Money At Work 1: Foundations of investing

Transcription

1 It s not about how much money you earn. It s about how much you save and invest. November 12, 2015 A TIAA-CREF Financial Essentials Workshop Bill Thorne TIAA-CREF Money At Work 1: Foundations of investing 1

2 Staying on course: Today s agenda Workshop overview Retirement Advisor Understanding saving Risk tolerance Asset classes Asset allocation IRAs: Which is right for you? Investing in stocks & mutual funds Demystifying the annuity Tools you can use Action steps and Q&A

3 Trivia: Opening round 1. What percentage of Americans has no confidence that they ll have enough money to retire comfortably? 2. What percentage of Americans report that they aren t contributing to any retirement plan?

4 The basics Where to begin? Assess your current situation Get out of debt Make saving a priority Create a budget, and stick to it Pay yourself first

5 Retirement Advisor - How much will you need? Use TIAA-CREF s tool to figure out your personal retirement situation.

6 Understanding saving: The rainy day will come Take advantage of employer retirement plans Start saving right away to take advantage of compound interest Put some savings toward an emergency fund Consider saving at least 10% of your income each year Consider tax advantages when looking into investment vehicles 403(b) tax-deferred annuity plans An IRA can give you a tax-advantaged boost! Dollar Cost Averaging does not guarantee a profit nor remove the risk of a loss in a declining market. Such a plan involves a continuous investment in securities regardless of fluctuating price levels of such securities. An investor should consider his/her financial ability to continue participating in such a plan during periods of low levels.

7 Investing in stocks: The Rule of 72 How long does it take to double your money? 72 9 the magic number your percentage rate of return as a whole number = 8 years it will take to double your money

8 Assumptions: 6.0% net rate of return; monthly contribution of $100 into a tax deferred account. This example is purely hypothetical and is not intended to represent the performance of any specific investment product. It is not intended to predict or project performance.

9 Investing: Find your type Vehicles vs. Investments Vehicles: 401(k), 403(b) or other types of investment accounts Investments: Stocks, bonds, mutual funds, annuities Keep an eye on your credit score 9

10 Understanding your risk tolerance What s your risk level? Conservative Moderately conservative Moderate Moderately aggressive Aggressive What s your time horizon? - There are inherent risks associated with investing in securities, including loss of principal. The greater the risk, the more likely you can lose money. An investor s needs and the suitability of an investment should be carefully considered prior to purchase.

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12 Class is in session Asset classes Guaranteed Money market Fixed income Real estate Stocks (a.k.a. equities) There are inherent risks in investing in securities. Past performance is no guarantee of future results. In addition, investment returns and principal value will fluctuate so your accumulation, when redeemed, may be worth more or less than the original cost. * Subject to TIAA s claims-paying ability. ** In California, the TIAA Real Estate Account is available through IRAs, but not all employer-sponsored plans. Please contact us to determine if your institution s plan can accept investments into the account.

13 Asset Allocation: Diversify your portfolio Diversify your portfolio to avoid big investment value fluctuations Divide your investments into stocks, bonds and cash equivalents Diversify by sector also (retail vs. energy vs. etc.) As you get closer to retirement, you may want to shift more investments to safer options Examples - Bonds, cash and a guaranteed account

14 Diversification is a technique to help reduce risk. However, there is no guarantee that diversification will protect against a loss of income. The strategies of diversification, rebalancing and asset allocation cannot eliminate the risk of investment losses or guarantee that an investor's goal will be met.

15 IRAs: Traditional vs. Roth Traditional Contributions may be tax deductible Tax-deferred potential growth No income limits to make contributions Roth Contributions made with after-tax dollars Withdrawals can be tax free (conditions apply)

16 Investing in stocks a primer A stock is a piece or share of something valuable Stocks are also known as equities Stocks are volatile investments their value can vary a great deal in a short time period BUT that s looking at too big a picture! Past performance does not guarantee future results.

17 Mutual funds: Strength in numbers Generally made of several assets, like stocks or bonds Money is pooled to buy assets for the investors who own part of the fund Retirement accounts can invest in mutual funds After tax vs. employer-sponsored retirement plans 17

18 Demystifying the annuity An annuity is a contract between you and an insurance company There are different kinds of annuities: Fixed vs. variable annuities Some annuities offer the option of lifetime income Myths about annuities

19 More trivia! No financial experience needed What percentage of marriages begin online these days?

20 Average annual total returns ( ) (Subtract inflation from the nominal return to get the real return.) % Treas ury Bills Chart illustrates returns from 1/1/1926 to 12/31/2014. *Real Estate returns are from 12/31/ /31/2014 from NCREIF Index % % Stocks Source: Ibbotson Associates, a wholly owned subsidiary of Morningstar, Inc. These returns are for illustrative purposes only and do not reflect TIAA-CREF performance or the returns various kinds of investments may earn in the future. Stocks represent shares of ownership in a corporation, bonds are debt obligations and real estate is direct property ownership. The value of each will fluctuate with market conditions. Treasury bills (T-bills) and government bonds are insured as to timely payment of principal and interest by the U.S. government, unlike stocks and corporate bonds. T-bills are short-term money market instruments. Past performance does not guarantee future returns. S&P 500, Ibbotson U.S. Long Term Corporate Bonds, Ibbotson U.S. Long Term Government Bonds, Ibbotson U.S. 30-Day Treasury Bills, U.S. Consumer Price Index for All Urban Consumers (CPI-U). Please note that the indexes are unmanaged and that it is not possible to invest directly in an index.

