Case Studies in Financial Planning

Transcription

1 Case Studies in Financial Planning Joel Greenwald, MD CFP Greenwald 1660 South Highway 100, Suite 270 St. Louis Park, MN Telephone: Securities and Advisory Services Offered Through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Fixed Insurance products and services offered by Greenwald are separate and unrelated to Commonwealth. The following does not represent actual clients but a hypothetical composite of various client experiences and issues. Any resemblance to actual people or situation is purely coincidental.

2 Meet M.J. 28 year old 1st year family practice resident -Single -$100,00 student debt, with interest rates ranging from 2.8% and 6.8% -Salary of $48,000 per year -Residency program provides: A. $50,000 term life policy B. Group disability insurance C. 403(b) with match This hypothetical report is not indicative of any security s performance and is based on information believed reliable. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions. This hypothetical example is for illustrative purpose only and should not be construed as specific investment advice. Your individual circumstances should be taken into consideration before any investment plan is implemented.

3 Things to consider: A. Should M.J. pay off debt or start investing? B. Emergency Fund- What is it, and how much should I have? C. How much should M.J. aim to save each year? D. Investment Vehicles 403(b) vs. Roth IRA Importance of signing up for 403(b) E. How to invest? Asset Allocation F. Life Insurance- Does she need it? G. Disability Insurance- What are the benefits of an individual policy This hypothetical report is not indicative of any security s performance and is based on information believed reliable. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions. This hypothetical example is for illustrative purpose only and should not be construed as specific investment advice. Your individual circumstances should be taken into consideration before any investment plan is implemented.

4 Meet B.D. 29 year old 1st year family practice resident - Same resident program as M.J. - Married to psychiatry resident - Two children, ages 2 & 4 Things to consider: A. Life Insurance B. Wills C. Education Planning- 529 plans This hypothetical report is not indicative of any security s performance and is based on information believed reliable. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions. This hypothetical example is for illustrative purpose only and should not be construed as specific investment advice. Your individual circumstances should be taken into consideration before any investment plan is implemented.

5 I ask myself When should I start paying attention to this sort of stuff? Should I work with a financial planner? How do I find the right financial planner? How is a financial planner compensated?

6 Investors Behavior Undermine Their Goals $500, $400, $300, $200, Annualized Returns January 1991 December 2011 $198,595 $449,967 $100, $- 3.49% 7.81% Equity Investor Source: DALBAR, Inc., Quantitative Analysis of Investor Behavior 2012 Average equity investor performance was used from the DALBAR study, Quantitative Analysis of Investor Behavior (QAIB), 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. S&P 500 Index

7 Range of Investor Emotions Thrilled I should put more money in stocks! Confident I ve already made money! This is Great! Hope, Optimism People are making money in stocks; I should invest too. 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! Surprised I think I lost a little money. It ll come back. Panic, Hopelessness, Fear My account is down how much? I think I might lose it all? 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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9 Source: MPI Stylus and FactSet. This example is for illustrative purposes only. Performance data quoted represents past performance. Past performance does not guarantee future returns. Investors should note that diversification does not assure against market loss and that there is no guarantee that a diversified portfolio will outperform a nondiversified portfolio. The return and value of investment products will fluctuate with market conditions. Indices are unmanaged and 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 Barclays Capital U.S. Aggregate Bond Index; Muni National Intermediate Barclays Capital U.S. Municipal Bond; Real Estate MSCI US REIT; High-Yield Bond BofA US HY Master II; Money Market BofA US 3 Month T- Bill; Long/Short DJ Credit Suisse Long/Short; Managed Futures DJ Credit Suisse Managed Futures; Market Neutral Morningstar Market Neutral; Commodities Dow Jones UBS Commodity Index.

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