Personal Finance & Investments: Topics & Tips for Today’s Economy

Presented by

Bill VillanuevaRegistered Investment Advisor

CA Credentialed Teacher

National Indian Education Association ConventionOctober 8, 2010

,

Welcome…ehem

Caveats• Information presented is generalized and

not meant as specific advice to anyone

• This presentation addresses two items:– Audience diversity (something for everyone)– Age vs. K-12 students & young adults

• Subjects/areas touched upon today meant to give only a quick overview

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Agenda• Introduction & Background: Who is this guy?

• Pop Quiz: What do we already know? (Teachers, what’s our schema?)

• Investments: Jargon & Things to Consider

• Tips: Best & Worst Money Moves– Credit Issues & FICO scores– Insurance– 401(k) or 403(b)– Other savings & investments options– Tips for School Boards and/or Tribal Governments

• Home Buying & Foreclosure Fighting

• Services: From the classroom to the boardroom

• Questions4

Background• Husband and father of three• CA Credentialed Teacher

– Largest middle school in US (3,900+ ADA)– Small Native American School (50+ ADA)

• Economics, personal finance, business & investment strategies, SPED

• UCLA, Princeton, UCSD, CSUDH• Speak four languages• KPMG, LLP Economic Consulting Services

– Lowered the global tax base of multinationals• Registered Investment Advisor (IARD# 154067)

– FINRA, SEC & California Securities Regulators Go

Bruins 5

Need for Personal Finance Education• Stats, stats, and more stats…42 examples of losing all

• P.F. and Consumer Ed. is a key to daily life– From the underprivileged to those with 18-money,

if for very different reasons, everyone equally has a need for personal finance education and skills.

• Three real-life examples why it is necessary:– 1) 25% interest car payment – 2) $27,000 lost down payment on a home purchase– 3) Hanger’s-on business schemes

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Need for Personal Finance Education in Indian Country

• We MUST provide our kids/adults with the knowledge, skills, and tools necessary to make informed economic/financial decisions

• Start in grade school so that it may become normalized and second nature

• Currently, my students are exposed to:

– Realistic budgeting exercises– Home and Car purchasing walk-through’s– Investment/portfolio management & tracking– Business planning and negotiation mock-ups

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Pop Quiz: Did we Ace it?1. B: False 9. B: False2. B: False 10. B: False3. A: True 11. A: True4. A: True 12. B: False5. B: False 13. A: True6. A: True 14. A: True7. B: False 15. A: True8. B: False

For a more complete explanation of these answers with additional detail, please visit our website at:

www.grindingrockfinancial.com 8

Investment Vehicles & Considerations

INVESTMENT VEHICLES

• Equities (Stocks)• Bonds: Gov’t vs. Co. issued• CD’s• 401(k), 403(b), 529’s• Roth/Traditional IRA’s• Annuities• Mutual Funds (Index, Managed)• Life/LTC insurance• Options/ForEx• Commercial Paper

THINGS TO CONSIDER

• Time Horizons• Risk Tolerances• Investment Style• Tax Consequences• Interest Compounding• Emerging Markets• Large, Median, Small Cap• Asset Allocation• Fiduciary• Compounding

What’s all this jargon?Anyone care to pick one to discuss?Otherwise, let’s take: Compounding

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Power of Compounding

A genie gives you a penny that will double in value at the end of every day for a month. How much money will you have in 30 days?

QUESTION…….BE QUICK

NOW…

Credit card companies LOVE compounding, but you can make it work to your benefit too

TIPSBest and Worst + Do’s and Don’ts

– Credit Issues & FICO scores– Insurance– 401(k) or 403(b)– Other savings & investments options

• 10 Steps to Successful Investments• Tip for Tribal Government & Administrators• Tip for School Board members & Trustees

– Buying a Home & Foreclosure Fighting – Find Help

• Financial Advisors vs. Broker/Dealers11

Credit Issues & FICO scoreGood Moves

• www.annualcreditreport.com (Free)• Review at least once/year, add comments• Pay on time and low balances: 65% of FICO weight• Pay more than the minimum: ‘09 CARD legislation• Switch from credit to debit cards• Don’t close old accounts, the older the better• Benefits: Lower costs of goods, job seeking,

house buying or rental, car payments, more money for investing…shoot for a 750 12

Credit Card Mistakes• Minimum payments = handcuffed to company

• Using plastic for everyday items: 23.5 year pizza

• Going for the card bonus while carrying a balance: 2% versus 14% plus. Why pay a quarter for a nickel?

• Cash Advances: 2-4% fees, higher rates, while paying 13%+

• Ignoring and/or carrying high balances (1/3 rule)

• Not destroying all discarded information with your card number and name, and giving info over the phone, or e-mail. Mail raiders.

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Insurance ProtectionOMG! SOOO boring

• Think of it as a rainy day fund (like a monsoon)

• LTC: Long Term Care, swimming in Waikiki

• Life: Not only smart, but also frees up money too for your own retirement

• BUT, don’t let ‘em scare you into annuities14

Please Do• Max out Contributions!

– If employer matched = Raise

• Review & RebalanceDo Not

• Wait to start plan participation– Remember the power of compounding?

• Borrow against your plan– Never seen anyone recover, and the costs are enormous

401(k) or 403(b)

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Savings & InvestmentsMust Do

• Decide to pay yourself first– Dollar Cost Averaging is a good starter strategy

• Open a Roth IRA account (If possible: fund it early in the year)

• Determine your Time Horizon & Risk Tolerance– What does this mean and how to do I do it?

