Somewhat Willing
Your Spouse 62 70 Very Willing
Retirement Age Ideal Acceptable
You 60 66
Your Spouse 62 70
Retirement Age Ideal
You 60
Your Spouse 62
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Plan for Future Living Expenses
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Importance Lifestyle Goals Ideal Acceptable
Needs
10 Basic Living Expense $70,000 $66,000
8 Your Lexus $35,000 $25,000
Wants
7 Annual Travel Fund $18,000 $12,000
6 Your Spouse’s Honda $25,000 $15,000
Wishes
3 Renovate Kitchen $50,000 $25,000
2 Gifts to Children $10,000 $0
Total Spending for Life of Plan $2,615,000 $2,130,00019% < Ideal
Acceptable Range
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Range of Ideal and Acceptable Goals
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IDEAL ACCEPTABLERetirement Age: 60 66
62 70
Retirement Income: $160,000 $145,000
Risk Tolerance: No Risk Moderate
Estate: $1,000,000 $100,000
Education: Law School $ -
Savings: -$15,000 +$10,000
Travel (other): $25,000 $15,000
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Annual Savings to Accumulate $1 Million by Age 65
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Annual Savings
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What Kind of Investor Are You?
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Very Conservative Conservative Moderate Aggressive Very Aggressive
Can you get the RETURN you need at the RISK level you’re willing to accept?
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Agenda
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2. Investment Planning2. Investment Planning
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S&P 500 Index Returns
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Charts reflect index levels (price change only). All returns and annotations reflect total return, including dividends.
Jan-10 Jun-10 Oct-10 Apr-11
1,000
1,100
1,200
1,300
1,400
S&P 500 Index
2010: +15.1% 1Q11: +5.9%
Jan-07 May-08 Oct-09 Apr-11
600
800
1,000
1,200
1,400
1,600
S&P 500 Index
Since 10/9/07 Peak: -8.5%
Since 3/9/09 Low: +104.5%
Source: Russell Investment Group, Standard & Poor’s, FactSet, J.P. Morgan Asset Management.
All calculations are cumulative total return, including dividends reinvested for the stated period. Since Market Peak represents period 10/9/07 – 3/31/11, illustrating market returns since the most recent S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 –3/31/11, illustrating market returns since the S&P 500 Index low on 3/9/09. Returns are cumulative returns, not annualized. For all time
periods, total return is based on Russell- style indexes with the exception of the large blend category, which is reflected by the S&P 500 Index. Past performance is not indicative of future returns.
Data are as of 3/31/11.
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Various Asset Class Returns
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10-yrs
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q11 '01 - '10
REITs REITsDJ UBSCmdty
MSCIEME
REITsMSCIEME
REITsMSCIEME
Barclays Agg
MSCIEME
REITsRussell 2000
MSCIEME
26.4% 13.9% 23.9% 56.3% 31.6% 34.5% 35.1% 39.8% 5.2% 79.0% 28.0% 7.9% 350.0%
DJ UBSCmdty
Market Neutral
Barclays Agg
Russell 2000
MSCIEME
DJ UBSCmdty
MSCIEME
MSCI EAFE
Market Neutral
MSCI EAFE
Russell 2000
REITs REITs
24.2% 9.3% 10.3% 47.3% 26.0% 17.6% 32.6% 11.6% 1.1%* 32.5% 26.9% 7.5% 178.0%
Market Neutral
Barclays Agg
Market Neutral
MSCI EAFE
MSCI EAFE
MSCI EAFE
MSCI EAFE
DJ UBSCmdty
Asset Alloc.
REITsMSCIEME
S&P500
Russell 2000
15.0% 8.4% 7.4% 39.2% 20.7% 14.0% 26.9% 11.1% -23.8% 28.0% 19.2% 5.9% 84.8%
Barclays Agg
Russell 2000
REITs REITsRussell 2000
REITsRussell 2000
Market Neutral
Russell 2000
Russell 2000
DJ UBSCmdty
DJ UBSCmdty
Asset Alloc.
11.6% 2.5% 3.8% 37.1% 18.3% 12.2% 18.4% 9.3% -33.8% 27.2% 16.7% 4.4% 80.2%
Asset Alloc.
MSCIEME
Asset Alloc.
S&P500
Asset Alloc.
Asset Alloc.
S&P500
Asset Alloc.
DJ UBSCmdty
S&P500
S&P500
Asset Alloc.
Market Neutral
0.6% -2.4% -5.4% 28.7% 12.5% 8.0% 15.8% 7.3% -36.6% 26.5% 15.1% 3.7% 76.9%.
Russell 2000
Asset Alloc.
MSCIEME
Asset Alloc.
S&P500
Market Neutral
Asset Alloc.
