Personal finance for everyone
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Personal Finance for Everyone. …90 minutes that will change your future. While we wait for folks to log on, try looking up the “expense ratios” of the funds you are currently invested in. Would you rather…. Start with a penny and have your balance double every day for one month? . or.

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Personal finance for everyone

Personal Finance for Everyone

…90 minutes that will change your future

While we wait for folks to log on, try looking up the “expense ratios” of the funds you are currently invested in.


Would you rather

Would you rather….

Start with a penny and have your balance double every day for one month?

or

Have 3.5 million dollars up front?


Personal finance for everyone

Who I am

Where my approach/advice comes from

Although I have a passion for these topics, the views expressed are not intended to serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities. This should not be interpreted as tax advice and please consult your personal tax advisors if you have any questions.

Housekeeping

Who I’m not (Disclaimer)


Topics

Topics

  • Behavioral Finance

  • Understanding your current situation

  • Credit Scores

  • Retirement, the time value of money, & 401k / 403b

  • Investing 101

  • Savings accounts & fees

  • Love & Money

  • Home ownership, mortgages, refinancing, & renting

  • Tax strategy

  • Life insurance / Health Insurance

  • Tactical next steps


Happiness wealth

Happiness & Wealth

Happiness

Wealth


Why we need an automatic plan

Why we need an automatic plan…

  • People are not rational with financial decisions (susceptible to framing, prospect theory, anchoring, choice architecture, & the default option)

    • Study: the more often you check your portfolio the worse you do

    • We don’t like losing! (Prospect Theory) (DMR)

    • Commitment devices!

  • Google’s anchoring experiment (3% increase)


Why we need an automatic plan cont

Why we need an automatic plan (cont.)

  • “Save More Tomorrow” (12% vs 4%)

  • Allocation decisions & 1/n:

Scenario 1:

Fund A: Stocks

Fund B: Bonds

54% allocation to stocks

Scenario 2:

Fund A: Stocks

Fund B: ½ Bonds ½ Stocks

73% allocation to stocks

Scenario 3:

Fund A: ½ Bonds ½ Stocks

Fund B: Bonds

35% allocation to stocks


Prior to the webinar

Prior to the webinar

20 mins - capture your “Net Worth” (all assets & debts)

Use Mint.com; connect banking & investment accounts, student/car loans

  • Include property (homes & cars)

    • Homes: zillow.com

    • Cars: edmunds.com

      10 mins - understand your credit score

  • Signup for CreditKarma

  • Pull a free credit report from annualcreditreport.com; Experian in Jan, TransUnion in Apr, Equifax in Aug

    15 mins – analyze your current investments and get free advice: www.FutureAdvisor.com

    (optional) 30 mins - create a spending plan (aka budget)

  • Can be in Mintor even Excel

  • Savings must be a part of your plan


Understanding your c urrent s ituation

Understanding your current situation

  • Check Mint often

  • Spend < make

  • Save xx% of your income

  • “Pay yourself first” – schedule savings

  • Debts

    • Credit Cards & student loans

    • BT offers

  • Understand your current allocation & fees


Credit scores

Credit Scores

  • Credit Scores have 5 components: (300 850 scale, >720 is good)

    • On Time Payments: 35%(Use Auto-Pay)

    • Credit Utilization: 30%(use < 10%)

    • Length of history: 15% (keep old cards!)

    • Types of credit used: 10%

    • Recent inquiries: 10%(hard vs soft pulls)

  • Credit Scores affect mortgage rates, auto insurance, credit card rates, student loans, apartment rentals


I ll worry about retirement later

“I’ll worry about retirement later…”

  • Time Value of Money is HUGE!

  • Frick & Frack brothers

  • The “Rule of 72”

  • $$ saved from 25-35 > $$ saved 35 on

  • Everyone should have a (ROTH) IRA & 401k!

  • Are you on-track?

    • ~75% of ending salary per year

  • Share this!

See handout 


Retirement accounts

Retirement Accounts

  • IRA

  • 2014 Limit: $5,500

  • No matching

  • Hold at any institution

  • Thousands of investment options

  • Only contribute cash

  • Income limits

    • Different for Roth vsTrad

  • Jan 1 – Apr 15 (of following year) open period

  • 401(k) / 403(b)

  • 2014 Limit: $17,500

  • May get matching

  • Hold at company’s chosen firm

  • Limited choices

  • Only contribute from payroll

  • No income limits

  • May get a Roth option

  • Jan 1 – Dec 31 open period


Uncle sam will always get paid

Uncle Sam will always get paid

  • Roth

  • After-tax contributions (pay tax now)

  • Earnings grow tax-free

  • Roth IRA’s have no RMD’s

  • Roth IRA income limit: < $114k

  • “Backdoor Roth” option

  • Traditional

  • Pre-tax contributions (get a tax break now)

    • $120k salary, contribute max amount of $17,500

    • Taxable income now $102,500

    • 28% x $17,500 = $4,900

  • Taxed on the way out

  • Traditional IRA’s have RMD’s

  • Really depends on tax bracket now vs. retirement

  • Beliefs on long-term tax brackets / code / law

  • Solution: have some in each


Investing 101 active vs passive

Investing 101 & active vs. passive

  • Stocks, Mutual Funds, ETF’s, Bonds

  • Write down your financial principles / guidelines

  • 20-25% for “fun” if you must

  • Active vs. Passive Investing: research shows ~80-90% of active funds underperform their benchmark

  • 8,000  2,000  500  125

  • 20% most actively traded accounts performed much worse -men worse than women

  • Past fund performance has very little predictive power to future performance!

