Investing 101
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Investing 101. L. Gattis Monday 7PM-8:30PM March 18, 2013 103 Career Services Building. Agenda. How much do I need in retirement? How much do I need to save today for retirement? How do I allocate funds among asset classes? How do I select securities? Take Aways.

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Investing 101

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Investing 101

Investing 101

L. Gattis

Monday 7PM-8:30PM

March 18, 2013

103 Career Services Building


Agenda

Agenda

  • How much do I need in retirement?

  • How much do I need to save today for retirement?

  • How do I allocate funds among asset classes?

  • How do I select securities?

  • Take Aways


How much do i need in the first year of retirement

How Much Do I Need in the First Year of Retirement?

  • Maybe 40% – 70% of final year income

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How much wealth do i need at retirement

How Much Wealth do I Need at Retirement?

  • Maybe 8-12 times final year income


How much of my income do i need to save

How Much of My Income Do I Need to Save?

  • Assumes long term average returns and Age in Bonds Rule

  • Maybe 10-15% if you start at age 25

  • You mayneed to save over 17% if you start at age 35!

  • Assumptions

  • $100K Salary

  • 11% Savings Rate

  • Age in Bonds Allocation

  • 6% Real Stock Returns

  • 2% Real Bond Returns


How do i select securities

How Do I Select Securities?

  • Mutual Funds “Managed”

    • E.g., Fidelity Magellan Fund

      • 0.53% Net Expense Ratio, 10-Year Return = 5.32%

  • Index Funds

    • E.g., Fidelity Spartan 500 Index

      • 0.10% Net Expense Ratio, 10-Year Return = 8.16%

  • Target Retirement Date (Life Cycle) Funds

    • E.g., Vanguard Target Retirement 2045

      • 63% U.S. Stock Index

      • 27% Intl Stock Index

      • 10% Total Bond Index


Personal financial risks

Personal Financial Risks

  • Death/Disability/Unemployment of Working Spouse

    • Life and Disability Insurance, 6-month emergency fund

  • College Debt (and other personal debt)

    • Need to save about $5,000 per year per child (starting at birth) to fully fund $25,000/year college

  • Market crash near retirement

    • Life cycle investing (reducing risk over time)

    • Downsize or delay retirement

  • Retirement Healthcare

    • LTC, Medi-gap insurance policies

    • Home equity

  • Long Life

    • Long Life Insurance

    • Purchase Life Annuity at Retirement

    • Reverse Mortgage


Take aways

Take Aways

  • Need retirement wealth of 8-12 times final year income to smooth retirement transition

  • Save 10-15% of your salary starting at age 25

    • Save more than 15% if start at age 35

  • Reduce portfolio risk as you approach retirement – either by annual reallocations or life cycle funds

  • Risk Mitigation: Emergency Fund, Insurance, Home Equity, Retirement Flexibility (downsize/delay)


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