1. Jump-Start Your Retirement Plan! Hosted by the Florence County Library System Funding for this Series was Provided by a grant from the Smart investing@your library ®, a partnership between FINRA Investment Education Foundation and the American Library Association Presented by Jan M. Serrano, PhD, CFP ® http://www.finra.org/AboutFINRA/index.htm

2. Asset Class = Type of Investment Cash Equivalents Safety Equities (Stock)Growth Fixed Income (Bonds) Income

3. http://advisor.morningstar.com/uploaded/pdf/PRIYL01_11_SAMPLE.pdf http://advisor.morningstar.com/uploaded/pdf/US_speaker_note_SAMPLE.pdf http://www.morningstar.com/products/institutional/SBBI.pdf

4. S&P 500 Index With Recessions Source: http://research.stlouisfed.org/fred2/graph/?id=SP500,

5. Effects of Diversification Chart based on data from Steele Mutual Fund Investor Monthly returns for 90 day T-Bill, Aggregate Domestic Bond index, and S&P 500 October 2007 – March 2012

6. https://www.wellsfargo.com/retirement/tools/assetallocation/generic The shorter your time horizon, the less risk you can afford to take. Historical returns are a starting point for estimating pre-retirement return YOU MAY NOT ACHIEVE THE SAME RETURNS! – NO GUARANTEES! Better to start somewhere and adjust your plans as you go along than to Ignore the decisions that must be made and retire without knowing!

7. Pre-Retirement Investment Return Estimate: Conservative 0-5 years Example: (.32 X 3.5%) + (.48 X 5.25%)+ (.20 X 10.85%) = 5.81% What is your suggested Asset Allocation ? (_____ X 3.5%) + (______ X 5.25%) + (_____ X 10.85%) = ______%

8. Mutual Fund = Basket of Investments Advantages Instant Diversification Can Achieve Diversification with Small Investment Professional Management or Tracks Index Disadvantages No Control over what is bought or sold Tax Consequences for those in High Bracket Fees can be Higher

9. Mutual Fund Basket of Securities Can be… Actively Managed – Fund Manager Picks Securities for the Portfolio Indexed – Fund Returns Designed to Track an Index

10. Stock Fund ABC Mutual Fund $ Shares of ABC Growth Fund Stock $ IBM Stock Shares of IBM Stock IBM Stock Coca Cola Stock Shares of Coca Cola Stock Coca Cola Stock Caterpillar Stock Shares of Caterpillar Stock Caterpillar Stock

11. Stock Fund ABC Mutual Fund Shares of ABC Growth Fund Stock IBM Stock Coca Cola Stock Caterpillar Stock IBM Stock Pays a Dividend $ IBM Dividend $ Passed Through to ABC Stockholders $ $ $$

12. Stock Fund ABC Mutual Fund Shares of ABC Growth Fund Stock IBM Stock Coca Cola Stock Caterpillar Stock Sell IBM Stock For Capital Gain $ Capital Gain Reported To IRS for Each ABC Shareholder $ $ $$ Proceeds Used to Buy Proctor & Gamble Stock PG Stock

13. Bond Fund ABC Mutual Fund $ Shares of ABC Bond Fund Stock $ IBM Bonds IBM Bond Certificates IBM Bonds Coca Cola Bonds Coca Cola Bond Certificates Coca Cola Bonds U.S. Treasury Bonds U.S. Treasury Bond Certificates U.S. Treasury Bonds

14. Bond Fund ABC Mutual Fund Shares of ABC Bond Fund Stock IBM Bonds Coca Cola Bonds U.S. Treasury Bonds Coca Cola Bond Pays Interest $ Coke Interest $ Passed Through to ABC Stockholders $ $ $$

15. Balanced Fund ABC Mutual Fund $ Shares of ABC Balanced Fund Stock $ IBM Stock Coca Cola Bonds Coca Cola Bond Certificates Coca Cola Bonds U.S. Treasury Bonds U.S. Treasury Bond Certificates U.S. Treasury Bonds Caterpillar Stock