Barclays Agg
S&P500
Asset Alloc.
Asset Alloc.
MSCI EAFE
Barclays Agg
-3.0% -3.4% -6.0% 25.2% 10.9% 6.1% 14.9% 7.0% -37.0% 22.5% 12.7% 3.5% 76.3%
S&P500
S&P500
MSCI EAFE
DJ UBSCmdty
DJ UBSCmdty
S&P500
Market Neutral
S&P500
REITsDJ UBSCmdty
MSCI EAFE
Market Neutral
MSCI EAFE
-9.1% -11.9% -15.7% 22.7% 7.6% 4.9% 11.2% 5.5% -37.7% 18.7% 8.2% 2.3% 47.1%
MSCI EAFE
MSCI EAFE
Russell 2000
Market Neutral
Market Neutral
Russell 2000
Barclays Agg
Russell 2000
MSCI EAFE
Barclays Agg
Barclays Agg
MSCIEME
DJ UBSCmdty
-14.0% -21.2% -20.5% 7.1% 6.5% 4.6% 4.3% -1.6% -43.1% 5.9% 6.5% 2.1% 41.7%
MSCIEME
DJ UBSCmdty
S&P500
Barclays Agg
Barclays Agg
Barclays Agg
DJ UBSCmdty
REITsMSCIEME
Market Neutral
Market Neutral
Barclays Agg
S&P500
-30.6% -22.3% -22.1% 4.1% 4.3% 2.4% -2.7% -15.7% -53.2% 4.1% -2.5% 0.4% 15.1%
Source: Russell, MSCI Inc., Dow Jones, Standard and Poor’s, Barclays Capital, NAREIT, J.P. Morgan Asset Management.
The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAF E, 5% in the MSCI EMI, 30% in the Barclays Capital Aggregate, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the DJ UBS Commodity Index and5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data except commodities represent total return for stated period. Past performance is not
indicative of future returns. Data are as of 3/31/11, except for the CS/Tremont Equity Market Neutral Index, which reflects data through
2/28/11. “10- yrs” returns represent cumulative total return and are not annualized. These returns reflect the period from 1/1/01 – 12/31/10.
Please see disclosure page at end for index definitions. * Market Neutral returns include estimates found in disclosures.
Data are as of 3/31/11.
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Global Commodities
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'01 '02 '03 '04 '05 '06 '07 '08 '09 '100
50
100
150
200
250
300
350
400
450
500
0
500
1000
1500
2000
2500
'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Source: Dow Jones/UBS, FactSet, J.P. Morgan Asset Management.
Commodity prices represented by the appropriate DJ/UBS Commodity sub- index.
Data reflect most recently available as of 3/31/11.
Source: USDA, BP Statistical Review of World Energy, J.P. Morgan Asset Management.
Data are as of 3/31/11.
Commodity Prices Weekly index prices rebased to 100
Precious metals
Industrial metals
Energy
Livestock
Grains
Oil Demand: Emerging Markets Share Emerging markets as % of total global oil consumption
Grain Demand: Emerging vs. Developed MarketsMillions of metric tons
Emerging Markets
Developed Markets
30%
32%
34%
36%
38%
'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
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Monthly: January 1926 - December 2010
CRSP data provided by the Center for Research in Security Prices, University of Chicago. The S&P data are provided by Standard & Poor's Index Services Group. US long-term bonds, bills, inflation, and fixed income factor data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).
$8,201Small Cap(CRSP 6-10 Index)
$2,590Large Cap (S&P 500 Index)
$85Long-Term Government Bonds Index$20Treasury Bills
$12Inflation (CPI)
$10,000
$1,000
$100
$10
$1
$0
1926 1936 1946 1956 1966 1976 1986 1996 2006 2010
Growth of Wealth
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Average Duration
Bull Market: 413 DaysBear Market: 220 Days
Average Return
Bull Market: 58%Bear Market: -21%
220%
-13%
-85%
20%
-16%
-39%
119%
87%
27%
-15%-10%
-13%
100%
44%
-53%
25%
40%
-13%-14%
26%
-25%
22%
-11%
23%
-33%
83%
-11%
99%
-26%
19%
-11%-
16%
26%
53%
91%
-13%
121%
-11%
26%
-13%
18%
69%
-21%-11%
44%
-27%
15%
96%
-11%
59%
-27%
-10% -
21% -32%
56%
-12%
38%
-45%
22%
-13%
50%
-13%
38%
-15%
27%
-13%
26%
-10%
21%
-16%
48%
-20%
78%
-11%
156%
-33%
73%
-10%
16%
-19%
303%
-12%
37%
50%
-19%
-12%
23%
-11%
13%
-47%
21%
-14%
113%
03/09/2009-55%
12/31/2010
-13%1%
1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
S&P 500 Index (USD)Daily Returns: January 1, 1926 - December 31, 2010
Bull and Bear Markets
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Indices are not available for direct investment; its performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results. The S&P data are provided by CRSP (January 1, 1926–August 31, 2008) and Bloomberg (September 1, 2008–present). Returns include reinvested dividends. Bull and bear markets are defined in hindsight using cumulative daily returns. A bear market (1) begins with a negative daily return, (2) must achieve a cumulative return less than or equal to -10%, and (3) ends at the most negative cumulative return prior to achieving a positive cumulative return. All data points which are not considered part of a bear market are designated as a bull market. Performance data represents past performance and does not predict future performance.
