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Investment Strategies. Planning for Retirement Income. Financial Pyramid. Foundation = Safety, Liquidity Structure = Growth Top = Risk Capital. Retirement Income. Life Insurance. Types of Risk. Default / Event / Company Specific Risk Market / Systemic Risk Interest rate

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investment strategies

Investment Strategies

Planning for Retirement Income

financial pyramid
Financial Pyramid
  • Foundation = Safety, Liquidity
  • Structure = Growth
  • Top = Risk Capital

Retirement Income

Life Insurance

types of risk
Types of Risk
  • Default / Event / Company Specific Risk
  • Market / Systemic Risk
  • Interest rate
  • Purchasing power
  • Reinvestment
back to the life cycle hypothesis
Back to the Life Cycle Hypothesis
  • Young families-- Likely to be in debt
    • Repay loans – most expensive first
    • Build financial foundation: liquid assets and life insurance
    • Save for home and college
  • Middle Age – Accumulating Savings for Retirement
    • Use tax advantaged approaches
      • IRA / Roth IRA
      • 401 (k) Plans
retirement investment goals
Retirement Investment Goals
  • Invest for growth, not liquidity or income
    • Capital gains preferred to dividends
  • Fill the gap between funds needed to maintain standard of living and income from social security pension plan and investments
    • As you get closer to retirement, investments need to become more conservative – less risky
filling the gap
Filling The Gap

Very Simple Spreadsheet

approximate yield
Approximate Yield

Current Income + Capital Gains [FP-CP/N]

Holding Period

  • Bonds: annual interest + return of principle
  • Stocks: (dividend?) + sale of stock (indefinite life)
  • Mutual funds: annual dividends + (annual LT and ST capital gains) + sale of fund
stock market vocabulary
Stock Market Vocabulary
  • Beta: a measure of price volatility. Relates a given stock’s return to a market index (S&P 500). Stocks with betas > 1 more risky; < less risky; =1 as risky as the index.
  • Large cap, mid-cap, small-cap (.com)
  • Dollar averaging: invest the same amount each time period. The opposite of timing the market.
bond vocabulary
Bond Vocabulary
  • Yield to maturity
  • Treasuries
    • Bills v. Bonds
  • Corporate
    • Callable
  • Munis
    • MBIC insured
  • Zeros
asset allocation
Asset Allocation
  • The client’s financial goals determine a portfolio’s asset allocation, or percentage breakdown of various holdings.
  • The further from retirement the greater the percentage of high-risk high-return investments. The closer to retirement the greater the cash, bonds, and blue chip stocks.
  • Some advisors recommend keeping growth stocks even after retirement.
taxation in retirement
Taxation in Retirement
  • Very complex issue – look it up!
  • Most tax advantaged plans require participants to take minimum distributions, generally starting at age 70 ½
  • Lump sums may be subject to tax averaging rules
  • Generally tax advantaged accumulations cannot go to heirs without paying taxes
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