The Financial Survival Guide to Retirement

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The Financial Survival Guide to Retirement

• William Klinger
• Assistant Professor
• Raritan Valley Community College

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The Financial Survival Guide to Retirement

• Investment Basics

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Introductions

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

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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

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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

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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.

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Investment Basics

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

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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.
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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

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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)

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Types of Stock

• Common stock
• Preferred stock
• Convertible

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Types of Bonds

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

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Risk

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

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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

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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?

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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

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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
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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
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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

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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

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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

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Homework

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

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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