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Historical returns by holding period
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-37%
-8%
-15%
-2% -2% 1%-1% 1% 2%
6%
1%
5%
51%
43%
32%28%
23% 21% 19%16% 17% 18%
12%14%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
1-yr. 5- yr. rolling 10- yr. rolling 20- yr. rolling
Annual total returns, 1950 - 2010Range of Stock, Bond, and Blended Total Returns
Asset Sources: Barclays Capital, FactSet , Robert Shiller, Strategas /Ibbotson, Federal Reserve, J.P. Morgan Asset Management.
Data are as of 12/31/10.
50/50 Portfolio 9.0% $ 559,744
Bonds 6.2% $ 336,138
Stocks 10.9% $ 792,519
Annual Avg. Total Return
50/50 Portfolio
Bonds
Stocks
Growth of $100,000 over 20 years
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Diversification and the Average Investor
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20-year Annualized Returns by Asset Class (1991 – 2010)
(Top) Indexes and weights of the traditional portfolio are as follows: U.S. stocks: 55% S&P 500, U.S. bonds: 30% Barclays Capital Aggregate. International stocks: 15% MSCI EAFE/ Portfolio with 25% in alternatives is as follows: U.S. stocks: 22.1% S&P 500, 8.8% Russell 2000; International Stocks: 4.4% MSCI EM, 13.2% MSCI EAFE; U.S. Bonds: 26.5% Barclays Capital Aggregate; Alternatives: 8.3% CS/Tremont Equity Market Neutral, 8.3% DJ/UBS Commodities, 8.3% NAREIT Equity REIT Index. Return and standard deviation calculated
using Zephyr.Charts are shown for illustrative purposes only. Past returns are no guarantee of future results. Diversification does not guarantee investment returns and does not eliminate risk of loss. Data are as of
12/31/10.
(Bottom) Indexes used are as follows: REITS: NAREIT Equity REIT Index, EAFE: MSCI EAFE, Oil: WTI Index, Bonds: Barclays Capital U.S. Aggregate Index, Homes: median sale price of existing single- family homes, Gold: USD/troy oz, Inflation: CPI. Average asset allocation investor return is based on an
analysis by Dalbar Inc. which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable)
and represent the 20- year period ending 12/31/10 to match Dalbar’smost recent analysis.
Traditional Portfolio More Diversified Portfolio
Return: 6.86%Standard Deviation: 11.12%
Return: 7.92%Standard Deviation: 9.99%
Maximizing the Power of Diversification (1994 – 2010)
55%
15%
30% S&P 500
MSCI EAFE
Barclays Agg.
8%8%
8%
22%9%
13%4%
26%
Equity Mkt. Neutral
Commodities
REIT
S&P 500
Russell 2000
MSCI EAFE
MSCI EM
Barclays Agg.
10.5%
8.0% 7.7%7.2%
6.1%
4.7%
2.8% 2.6% 2.4%
0%
2%
4%
6%
8%
10%
12%
REITS Oil S&P 500 Gold Bonds EAFE Homes Average Investor
Inflation
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Various Asset Class Returns
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Source: Russell, MSCI Inc., Dow Jones, Standard and Poor’s, Barclays Capital, NAREIT, J.P. Morgan Asset Management.
The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAF E, 5% in the MSCI EMI, 30% in the Barclays Capital Aggregate, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the DJ UBS Commodity Index and5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data except commodities represent total return for stated period. Past performance is not
indicative of future returns. Data are as of 3/31/11, except for the CS/Tremont Equity Market Neutral Index, which reflects data through
2/28/11. “10- yrs” returns represent cumulative total return and are not annualized. These returns reflect the period from 1/1/01 – 12/31/10.
Please see disclosure page at end for index definitions. * Market Neutral returns include estimates found in disclosures.
Data are as of 3/31/11.
