Disclaimers and Conflicts I am not a financial advisor, but I play one in real life Most physicians (and people in general) are poor money managers All decisions and investments are at your own risk Personal Finance Antonio X. Bonfiglio, M.D., FACEP Department of EM SJMOH August 19, 2014 I use a financial advisor, really, no kidding You Must Have a Plan More than just budget, but have one of those too Save early and often! Limit debt! Live within your means Needs, wants and desires There is no special sauce. What s the Point? Any plan needs to be based upon individual goals; these will vary Raising a family, retirement, disability, wealth accrual and longevity, leisure, paying down debt Work because you love it not because you have to! Beware financial vampires The Team We re getting the band back together. You are the C Your spouse is the A Starting lineup is you and your spouse, attorney, CPA/tax person, insurance agent, financial advisor The Team works for YOU and your goals Monitor performance, stay engaged! Financial Advisors Fee for service, flat rate or percentage Understand what you are getting into and demand performance Fees can be negotiable Be wary of I gotta guy Do your homework Remember Without a budget, there is no money to invest and without money to invest, there is no financial planning 1
Legal Documents Will v. Trust Avoid probate Essential if you are married or have kids Protect your money Durable power of attorney/medical decision making Net worth is assets-debts Definitions Net worth should increase over time Nirvana is not a 90s band but is when the sum of your assets begins to generate enough income to satisfy your financial goals Monopoly Life will bring joy and sadness in a financial sense Always keep an emergency fund for the unexpected Three to four months of take home income to cover fixed costs or mitigate disasters Odds are it will happen, be prepared! Insurance Yes please Life Medical Disability and Long Term Care Liability Term Life Whole Life Universal Life Variable Life Life Insurance Remember, Bill Gates does not need life insurance nor does a single guy in his 90s Term Life In general the least expensive and most accessible Has a fixed or defined benefit for a certain time frame Has a variable premium depending on your age Easy protection against catastrophe early in life 2
Whole Life Universal Life More expensive and often benefit the agent more in the early years Guaranteed premiums, benefits and cash values Have the potential to provide dividends which may increase the value of the policy or death benefit Similar to whole life More flexible to build policy s cash value Allows for a change in benefit and premium Allows for money to be set aside in a tax deferred status Variable Life Investing Rules An investment and life insurance More expensive than term life Needs aggressive funding to work best Monies are invested to grow value Has cash out option to pay for your goals like college, retirement Usually has variable death benefit options SAVE the money you need INVEST the money you can risk Speculate the money you can lose Risk CAN lead to reward Be the ball Danny.. Know thyself Early and often. COMPOUNDING!! Risk tolerance is individual Investment Options Certificates of Deposit Fixed Rate CDs Bonds Variable Rate/Equities Stocks Municipal funds Real Estate Precious Metals Historically have had higher interest rates, not any more Money is not readily accessible Income is taxable Very low risk 3
Bonds Government Notes Buying debt Maturity of bond provides payment Many different kinds with different tax implications Rating systems available like Moody s and Standard and Poor s Generally low risk, favored by older investors US Savings Bonds Treasury Bonds/Notes/Bills Municipal Bonds More risky Used by cities to raise money and borrowing power Speculation? Laddering Bonds or CDs Stocks 1.2% 2.3% 3.1% 3.8% Fixed Rate Every 6 months buy a 24 month maturity issue Maturity 6 months 12 months 18 months 24 months Buying ownership in a company Subject to performance of company and its leadership Win some, lose some Initial investment (principal) nay provide appreciation (growth) or depreciation (loss) and even dividends (income) Can be risky Mutual Funds Vehicle by which money is distributed across stocks/companies Less risky because of DIVERSIFICATION Professional management Mutual Funds Thousands to choose from Load or no load Sector options Domestic or International Index funds Prospectus..what? Dollar cost averaging long term 4
Real Estate Precious Metals Your house to start Pay down mortgage Real estate can be an investment option Appreciation and tax advantages Know what you are getting into Location, location, location All Gold Everything Protects against inflation Last bastion against market collapse Why gold/silver/platinum? Diversification Retirement Can t overestimate the importance Protections against market fluctuations Calm in the eye of the storm Bonds: short, medium, long Stocks/Mutual Funds: growth, income, small cap, large cap, international, index Other options Don t forget CASH Low priority when you are young Highest priority later in life Wish I did.. Pre-Tax dollars Taxable later when in lower tax bracket How and where do you want to live? Compounding Retirement Options $1000/yr at 10% IRAs Pension and Profit Sharing 20 yrs 25 yrs 35 yrs 40 yrs $57,270 $98,000 $271,020 $442,590 401K or equivalent Annuities 5
IRAs Annual contribution levels can change ALWAYS put away the max Tax deferred growth Taxable on distribution Roth is post tax dollars, deferred growth and nontaxable on distribution Pensions Employer funded with pre-tax dollars Tax deferred growth but taxable on distribution Many IRS rules govern Not reachable on liability claims ALWAYS take the max contribution 401s Employee funded with pre-tax dollars Tax free growth Taxable upon withdrawal Penalty upon early withdrawal NEVER DO IT Employer may match Annuities Often attached to life insurance Funded with post-tax dollars but have tax deferred growth Significant penalties for early withdrawal Retirement Balance 70% pension/ira/401 20% social security yeah right 10% other sources Mega Millions Baby!! 529 Plans If you have kids, a good way to save Various state plans Mutual funds, managed money Still has risk! Bernie Madoff Others can contribute for you Makes college easier 6