Secure Your Financial Futurea discussion with
Fellows & Residents
October 7th, 2013Charles R. Korger, CFP®
Are you wondering?
1. How do I best save for retirement?
2. Should I pay off my school loans?
3. When can I afford a home?
4. How do I fund my child’s education?
5. What if something happens to me?
6. How do I balance these priorities?
What steps can I take to get myducks in a row?
Three Steps to a Secure Financial Future
1. Focus Your Approach
2. Use Rigorous Planning Techniques
3. Stay Disciplined
Five Common Financial Planning Mistakes
1. Lack of a Comprehensive Process
2. Emotional Decisions about Money
3. Speculating rather than Investing
4. Failure to understand Costs
5. Not Revisiting the Plan
STEP 1: FOCUS YOUR APPROACH
How does wealth management fit into your life?
Travel
Fund Children’s Education
Retirement
Time with Family
Maintain Health
Hobbies
Time with Friends
ManageCareer
People normally address financial planning after big change happens…
Focus on being proactive
Reactive financial decision making is expensivePerformance of the S&P 500 IndexDaily: January 1, 1970-December 31, 2011
$50,662
$45,431
$32,940
$19,130
$12,068
$9,190
Gro
wth
of
$1,0
00
Performance data for January 1970-August 2008 provided by CRSP; performance data for September 2008-December 2011 provided by Bloomberg. The S&P data are provided by Standard & Poor’s Index Services Group. US bonds and bills data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein is compiled from sources believed to be reliable and current, but accuracy should be placed in the context of underlying assumptions. This publication is distributed for educational purposes and shouldnot be considered investment advice or an offer of any security for sale. Past performance is not a guarantee of future results. Unauthorized copying, reproducing, duplicating, or transmitting of thismaterial is prohibited. Date of first use: June 1, 2006.
Focus on the issues that matter
THESE
Relationships
Values
Diversification
Long-Term Goals
Discipline The “Sure Thing”
Getting Rich Quick
Following a proactive process can help you achieve your financial goals
PROCESS SETS YOU FREE
Identify and organize your issues
Goals
Values
Relationshi
ps
Interests
Advisors
Address them Comprehensively and Focus on the Important Issues
ValuesInterests
ProcessWealth
Management
What is comprehensive?
STEP 2: USE RIGOROUS PLANNING TECHNIQUES
NOT ALL PLANNING IS CREATED EQUAL…
The central questions in planning are:
Applying probability based simulations to wealth management gives you the
framework for a plan…Or, does a 90%
probability of success give you more comfort?
Is a 50% chance of accomplishing your goals
enough Clarity?…
19
Sample Plan Scenario Results
20
Sample Results - Detailed
21
Sample Results – Choosing a Portfolio
For illustration purposes only. Source: J.P. Morgan Asset Management. Bonds are subject to interest rate risks. Bond prices generally fall when interest rates rise. The price of equity securities may rise or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. Equity securities are subject to “stock market risk,” meaning that stock prices in general may decline over short or extended periods of time. Investing in alternative assets involves higher risks than traditional investments and are suitable only for the long term. They are not tax efficient and have higher fees than traditional investments. They may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain.
Match Your Investments to Your Planning Needs
Coordination Must Exist
Account Structure •Estate planning
•Optimal Titling
Tax-Managed Investing
•Tax Loss Harvesting•Capital gains management
Asset Placement •Taxable – Muni Bonds•Deferred - Corporates
Much less effective without coordination
Taxable Account Value: $2,287,927Tax-Deferred Account Value: $5,031,328
Are you maximizing tax-advantaged opportunities?• Tax deferral has a major impact over time• For example: Look at the growth of $500,000 in a
taxable vs. tax-deferred portfolio over 30 years.
