The Pastor Group

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The Pastor Group
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Please
Silence your Cell Phones and Pagers Thank you!
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When every day is Saturday.
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I wish we had a retirement plan that didnt
require matching six numbers.
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FINANCIAL PLANNING PROCESS
1. Determine where you are going. (Set Goals
and Objectives) 2. Know where you are. (Take
inventory of Existing Assets) 3. Develop and
Follow a Retirement Plan.
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WHEN DO YOU WANT TO RETIRE?
WHAT DO YOU WANT TO DO IN RETIREMENT?
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How Much Money Do You Need To Live On??
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2004
2005
2006
January February March April May June July August
September October November December Total

1) Obtain monthly totals from checking out
statement 2) Write down total for each month 3)
Add totals 4) Divide by number of years
Result Average Expenses
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Manage your Monthly Debt Payments

• Short-term debt payments
• - Should not exceed 20 of after-tax income
• 2. Mortgage payment
• - Should not exceed 28 of monthly gross
  income
• Combined monthly debt payments
• - Should not exceed 36 of monthly gross
  income

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Will I Need A Lump Sum of Money at Retirement?

• Repairs to your house
• Pay off bills
• College Tuition
• Wedding
• Retirement Vacation
• Start a Business?

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Summarize
Where do I want to go? (Goals Objectives)

• When will I retire?
• What will I do?
• How Much do I need to live on?
• CONSIDER- Taxes, Inflation, Risk

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Where Am I Now?
(Taking Inventory)

• Social Security
• Basic Benefit Plan
• Thrift Savings Plan
• Personal Investments

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Full Retirement Benefits Paid at Age
Birthdate
Before 1/2/38 1/2/38 - 1/1/39 1/2/39 -
1/1/40 1/2/40 - 1/1/41 1/2/41 - 1/1/42 1/2/42 -
1/1/43 1/2/43 - 1/1/55 1/2/55 - 1/1/56 1/2/56 -
1/1/57 1/2/57 - 1/1/58 1/2/58 - 1/1/59 1/2/59 -
1/1/60 After 1/2/60
65 65 and 2 months 65 and 4 months 65 and 6
months 65 and 8 months 65 and 10 months 66 66 and
2 months 66 and 4 months 66 and 6 months 66 and 8
months 66 and 10 months 67
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FERS

• Basic Benefit Plan
• Thrift Savings Plan

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Basic Benefit

• MONTHLY PAYMENTS

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PAY TAXES OR DEFER TAXES
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ALTERNATIVES

• 1. Pay Taxes
• - Ordinary income
• 2. Defer taxes
• - Direct Rollover Transfer

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What is Eligible for Rollover

• Qualified pretax contributions
• Agency contributions/matching
• Earnings on contributions

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How to Roll Over Distributions

• Direct rollover transfer

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Direct Rollover Transfer

• Employer sends directly to IRA,
• new plan or custodian

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STEP 1

• Fill out agency paperwork,
• request Direct Rollover
• No Taxes, No Penalties

IRA
Agency

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STEP 2

• Invest money into various securities
• i.e. CDs, Govt. Bonds, GNMAs,
• Stock, Mutual Funds, Unit Trusts

IRA
CDs Stock Mutual Funds GNMA Unit Trusts Money
Market
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STEP 3

• Take distributions when you are
• ready. Distributions will be subject to
• taxes possibly 10 penalties

IRA
CDs Stock Mutual Funds GNMA Unit Trusts Money
Market
Subject to ordinary Income taxes possible
penalties

YOU
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Under Age 55

• 1. Defer Taxes
• - Direct Rollover
• 2. Pay taxes
• - Take distributions-subject to ordinary
  
• income taxes 10 penalty
• - Take distributions-subject to ordinary
  
• income taxes but avoid 10 penalty

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PENALTY FREE WITHDRWAL

• 3 IRS Formulas
• Function of age, interest rate assumptions,
  value of IRA.
• Amount O.K. to withdraw equal to interest and
  some principal.
• Once elected must take exact same amount each
  year.
• Until age 59 1/2 or 5 years, whichever is later
• If the stream is broken 10 penalty is assessed
  on the first
• dollars out of the plan.

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60
59 1/2
55
62
59 1/2
57
59 1/2
50
55
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Pre-59 1/2 Distributions
Plan Balance 500,000
Expected Plan Growth 6 Owners Birthdate
01/01/1952 Distribution Method
Annuitization Reasonable Interest Rate 5.97
Year Amount 2006 37,029.36 or 3,085.78 per
month Gross, before taxes
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Use of Multiple IRAs

• Annuitize on IRA.
• Continue the tax-deferred growth in the
• second IRA

300,000
Split
IRA 1 125,000 Annuitize
IRA 2 175,000 Defer
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Between Ages of 55 59 1/2

• 1. Defer Taxes
• - Direct Rollover
• 2. Pay taxes
• - Take distributions-subject to ordinary
  
• income taxes 10 penalty
• - Take distributions-subject to ordinary
  
• income taxes but avoid 10 penalty

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Age 55 - 59 1/2
Avoid 10 penalty distribution directly from a
qualified plan
Your Company Plan
20 withholding No 10 penalty
Distributing directly to you
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Between Ages 59 1/2 70 1/2

