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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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