(assumes 8% annualized return and the 35% tax bracket)
STEP 3: STAY DISCIPLINED
The financial services industry and the news media want you to be undisciplined
Most investors aren’t disciplined
Indexes used are as follows: REITS: NAREIT Equity REIT Index, EAFE: MSCI EAFE, Oil: WTI Index, Bonds: Barclays Capital U.S. Aggregate Index, Homes: median sale price of existing single-family homes, Gold: USD/troy oz, Inflation: CPI. Average asset allocation investor return is based on an analysis by Dalbar Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/11 to match Dalbar’s most recent analysis.
Return and RiskPeriodic Table of Investment ReturnsAnnual returns for selected asset classes (1993 – 2012)Ranked in order of performance (best to worst)
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
MSCI EAFE
MSCI EAFE
Large Value
RealEstate
Large Value
S&P 500
MSCI EAFE
RealEstate
SmallValue
USBonds
Russell 2000
RealEstate
MSCI EAFE
RealEstate
MSCI EAFE
USBonds
MSCI EAFE
Real Estate
Real Estate
SmallValue
32.94% 8.06% 38.36% 37.05% 35.18% 28.58% 27.30% 31.04% 14.02% 11.02% 47.25% 33.16% 14.02% 35.97% 11.63% 5.70% 32.46% 28.07% 9.37% 18.05%
SmallValue
RealEstate
S&P 500
S&P 500
S&P 500
MSCI EAFE
Russell 2000
SmallValue
RealEstate
RealEstate
SmallValue
SmallValue
RealEstate
MSCI EAFE
USBonds
Small Value
Real Estate
Russell2000
USBonds
MSCI EAFE
23.85% 2.66% 37.58% 22.96% 33.36% 20.33% 21.26% 22.80% 12.35% 3.58% 46.02% 22.25% 13.82% 26.86% 7.23% -28.92% 28.46% 26.85% 8.74% 17.90%
Russell 2000
S&P 500
Russell 2000
Large Value
SmallValue
Large Value
S&P 500
USBonds
USBonds
SmallValue
MSCI EAFE
MSCI EAFE
Equally Weighted Portfolio
SmallValue
S&P 500
Equally Weighted Portfolio
Russell2000
SmallValue
S&P 500
Large Value
18.89% 1.32% 28.45% 21.65% 31.80% 15.65% 21.04% 11.84% 8.51% -11.42% 39.17% 20.70%7.58%
23.48% 5.49%-30.17%
27.17% 24.50% 2.11% 17.51%
Equally Weighted Portfolio
Equally Weighted Portfolio
SmallValue
SmallValue
Russell 2000
USBonds
Equally Weighted Portfolio
Large Value
Russell 2000
Equally Weighted Portfolio
RealEstate
Russell 2000
Large Value
Large Value
Large Value
Russell2000
S&P 500
Equally Weighted Portfolio
Large Value
Real Estate
18.69%0.59%
25.75% 21.37% 22.38% 9.47%9.90%
7.02% 2.49%-10.12%
36.18% 18.32% 7.03% 22.24% -0.17% -33.79% 26.46%18.00%
0.39% 17.12%
Large Value
Russell 2000
Equally Weighted Portfolio
Equally Weighted Portfolio
Equally Weighted Portfolio
Equally Weighted Portfolio
Large Value
Equally Weighted Portfolio
Equally Weighted Portfolio
Large Value
Equally Weighted Portfolio
Equally Weighted Portfolio
SmallValue
Equally Weighted Portfolio
Equally Weighted Portfolio
Large Value
Equally Weighted Portfolio
Large Value
Equally Weighted Portfolio
Russell2000
18.12% -1.82%24.43% 18.25% 21.83% 6.54%
7.35%6.77% -0.58%
-15.53%32.39% 17.96%
4.71%20.75% -0.63%
-36.85%22.57%
15.51%0.07%
16.35%
RealEstate
SmallValue
USBonds
Russell 2000
RealEstate
Russell 2000
SmallValue
Russell 2000
Large Value
MSCI EAFE
Large Value
Large Value
S&P 500
Russell 2000
Russell 2000
S&P 500
SmallValue
S&P 500
Russell2000
S&P 500
15.14% -1.54% 19.24% 16.54% 19.66% -2.56% -1.49% -3.03% -5.59% -15.66% 30.03% 16.49% 4.91% 18.37% -1.56% -37.00% 20.56% 15.06% -4.18% 16.00%
USBonds
Large Value
RealEstate
MSCI EAFE
USBonds
SmallValue
USBonds
S&P 500
S&P 500
Russell 2000
S&P 500
S&P 500
Russell 2000
S&P 500
SmallValue
Real Estate
Large Value
MSCI EAFE
SmallValue
Equally Weighted Portfolio
10.98% -2.00% 12.24% 6.36% 9.75% -6.44% -2.15% -9.10% -11.89% -20.48% 28.69% 10.88% 4.55% 15.80% -9.78% -39.20% 19.69% 8.21% -5.50%15.55%
