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We “Watch-ovia” Your Money. By: Frank Bruno Matthew Cohen Kevin Connelly Matthew DiCroce. Family Background. Family of four Father works for Wachovia as bank executive Mother works as professor at Law School Two children, ages 12 & 10 401(K) plans with 5 & 8% matching

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we watch ovia your money

We “Watch-ovia” Your Money

By:

Frank Bruno

Matthew Cohen

Kevin Connelly

Matthew DiCroce

family background
Family Background
  • Family of four
    • Father works for Wachovia as bank executive
    • Mother works as professor at Law School
    • Two children, ages 12 & 10
    • 401(K) plans with 5 & 8% matching
    • Wachovia stock options
    • Minimal Savings
    • $2,000 mortgage payment
financial overview
Financial Overview
  • Maximize 401(K) savings
    • Lowers taxable income and provides additional savings through company matching program
  • 529 Plan for both children
  • Various Moderate Risk Mutual and Retirement Funds
  • Pay down mortgage
second home
Second Home
  • Due to minimal savings and high first mortgage rate.
  • Invest in Tax beneficial plans
    • 401(K)
  • To buy house, you would need approximately 20% down payment.
household income
Household Income
  • Household pre-tax earnings = $200,000
  • Less ($28,000) 401K contributions = $172,000
mortgage interest deductions
Mortgage Interest Deductions
  • Interest payment components of mortgages are tax deductible.
  • To find the interest portion, we set up an amortization table and find the interest components for this year, then deduct them from our pre-tax income.
mortgage interest deductions1
Mortgage Interest Deductions
  • Starting Pre-tax income = $172,000
  • Less ($22,108) Interest = $149,892
taxes
Taxes
  • 28% Federal Tax Bracket, 3% State, Plus local and property taxes. All rounded to 35%.
  • Pre-Tax Income $149,892
  • Less Income Tax Expense ($56,462.50)
  • NET INCOME = $97,430
mortgage payment
Mortgage Payment
  • Payments contributing to principle are NOT tax deductible.
  • Net Income = $97,480
  • Less Mortgage Payment (non interest) ($1893)
  • INCOME LEFT = $95,537
other expenses
Other Expenses
  • Health Insurance = $1,200
  • Car Payments = $9,600
  • Car Insurance = $4,000
  • Gas = $3,600
  • Food = $10,000
  • Clothes = $6,000
  • Utilities = $6,000
  • INCOME LEFT = $55,137
misc expenses
Misc. Expenses
  • We estimated that the family will spend around $20,000 in other everyday costs. (Holidays, Birthdays, Vacations, Medicines, Summer Camps, Kid Expenses, Etc.)
  • INCOME LEFT = $35,137
college plan
College Plan
  • Family will invest in a 529 College Plan to cover 60% of 2 college educations.
  • Cost: $15,360 / yr
  • INCOME LEFT: $19,777
savings
Savings
  • Of the left over income, we will allocate about 30% for savings.
  • Funds Available for Investment: $13,777
allocation
Allocation
  • Mutual Funds: $6,300
  • Stocks: $3,000
  • Bonds: $4,477
mutual fund investment
Mutual Fund Investment
  • $6,300 Dollar Allotment for Mutual Funds
  • Vanguard as Fund Manager
    • Reliable
    • Proven Performer
    • Quality Customer Service
types of funds
Types of Funds
  • No-Load Index Funds
    • Minimal maintenance fees
    • Provide broad market exposure for low income investors
    • Reduce risk
    • $3,000 Minimal Investment
      • 2 funds per year
  • Indexes Covered
    • Large Cap Stocks, Emerging Markets, Growth Stocks, Real Estate, Bond Markets
first year
First Year
  • Vanguard Large Cap Index Fund
    • $20.44 share
    • 5.06% after tax return since inception in 2004
    • Holdings: Exxon Mobil and J&J
  • Vanguard Long Term Treasury Fund
    • $11.67 share
    • 5.88% annual return last 10 years
    • Holdings: 10-30 year bonds
second year
Second Year
  • Vanguard Small Cap Index Fund
    • $24.91
    • Holdings: Reliant Energy and DeVita Inc.
    • 9.13% after tax annual return past 10 years
  • Vanguard Emerging Market Index Fund
    • $14.67
    • Holdings: China Mobil and Samsung
    • 5.28% annual after tax return
      • 17.44% most recent year
third year
Third Year
  • Vanguard Money Market Fund
    • $1.00 fixed cost
    • Holdings: short term money market products
    • 3.74% 10 year annual return
  • REIT Index Fund
    • $17.88
    • Holdings: Real estate and capital growth stocks
    • 14.97% after tax annual returns
bond investments
Bond Investments
  • After other expenses and investments
    • $4,477 for bond investments
  • What bonds to invest?
    • Low risk
    • Long-term return
    • Treasury bonds
    • Municipal bonds
equity investments
Equity Investments
  • After other expenses and investments
    • $3,000 for equity investments
  • Stock options at Wachovia
    • Can exercise 1,000 shares at $60
    • Currently valued at $50.26 as of 4/26/05
what to invest in
What to Invest in?
  • Minimal Savings
  • Need to save for college and retirement
  • Type of Equities to consider
    • Low to Moderate Risk
    • Different Sectors
    • Strong earnings
consider this
Consider This
  • Market Cap
  • Beta
  • P/E Ratio
  • Dividend payout or stock split
family equity portfolio
Family Equity Portfolio
  • Overall Beta of Portfolio
    • 1.474
  • Diversification- 4 Sectors
    • Technology
    • Conglomerate
    • Life Insurance
    • Computer Software