Download pptx - Financial Planning Skills for a Lifetime: A Presentation by Certified Financial Planner Joel Greenwald, MD, CFP

www.joelgreenwald.com

From One Physician to Another:

Financial Planning Skills for a LifetimeMinnesota Osteopathic Medical Society 2013 Fall Conference Inn on Lake Superior • Duluth, MinnesotaSeptember 27-28, 2013

Joel Greenwald, MD CFP®Greenwald Wealth Management

1660 South Highway 100, Suite 270St. Louis Park, MN 55416Telephone: 952 641 [email protected] www.joelgreenwald.com

Securities and Advisory Services Offered Through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

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mailto:[email protected]

http://www.joelgreenwald.com/


In thinking about my retirement it seems more probable that:A. My money will outlive me/my spouseB. I/my spouse will outlive our money C. I have no idea

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Within the last three years I/my financial advisor has run a retirement planning projection using software that incorporates Monte Carlo analysis.A. YesB. NoC. Don’t KnowD. Gambling winnings from Monte

Carlo is my retirement plan3


Case Study

The following is a hypothetical example and is for illustrative purposes only. No specific investments were used in this example. Actual results will vary. Past performance does not guarantee future results.

Client Tom, MD (Family Medicine)

Jill (Nurse)

Joint

Age 55 55Income $280,000 $50,000 $330,000

INCOME

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Investment Assets

Client Tom Jill JointInvestment Assets

401(k) $1,250,000 $250,000Brokerage Account $400,000

Total Investment Assets $1,900,000

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Investment Assets

• Tom contributes $40,000/year to his 401(k)/Profit-sharing Plan.

• Jill contributes $10,000/year to her 401(k). • They save $2000/month into a joint brokerage

account.

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Investment Assets

• Tom and Jill have three children and college funding is complete.

• They would both like to retire in 5 years at age 60 and be able to spend $120,000/year in today’s dollars, $10,000/month.

• Planning age is 94.• Social Security is included.

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Are they on track to be financially independent at age 60?

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What is financial independence?

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Important Disclosure Information

IMPORTANT: The projections or other information generated by MoneyGuidePro regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary with each use and over time. Monte Carlo SimulationsThe return assumptions in MoneyGuidePro are not reflective of any specific product, and do not include any fees or expenses that may be incurred by investing in specific products. The actual returns of a specific product may be more or less than the returns used in MoneyGuidePro. It is not possible to directly invest in an index. Financial forecasts, rates of return, risk, inflation, and other assumptions may be used as the basis for illustrations. They should not be considered a guarantee of future performance or a guarantee of achieving overall financial objectives. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment.

MoneyGuidePro Methodology: Results Using Monte Carlo SimulationsMonte Carlo simulations are used to show how variations in rates of return each year can affect your results. A Monte Carlo simulation calculates the results of your Plan by running it many times, each time using a different sequence of returns. Some sequences of returns will give you better results, and some will give you worse results. These multiple trials provide a range of possible results, some successful (you would have met all your goals) and some unsuccessful (you would not have met all your goals). The percentage of trials that were successful is the probability that your Plan, with all its underlying assumptions, could be successful. In MoneyGuidePro, this is the Probability of Success. Analogously, the percentage of trials that were unsuccessful is the Probability of Failure. The Results Using Monte Carlo Simulations indicate the likelihood that an event may occur as well as the likelihood that it may not occur. In analyzingthis information, please note that the analysis does not take into account actual marketconditions, which may severely affect the outcome of your goals over the long-term.

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MoneyGuidePro uses a specialized methodology called Beyond Monte Carlo™, a statistical analysis technique that provides results that are as accurate as traditional Monte Carlo simulations with 10,000 trials, but with fewer iterations and greater consistency. Beyond Monte Carlo™ is based on Sensitivity Simulations, which re-runs the Plan only 50 to 100 times using small changes in the return. This allows a sensitivity of the results to be calculated, which, when analyzed with the mean return and standard deviation of the portfolio, allows the Probability of Success for your Plan to be directly calculated. Assumptions and LimitationsMoneyGuidePro offers several methods of calculating results, each of which provides one outcome from a wide range of possible outcomes. All results in this Report are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. All results use simplifying assumptions that do not completely or accurately reflect your specific circumstances. No Plan or Report has the ability to accurately predict the future. As investment returns, inflation, taxes, and other economic conditions vary from the MoneyGuidePro assumptions, your actual results will vary (perhaps significantly) from those presented in this Report. All MoneyGuidePro calculations use asset class returns, not returns of actual investments. The projected return assumptions used in this Report are estimates based on average annual returns for each asset class. The portfolio returns are calculated by weighting individual return assumptions for each asset class according to your portfolio allocation. The portfolio returns may have been modified by including adjustments to the total return and the inflation rate. The portfolio returns assume reinvestment of interest and dividends at net asset value without taxes, and also assume that the portfolio has been rebalanced to reflect the initial recommendation. No portfolio rebalancing costs, including taxes, if applicable, are deducted from the portfolio value. No portfolio allocation eliminates risk or guaranteesinvestment results. MoneyGuidePro does not provide recommendations for any products or securities.

