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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

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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