  • In fact, expense ratios are the best predictor


Expense ratios the enemy

Expense Ratios (the enemy)

  • Industry average (0.80%  2.50%)

  • Low cost options (0.06%  0.50%)

  • Get angry…it’s your money!

  • Use the calculator

  • Why “Rollover”

  • “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” – Upton Sinclair


Asset allocation rebalancing

Asset allocation & rebalancing

  • With proper allocation, you should reduce risk (volatility) and outperform the S&P 500

  • Rebalancing: meeting long-term policy target weights

  • Use it as a disciplined way of buying low and selling high

  • “..shunning the loved & embracing the unloved. Most people do the opposite.” (Swensen)

  • “Contrarian behavior lies at the heart of most successful investing programs.” (Swensen)

  • Example: 1990-2012 portfolio: +0.5% difference in return, -2% difference in volatility

My target allocation:


Precedence of saving

Precedence of Saving

  • Matching 401(k) or 403(b)– Max it!

  • Emergency fund (~6-9 months)

  • Pay down debt(s)

  • Roth IRA / Roth 401(k) or TSP

  • Taxable account

  • Alternatives (exotics)

    Invest in yourself too!


Savings accounts fees

Savings accounts & fees

  • ATM reimbursements

  • Never pay monthly service fees for savings/checking

  • CapitalOne 360:

    • doubled-ended bonus

    • emergency fund

  • “Direct deposit” & ACH pushes


Home ownership mortgages

Home ownership & mortgages

  • Up to a $300/month because of credit score

  • Real estate is a key component

  • Consider NOT holding your mortgage with the same bank as your investments

  • Typically 20% down, qualify for a home 3x your annual gross income

  • Closing costs, points

  • Refinancing

  • Being a landlord can be tough!


R ent

Rent

  • Rent : Income < 30% (rule of 36)

    • Impact in high-rent markets (SF / NYC)

  • Have rental package ready

    • Credit pull

    • Ask for a copy of credit report

  • Security deposit & interest

  • Zillow’s “zestimate”


Tax strategy

Tax strategy

  • Look for ways to reduce your taxes

    • Traditional 401k / IRA

    • Mortgage interest (& property management fees)

    • Education expenses

  • Consider capital gains (realize gains if you ever find yourself in the 10 or 15% tax bracket. 0% long term gains)

  • IRA conversions

  • Donate to charity with appreciated stock

  • Hire a professional – taxes are “grey” – ask questions!


Life insurance

Life insurance

  • Typically don’t need it until you have a family, but some people “lock” it in while they are healthy

  • Term vs. Whole

  • $500k for $42/month

  • Nice way to leave a gift

  • Auto & Health


Other random advice

Other random advice…

  • Never go without health insurance!

  • “Exotic” or “alternative” asset classes

  • Careful with your contracts

  • Always look for discounts

    • Cell phone bills (15%-20%)

    • AAA, movies, restaurants, museums, parks

    • Driving habits

    • Avoid buying a new car

  • Remember: smart investingis not very exciting, but it isvery rewarding!

  • Fatwallet Cash Back


Tactical next steps

Tactical next steps

  • Automate your savings (pay yourself first)

  • Open a (ROTH) IRA

  • Enroll in your company’s 401k

  • Stick to low-cost index funds

  • Help a friend (ER) or 19 yrold cousin

  • Company stock plans

  • Don’t let inaction win!


Student loans vs saving

Student loans vs. saving

  • Paying down student loans vs. saving for retirement

    • Max matching contributions

    • Consider interest rates

      loan rate: <2%  Invest >10%  pay down

      2%-10%  calculate

    • Both are urgent!

    • Save some to build the habit

    • Consider tax deduction

    • Windows are closed for good!

      • Grandma’s inheritance


My favorite p ersonal finance r esources

My favorite personal finance resources

  • Fatwallet Finance Forums

  • Bogleheads

  • Blogs: Mr. Money Mustache, Oblivious Investor

  • Networth IQ | Investopedia

    *Bonus Material*

    • Tax Loss Harvesting

    • the Credit Card game


Questions

Questions?

  • What is FutureAdvisor?

    • Free product – analysis & advice

    • Premium product – does it all for you + Tax-Loss Harvesting – for 0.5%

  • How do you differ from the competition?

    • We are holistic – they are not!

    • Where you have to hold your $$

  • Why would I pay 0.5% for this service?

    • Because it’s 1/2 to 1/3 the price of a traditional advisor

    • Because it will actually get done! (80% fact)

  • What funds do you use & are there commissions?

  • Sign up for a FREE account for a diagnosis!

    www.FutureAdvisor.com


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