21 You re in control of your investments: Next steps Pay off debt Make and stick to a budget Discover your investment personality Build your investment mix Review your retirement plan regularly Use our online tools: Schedule an appointment with a financial consultant

22 Tools and resources Retirement Advisor Selecting the right IRA

23 Congratulations. You ve invested in your future today. Questions?

24 Action steps Call Monday to Friday, 8 a.m. to 8 p.m. (ET) to schedule a one-on-one session with a TIAA-CREF Financial Consultant Schedule online at

25 Sources 24% of working Americans, and 14% of retirees, are not at all confident about having enough money for a comfortable retirement. 1 Employee Benefit Research Institute, Issue Brief The 2015 Retirement Confidence Survey: Having a Retirement Savings Plan a Key Factor in Americans Retirement Confidence, April 2015 Nearly 4 in 10 American workers say they aren t contributing to any retirement plan, according to a 2014 study by the Employee Benefit Research Institute. 2 Employee Benefit Research Institute, Issue Brief The 2015 Retirement Confidence Survey: Having a Retirement Savings Plan a Key Factor in Americans Retirement Confidence, April 2015 We ve seen that over half of all Americans say they are not contributing to any retirement plan. That number goes up to 69% when you look at just Gen Y the people in the 18 to 34 range, which is worse. 3 TIAA-CREF Institute/Global Financial Literacy Excellence Center, College-Educated Millennials: An Overview of Their Personal Finances, February 2014 Health expenses increase steadily with age. Households between ages 50 and 64 spent 8% of their total budget on health items, while those ages 85 or older spent 19% of their budget on health items. Health-related expenses occupy the second-largest share of total expenditure for those over age Employee Benefit Research Institute, How Does Household Expenditure Change With Age for Older Americans? September 2014

26 Sources Asset allocation involves dividing an investment portfolio among different asset categories you may be able to limit your losses and reduce the fluctuations of investment returns. 5 Securities and Exchange Commission, Beginners Guide to Asset Allocation, Diversification, and Rebalancing, accessed August 2015 Nearly one-third (32%) of all marriages begin online 6 Cyberpsychology, Behavior, and Social Networking, Is Online Better Than Offline for Meeting Partners? Depends: Are You Looking to Marry or to Date? October 2014

27 The Retirement Advisor does not monitor your retirement assets or personal circumstances. The purpose of the retirement income tool is to show how the performance of the underlying investment accounts could affect the participant's policy cash value and the resulting retirement income. It is not intended to project or predict investment results. The advice may vary over time and with each use. There may be other investments not considered by the Retirement Advisor that have characteristics similar or superior to those being analyzed. The tool s advice is based on statistical projections of the likelihood that you will achieve your retirement goals. The projections rely on financial and economic assumptions of historical rates of return of various asset classes that may not reoccur in the future, volatility measure and other facts, as well as information you have provided. IMPORTANT: Projections and other information generated through the Retirement Advisor regarding the likelihood of various investment outcomes are hypothetical, do not reflect actual investment results and are not a guarantee of future results. The projections are dependent in part on subjective assumptions, including the rate of inflation and the rate of return for different asset classes. These rates are difficult to accurately predict. Changes to the law, financial markets or your personal circumstances can cause substantial deviation from the estimates. This could result in declines in the account s value over short or even extended periods of time.

28 You should consider the investment objectives, risks, charges and expenses carefully before investing. Call or log on to tiaacref.org for underlying product and fund prospectuses that contain this and other information. Read the prospectuses carefully before investing. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value. TIAA-CREF products may be subject to market and other risk factors. See the applicable product literature, or visit tiaa-cref.org for details. It is possible to lose money when investing in securities. TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., and Nuveen Securities, LLC, Members FINRA and SIPC, distribute securities products. Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association of America (TIAA) and College Retirement Equities Fund (CREF), New York, NY. The TIAA-CREF Retirement Advisor is a brokerage service provided by TIAA-CREF Individual & Institutional Services, LLC, a registered broker/dealer and member of FINRA. After-tax annuities are issued by TIAA-CREF Life Insurance Company, New York, NY. Each is solely responsible for its own financial condition and contractual obligations. Annuities are designed for retirement and other long term goals. If you choose to invest in variable annuities, your money will be subject to the risks inherent in investing in securities. Annuities offer several payment options, including lifetime income. Guarantees are based on the claims-paying ability of the issuer. Payments from the variable annuity accounts are not guaranteed and will rise or fall based on investment performance. Withdrawals of earnings from a retirement account or annuity are subject to ordinary income tax, plus a possible federal 10% penalty if you make a withdrawal before age 59½.

29 The tax information contained herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. It was written to support the promotion of the products and services addressed herein. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA- CREF), 730 Third Avenue, New York, NY C25648 (09/15)

30 Thank you! Call Monday to Friday, 8 a.m. to 8 p.m. (ET) to schedule a one-on-one session with a TIAA-CREF Financial Consultant Schedule online at