• Diversify: Proper asset allocation is key• Review your portfolio at least once per year• Always pay higher interest debt first

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Savings & InvestmentsDo not…

• Do not carry debt higher than other interest earned• Do not follow the herd -or its opposite- run for safety• Do not think of your “home” as an investment• Not paying close attention to net expenses in M.F.

– Look first at No-Load M.F. or Index Tracking Funds• Do not be lured by “Annuity Investments”• Do not be ruled by emotions and short term fear

– Not harvesting losses or gains17

10 Steps to Successful Investing

1. Get your finances in order• Credit card, mortgages, investment, bank statements

2. Learn the basics• Read and use the internet before starting out

3. Set proper goals• Goals for a 25 year old are very different from a 65 year old

4. Determine Risk Tolerance• Sleep at night

5. Determine your Style• Aggressive, Moderate, or Conservative• What’s your Style Box?

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Ten Easy Steps…(he says)

6. Find out the Costs• Passive v. Active investors

7. Hire an Advisor (RIA)• Broker/Dealers are not there to look after you

8. Diversify and Allocate• According to your Style Box

9. Keep emotions at bay• No herd mentality or hot tips

10. Review & Adjust• Quarterly, at least annually

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BIG Tip for Tribal Administrators• The law under ERISA provides for fiduciaries under section 3 (21) to

administer 401(K) (and now 403b) plans

• HOWEVER, a close reading reveals that their obligation is only to make prudent considerations & “recommendations”

• Often, plan administrators are kept in the dark regarding the true costs with hidden 12b-1 and “transaction” costs running rampant

• TEST: Ask for a letter where they will legally bind themselves to the 3-38 standard of an RIA. Don’t let them hide behind lobbyist lang.

• If everything is Kosher, they will agree; otherwise, expect a song and dance as to why they cannot because they are not RIA’s, etc.

• Find yourself an independent fiduciary under Section 3-(38)• Hands off the cookie jar 20

Tip for School Board MembersPayment of Grants & Investment of Funds

Treatment of Funds & Permissible InvestmentsU.S. Code, Title 25, Chapter 27 §2506(b)(2)(A)&(B)

• Effectively, the Code compels the investment of BIA funds into secure US backed vehicles aimed at capital preservation

• Currently, many SB’s opt for CD-only laddered investment strategies

• However, these strategies generally earn minimal returns which may inadvertently leave SB’s with significant downside exposure

• Yet, strategies can be devised for investments that meet the Code and audit scrutiny, and may significantly provide higher upside potential

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Home Buying & Foreclosure Fighting

Home Buying• Get Prequalified before starting to shop• Use a buyer’s real estate agent, challenge fees• Avoid ARM’s (if necessary no lower than 5/1)• Decide on what you need & don’t fall in love• Max out at 32% of gross income• Budget maintenance & try to send in 1/12 extra• Don’t over remodel for the neighborhood.

– May not recover investment if it is too far out of norm

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Foreclosure Fighting• Trends: Banks tend to wait for borrowers to be

delinquent. Be proactive when trouble looms: – Call your lender and ask for default prevention

dept. and keep track of names, times, and dates– Short sale option, no more end year tax hit– Chapter 7 or 13 bankruptcy protection– Once default notice is filed, immediately request

them to PRODUCE THE NOTE, by certified letter.• Do NOT use non-HUD approved counseling• NEVER sign over the property to a counselor!

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Who Can Help

Registered Investment Advisorsvs.

Broker/Dealers–Turns out: broker/dealers get to call

themselves “Financial Advisors” and have zero obligation under the law to be your fiduciary.

–Registered Investment Advisors are obliged to be true fiduciaries by force of law.

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Example close to my heart• Step one: Need a car?• Step two: Have an idea of which type?• Step three: Visit a dealership• Step four: The salesperson will sell you a vehicle,

however…• Step five: No expectation you’ll get the best deal,

without:– Negotiating– Knowing the true costs– Knowing the products available

• Step Six: Salesmen’s obligation is to get the most bang from the client (and gets to say he is an “official” advisor)

• Step Seven: If the car turns out to be a clunker…well, caveat emptor. 25

How May I Help?• Registered Investment Advisor & Trained Teacher

– www.adviserinfo.sec.gov– Fiduciary under ERISA rule 3-38

• Provide personal finance and investment planning services to Tribal members, School Boards, and Tribal Governments

• Provide on-going personal finance seminar series to Tribal schools & all adult membership

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Investment Vehicles & Considerations

INVESTMENT VEHICLES

• Equities (Stocks)• Bonds: Gov’t vs. Co. issued• CD’s• 401(k), 403(b), 529’s• Roth/Traditional IRA’s• Annuities• Mutual Funds (Index, Managed)• Life/LTC insurance• Options/ForEx• Commercial Paper

THINGS TO CONSIDER

• Time Horizons• Risk Tolerances• Investment Style• Tax Consequences• Interest Compounding• Emerging Markets• Large, Median, Small Cap• Asset Allocation• Fiduciary

What’s all this jargon?Let’s pick a few of these to

discuss further. You choose.27

Need More Info?

Reach out at:

bill@grindingrockfinancial.com

www.grindingrockfinancial.com

(916) 627-5187

PS: If you later have questions, feel free to email me28

Thank you for granting me your time.

QUESTIONS?

I’ll be available after the presentation too.Cheers.

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