10-yrs
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q11 '01 - '10
REITs REITsDJ UBSCmdty
MSCIEME
REITsMSCIEME
REITsMSCIEME
Barclays Agg
MSCIEME
REITsRussell 2000
MSCIEME
26.4% 13.9% 23.9% 56.3% 31.6% 34.5% 35.1% 39.8% 5.2% 79.0% 28.0% 7.9% 350.0%
DJ UBSCmdty
Market Neutral
Barclays Agg
Russell 2000
MSCIEME
DJ UBSCmdty
MSCIEME
MSCI EAFE
Market Neutral
MSCI EAFE
Russell 2000
REITs REITs
24.2% 9.3% 10.3% 47.3% 26.0% 17.6% 32.6% 11.6% 1.1%* 32.5% 26.9% 7.5% 178.0%
Market Neutral
Barclays Agg
Market Neutral
MSCI EAFE
MSCI EAFE
MSCI EAFE
MSCI EAFE
DJ UBSCmdty
Asset Alloc.
REITsMSCIEME
S&P500
Russell 2000
15.0% 8.4% 7.4% 39.2% 20.7% 14.0% 26.9% 11.1% -23.8% 28.0% 19.2% 5.9% 84.8%
Barclays Agg
Russell 2000
REITs REITsRussell 2000
REITsRussell 2000
Market Neutral
Russell 2000
Russell 2000
DJ UBSCmdty
DJ UBSCmdty
Asset Alloc.
11.6% 2.5% 3.8% 37.1% 18.3% 12.2% 18.4% 9.3% -33.8% 27.2% 16.7% 4.4% 80.2%
Asset Alloc.
MSCIEME
Asset Alloc.
S&P500
Asset Alloc.
Asset Alloc.
S&P500
Asset Alloc.
DJ UBSCmdty
S&P500
S&P500
Asset Alloc.
Market Neutral
0.6% -2.4% -5.4% 28.7% 12.5% 8.0% 15.8% 7.3% -36.6% 26.5% 15.1% 3.7% 76.9%.
Russell 2000
Asset Alloc.
MSCIEME
Asset Alloc.
S&P500
Market Neutral
Asset Alloc.
Barclays Agg
S&P500
Asset Alloc.
Asset Alloc.
MSCI EAFE
Barclays Agg
-3.0% -3.4% -6.0% 25.2% 10.9% 6.1% 14.9% 7.0% -37.0% 22.5% 12.7% 3.5% 76.3%
S&P500
S&P500
MSCI EAFE
DJ UBSCmdty
DJ UBSCmdty
S&P500
Market Neutral
S&P500
REITsDJ UBSCmdty
MSCI EAFE
Market Neutral
MSCI EAFE
-9.1% -11.9% -15.7% 22.7% 7.6% 4.9% 11.2% 5.5% -37.7% 18.7% 8.2% 2.3% 47.1%
MSCI EAFE
MSCI EAFE
Russell 2000
Market Neutral
Market Neutral
Russell 2000
Barclays Agg
Russell 2000
MSCI EAFE
Barclays Agg
Barclays Agg
MSCIEME
DJ UBSCmdty
-14.0% -21.2% -20.5% 7.1% 6.5% 4.6% 4.3% -1.6% -43.1% 5.9% 6.5% 2.1% 41.7%
MSCIEME
DJ UBSCmdty
S&P500
Barclays Agg
Barclays Agg
Barclays Agg
DJ UBSCmdty
REITsMSCIEME
Market Neutral
Market Neutral
Barclays Agg
S&P500
-30.6% -22.3% -22.1% 4.1% 4.3% 2.4% -2.7% -15.7% -53.2% 4.1% -2.5% 0.4% 15.1%
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Agenda
27
3. Lessons for the Future3. Lessons for the Future
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Lessons
28
This is an exciting and challenging time to be an investor.
You owe it to your family and yourself to make sure that your plan is designed to deal with the changes you’ve experienced the last few years and take advantage of opportunities to maximize the probability that you will achieve all your financial goals.
We wish you nothing but success in achieving all that’s important to you.
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Lessons
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1. Define your goals.
2. Create a plan.
3. Put it into action.
4. Revisit it frequently.
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Lessons
30
1. Markets are difficult to predict in the short-term.
2. Intelligently diversifying globally expands your opportunity set.
3. “Be greedy when others are fearful and fearful when others are greedy.” – Warren Buffet.
4. Have a long-term perspective.
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Articles:
Creating a Family Mission Statement
Creating a Personal Disaster Plan for Your Home, Your Loved Ones and Your Finances
Budget Worksheet
The Organizer
More articles at:www.justplans-etc.blogspot.com
Barry Mendelson, CFP® Financial Advisor & Partner
925-988-0330 ext. 22 1399 Ygnacio Valley Rd, Suite 24 [email protected] Walnut Creek, CA 94598
www.JustPlans-Etc.com
Resources
31