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Portfolio Value Graph

Assumes 5.91% average annual return and 3% inflation rate.

Source: MoneyGuideProThe projections of these portfolio values are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. 12


Retire at Age 60

Probability of Success = 41%

Results generated by the MoneyGuidePro financial planning system.

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What options do Tom and Jill have?

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Delay retirement to age 64



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Retire at age 60 and save an extra $12,000/month between

age 55 and 60



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Spend less

Retire at age 60 and spend $8,300/month in today’s dollars, 17% less than in scenario #1, and the probability of success= 72%


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Investors’ Behavior Undermine Their Goals

Equity Investor S&P 500 Index $-

$100,000.00

$200,000.00

$300,000.00

$400,000.00

$500,000.00

$600,000.00

4.25% 8.21%

Source: DALBAR, Inc., Quantitative Analysis of Investor Behavior 2013Average equity investor performance was used from the DALBAR study, Quantitative Analysis of Investor Behavior (QAIB), 2013. QAIB calculates investor returns as the change in assets after excluding sales, redemptions and exchange. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses, and other costs, annualized over the period. The Standard & Poor’s 500 Index (“S&P 500”) is an unmanaged index of 500 common stocks generally representative of the U.S. stock market. You cannot directly invest in the S&P 500 index. Inflation is measured by the CPI index. Past performance does not guarantee future results.

Annualized Returns January 1993 – December 2012

$229,891

$484,560

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Source: MPI Stylus and FactSet.

This example is for illustrative purposes only. Performance data quoted represents past performance. Past performance does not guaranteefuture returns. Investors should note that diversification does not assure against market loss and that there is no guarantee that a diversified portfoliowill outperform a nondiversified portfolio. The return and value of investment products will fluctuate with market conditions. Indices are unmanagedand investors cannot invest directly in an index. The above asset classes are represented by the following indices: Large-Cap – Russell 1000; Mid-Cap– Russell Midcap; Small-Cap – Russell 2000; World Stock – MSCI EAFE; Emerging Markets – MSCI EM; Intermediate-Term Bonds – BarclaysCapital U.S. Aggregate Bond Index; Muni National Intermediate – Barclays Capital U.S. Municipal Bond; Real Estate – MSCI US REIT; High-YieldBond – BofA US HY Master II; Money Market – BofA US 3–Month T-Bill; Long/Short – DJ Credit Suisse Long/Short; Managed Futures – DJCredit Suisse Managed Futures; Market Neutral – CISDM Equity Market Neutral Index; Commodities – Dow Jones USB Commodity Index.

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Range of Investor Emotions

Hope, Optimism – People are making money in stocks; I should invest too.

Confident – I’ve already made money! This is Great!

Thrilled – I should put more money in stocks!

Euphoric – This is easy! It’s different this time! Why do we invest in bonds?!

Concerned – I didn’t think it could drop that fast!

Panic, Hopelessness, Fear – My account is down how much? I think I might lose it all!

Surprised – I think I lost a little money. It’ll come back.

Defeated/Capitulation – Get me out! I can’t take this anymore! It’s different this time!

Encouraged – Maybe I should invest in the market again.

Hope, Optimism – Maybe everything will be OK.

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How to Avoid Emotional Investing

1. Measure your and your spouse’s risk tolerance with a validated tool.

2. Craft a written Investment Policy Statement.

3. Monitor your portfolio periodically (at least annually) and rebalance as needed.

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Greenwald Wealth Management

Joel Greenwald, MD CFP®1660 South Highway 100, Suite 270St. Louis Park, MN 55416Direct: 952 641 7616 |Office: 952 641 7595 [email protected] | www.joelgreenwald.com

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All Investments are subject to risk, including the loss of principal. Because investment return and principal value fluctuate, shares may be worth more or less than their original value. High-yielding investments offer the potential for higher returns but involve substantial risks, tend to be more volatile, and, therefore, may not be suitable for all investors. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved. All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results. The S&P 500 Dividend Aristocrats index measures the performance of large cap, blue chip companies within the S&P 500 that have followed a policy of increasing dividends every year for at least 25 consecutive years. The Barclays Capital Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Barclays Capital government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities.

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