Egr 403 introduction to retirement planning
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EGR 403 Introduction to Retirement Planning. Part I - Basic Approach Part II - Determine Total Capital to Invest Part III - Saving Strategy Part IV - Investment Strategy. Click here for streaming audio to accompany presentation. Dr. Phillip R. Rosenkrantz IME Department, Cal Poly Pomona.

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EGR 403 Introduction to Retirement Planning

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Egr 403 introduction to retirement planning

EGR 403 Introduction to Retirement Planning

  • Part I - Basic Approach

  • Part II - Determine Total Capital to Invest

  • Part III - Saving Strategy

  • Part IV - Investment Strategy

Click here for streaming audio to accompany presentation

Dr. Phillip R. Rosenkrantz

IME Department, Cal Poly Pomona

EGR 403 Retirement Planning - Part IV


Part iv investment strategy

Part IV - Investment Strategy

  • Use historical annual returns for various asset classes.

  • Diversify your portfolio for protection against unpredictable markets

  • Consider being invested in at least three “non-correlated” asset classes. More only if you plan to be an active investor.

EGR 403 Retirement Planning - Part IV


Egr 403 introduction to retirement planning

Risk

  • Higher returns come from riskier investments.

  • Riskier investments have greater volatility. This can create a “roller-coaster” type emotional experience in the short term.

  • Long term results are obtained from long term investing.

  • Figure your composite return based on your situation and aversion to risk.

  • Rule of Thumb: Limit your percentage of high risk investments to (100 - your age).

EGR 403 Retirement Planning - Part IV


Asset class returns 1 longer than 10 years

Emerging Market stocks

US small-company stocks

US large-company stocks

Foreign-company stocks

US real estate

US oil and gas

14%

12%

10%

10%

10%

8%

Asset Class Returns - 1(longer than 10 years)

EGR 403 Retirement Planning - Part IV


Asset class returns 2 longer than 10 years

Corporate bonds

Foreign bonds

Treasury bonds

Municipal bonds

Money Market & CDs

Treasury Bills

Gold

7%

7%

6%

5%

4%

3%

3%

Asset Class Returns - 2(longer than 10 years)

EGR 403 Retirement Planning - Part IV


Achieving your target return 1 sample portfolio

25% Emerging markets x 14%

50% US small company stock x 12%

25% Real estate x 10%

Total

3.5%

6.0%

2.5%

12%

Achieving Your Target Return - 1(Sample Portfolio)

EGR 403 Retirement Planning - Part IV


Achieving your target return 2 sample portfolio

Achieving Your Target Return - 2(Sample Portfolio)

  • Suppose you have a 401k plan where you work. Most companies match a portion of contributions. These plans are very desirable because you do not pay taxes on money invested or earnings until you take the money out. Must leave money in until age 59.5.

  • Some 401k plans invest only in company stock. Others allow you to invest in mutual funds of all kinds. Most mutual funds identify which sector of the market they represent (e.g., small cap fund).

  • Maximize 401k plan, then invest the rest to balance your portfolio.

EGR 403 Retirement Planning - Part IV


Other investment options

Other Investment Options

  • Individual Retirement Account (IRA) - Also uses before tax dollars and defers taxes until age 59.5 or later.

  • Roth IRA - Uses after tax dollars, but NO TAX on earnings! (great for young investors)

  • I-Bonds - Government bonds with some nice features.

  • Life insurance - If you have dependents, study your life insurance options carefully.

EGR 403 Retirement Planning - Part IV


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