• 1. Defer Taxes
• - Direct Rollover
• 2. Pay taxes
• - Ordinary Income Tax

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AFTER AGE 70 1/2
Mandatory Distributions
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Penalty for Not Taking Mandatory Distributions
50 of difference between Mandatory amount and
Actual withdrawal
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Basic Breakdown of Investments
Fixed Income Lend
of Growth Own
T-Bill T-Note T-Bond GNMA
U.S. Govt.
Stocks Mutual Funds Unit Trusts
Agency Note Agency Bond Mtg backed Sec.
Govt. Agency
Municipal Bonds -- State Local Govt. Corporate
Bonds -- Corporation CDs ----------------
Bank Fixed Annuity ----- Insurance Co.
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Sample Investment Mix
Investment Style Value/Growth
Special Situations International Companies Small
Companies Mid Size Companies Large Companies
Growth
Fixed Income
CDs Govt. Bonds GNMAs Corporate Bonds
Laddered Maturities
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How do I receive my monthly income?
IRA
Stocks Bonds REITS MM
Basic Benefit
Other Income
Social Security
Your monthly distribution

Your retirement pay check
Your Bank
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Does Rate of Return Really Make a Difference?
500,000 at 5 for 20 years 1,326,649
8 2,330,479 10
3,363,750
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Are All Average Returns the Same
Manager A
Manager B Return Cumulative
Return Cumulative
100.00 100.00 Period 1 15
115.00 5 105.00 Period 2 -5
109.25 5 110.25 Period 3 15
125.64 5 115.76 Period 4 -5
119.36 5 121.55 Average 5.00 5.00
4.52
5.00
CAGR
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Are all CAGRs the Same?
Manager C
Manager D Return Cumulative
Return Cumulative
100.00 100.00 Period 1 15
115.00 -20 80.00 Period 2 -5
109.25 -20 64.00 Period 3 15
125.64 -20 51.20 Period 4 -3.25
121.55 137.40 121.55 Average 5.00 5
.00
11.07
Std Dev
78.70
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YES
Can This Risk Be Managed?
NO
Can This Risk Be Eliminated?
YES
Does Management of this Risk make a difference?
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Best Days vs. Worst Days

• For the 16 year period studied between July 84
  and October 2000, the average annual return of
  the SP 500 was 14.83.

• If you disregard the 10 best days and the 10
  worst days, the return of the SP 500 jumps to
  17.07.

Missed the Best Worst ...Return
Missed the Best ...Return
Missed the Worst ...Return
The Pastor Group
Source Denver Post, Advisors Group Rejects
Strategy of Buy and Hold
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The Buy-and-Hold Myth

• Buy it 1973...
• It took 7.6 years to get back to even.

• Buy the Market in 1929...
• It took 25 years to get back to even.

• Starting in 1987 IBM went down 74...
• It took 10 years to recover

• Using the same assumptions,
• it could take CSCO 13 years to
• get back to its high of 82 from
• its April 2001 low at a return of 15 a
  year.

• Note Past performance is no guarantee of future
  success.
• Compliments of Dorsey Wright and Associates

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Fundamental Analysis vs. Technical Analysis

• What is Fundamental Analysis?
• What to Buy
• Management
• Earnings Quality
• Price/Earnings Ratio
• Product Acceptance

• What is Technical Analysis?
• When to Buy
• Trend
• Relative Strength
• Momentum
• Price Forecasting

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How Did So Many Get It Wrong?New York Times -
December 31, 2000

• How can so many who are paid so much to
  scrutinize companies have blown it so
  spectacularly for their investor customers?
  Anthony Noto at Goldman, Sachs sums the situation
  up quite well. He is an Internet analyst who,
  according to the article, remained upbeat on
  shares that were trading at a fraction of their
  former values. Noto lowered his ratings on some
  stocks only after they had declined as much as
  98 during the previous 52 weeks.
• Our research is driven by fundamental analysis
  and is not influenced by anything else, Mr. Noto
  said. He went on to explain that the companies he
  follows had their stock price drop last spring
  not because their operations were failing, but
  because market psychology had changed. He
  downgraded the stocks much later because only
  then had it become clear through his research
  that the companies results were deteriorating.
  In hindsight, he said, we should have lowered
  our ratings sooner. We regret that.

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Market Psychology IS Supply and Demand
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Point Figure Analysis
Captures the Supply and Demand that is going on
in ...
the market
the sector
stocks
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NYSE Bullish Percent
Red Zone Defensive Area, Higher Risk
Middle Normal Market Conditions
Green Zone Offense Area, Lower Risk
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Sector Bell Curve April 15, 1998
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Sector Bell Curve September 10, 1998
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Sector Bell Curve September 26, 2001
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Sector Bell Curves 1987

• September 2nd 1987
• 
  
• 
  
• 
  STEE
• 
  GAS RETA
• 
  TELE TRAN
• 
  REST WALL OILS MEDI
• 
  OILS TEXT BANK FOOD
• 
  LEIS META AUTO HEAL INSU
• ELEC BIOT
  FRST COMP AERO PREC CHEM
• --------------------------------------------------
  -------------------------------------
• 10 30 50
  70 90
•  
•  
• October 28th 1987
•  
• GAS

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The Five-Step Game Plan

• Market Analysis
• Sector Analysis
• Fundamental Research
• Technical Research
• Continual Follow-Up and Risk-Management

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Managing Risk
In order to be a successful risk management
investment strategy, market timing does not have
to be perfect. Despite belief to the contrary,
market timing does not target getting in and out
of the market at the absolute bottoms or tops.
It does, however, strive to get an investors
funds out of the market before a major bear
market devastates the portfolio. Market timings
first and foremost priority is the preservation
of capital. How can I manage risk to
preserve capital?
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The Pastor Group
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