S&P 500
USBonds
MSCI EAFE
USBonds
MSCI EAFE
RealEstate
RealEstate
MSCI EAFE
MSCI EAFE
S&P 500
USBonds
USBonds
USBonds
USBonds
RealEstate
MSCI EAFE
USBonds
USBonds
MSCI EAFE
USBonds
10.07% -3.51% 11.55% 2.91% 2.06% -17.01% -2.58% -13.96% -21.21% -22.10% 4.68% 4.20% 2.37% 3.78% -17.55% -43.06% 4.52% 6.59% -11.73% 4.84%
U.S. Small Value Stocks (Russell 2000 Small Value) U.S. Small Stock (Russell 2000)
U.S. Large Stocks (S&P 500 Index) Securitized Real Estate (Dow Jones US Select REIT Index)
U.S. Large Value Stocks (Russell 1000 Large Value) Large International Stocks (MSCI EAFE Index)
U.S. Bonds (Barclays Government/ Credit Index) Equally Weighted PortfolioSource: DFA Returns Program
2008/2009Investors in 2008 who were able to go back to their “Plan”, stayed disciplined and benefited from the recovery. They were far better off than those who panicked and tried to “Time the Market”.
Investors continue to be undisciplined
Source: Dalbar 2012
Create a plan that will keep you on track
Garbage in / Garbage out
You can only set your course after you have a realistic range of possibilities
Stated Goals % Chance of Success Comfortable Retirement… 97%Pass $7MM to Heirs… 76%
* Science would agree that an 80% chance of success is a high degree of probability when forecasting 30 (or more) years into the future.
The plan will be “wrong”Retirement can be 30 years or more - Forecasting that far down the road WILL require adjustment…
It must be reviewed in the event of:Extreme Market Turbulence
Death or Divorce
Relocation
Change in Goals
Retirement or other Milestones
Health and Disability issues
The next steps
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RESOURCES
http://www.independenceadvisors.com/resources/anesthesiologist-planning-resources
RESOURCES – GENERAL TOPICS
RESOURCES – EARLY CAREER
RESOURCES – NEARING RETIREMENT
RESOURCES – RECOMMENDED READING
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Disclosures
Asset class returns and allocations are shown for illustrative purposes only. Actual account allocations and returns vary based on investment objectives and individual portfolio construction.
Any probabilities shown are inherently speculative and shown for illustrative purposes only.
This analysis may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.
Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.
Investment in securities, including mutual funds, involves the risk of loss.
Expected returns are based on historical market performance of a similarly situated portfolio. Clients should understand that Independence Advisors, LLC cannot and does not guarantee that actual performance of their portfolio will equal or exceed expected returns indicated in this presentation.
Any information provided by Independence Advisor’s LLC regarding historical market performance is for illustrative and education purposes only. Clients or prospective clients should not assume that their performance will equal or exceed historical market results and/or averages.
The projections or other information generated by Monte Carlo analysis tools 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 simulations are a deterministic approach where historical figures are used as a guide to estimate portfolio’s future returns. The relevant calculations may be impacted greatly if assumed variables such as capital contributions, withdrawal amounts, inflation rates, expected rate of return, and volatility deviate from expectations.