16. Mutual Fund = Basket of Investments Advantages Instant Diversification Can Achieve Diversification with Small Investment IBM: $204.89 for 1 share of stock Amana Trust Income (AMANX):$33.15 per share http://portfolios.morningstar.com/fund/summar y?t=AMANX&region=USA&culture=en-US

17. Bond Fund ABC Mutual Fund $ Shares of ABC Bond Fund Stock $ IBM Bonds IBM Bond Certificates IBM Bonds Coca Cola Bonds Coca Cola Bond Certificates Coca Cola Bonds U.S. Treasury Bonds U.S. Treasury Bond Certificates U.S. Treasury Bonds

18. Bond Purchase Bond Today $1,023. 65 $80 Receive Fixed Interest $1000 Receive Face Value At Maturity

19. No Control Over What is Sold Sample Bond Portfolio: U.S. Treasury Bonds $ 10 Million AAA Corporates $ 10 Million B Corporates $ 10 Million Sovereign Debt $ 10 Million Mortgage Backed $ 10 Million Asset Backed $ 10 Million $ 60 Million Total

20. Source: Steele Mutual Fund Investor December 2013

21. Stock Fund Style Box VALUE BLENDGROWTH LARGE CAP MID CAP SMALL CAP

22. Bond Fund Style Box SHORT INTERMEDIATELONG TERM HIGH QUALITY MID QUALITY LOW QUALITY

23. How to Manage Risk in Stock Portfolio – Diversify ( Number) Number of Stocks In Portfolio Variability of Portfolio Returns Zero Risk High Risk Cannot Remove All Risk Just By Adding Securities Measure “Market Risk” with stock’s Beta

24. Different Types of Mutual Funds Equity Funds (Stock) ◦ Global vs. International ◦ Value vs. Growth ◦ Large Cap vs. Small Cap ◦ Sector Funds ◦ Equity Income Funds ◦ Emerging Markets Funds ◦ Country Funds

25. Different Types of Mutual Funds Fixed Income Funds (Bonds) ◦ Short Term vs. Long Term ◦ Treasury vs. Corporate ◦ High Quality vs. Low Quality ◦ Mortgage Pass-Thru vs. CMO ◦ Bank Loan ◦ Asset Backed ◦ Agency Debt ◦ Sovereign Debt ◦ Municipal Bonds  Revenue vs. General Obligation  Insured vs. Uninsured

26. Different Types of Mutual Funds Combinations of Stocks and Bonds ◦ Balanced Funds ◦ Asset Allocation ◦ Target Date or Life Cycle ◦ Market Neutral

27. Purchasing Mutual Funds Different Companies have different funds available You can buy them through a broker (fees involved) You can buy them directly from Fund Company (no load) Different Fee Structures available on most funds from Broker: A shares – High up front fee low annual fees B shares – No up front fees, declining back end fees when sell shares declines over time generally higher annual fees C shares – No up front, No back end if hold greater than a year, and higher annual fees

28. What is in YOUR Mutual Fund? Google Morningstar.com Click on the “Funds” tab

29. Evaluating Your Current Portfolio Google morningstar.com Click on “Tools” Scroll Down the Page to “Instant X-Ray”

30. Retirement Accounts 401-K or 403-B Defined Contribution Employee contributes and Employer matches to some extent Limited number of investments to choose from Funds grow tax free while in the account Can’t access funds unless leave service Pay income tax on all funds withdrawn Can roll over to IRA if quit or fired with no tax consequences

31. Retirement Accounts Individual Retirement Account (IRA) Can set up on your own – “individual” Wide variety of investments to choose from Roth Vs. Regular IRA Contribution Limits Under 50 Over 50 Funds grow tax free while in the account Can roll over 401-K to IRA Contribution limits subject to income levels Pay income tax on all funds withdrawn IRS charges 10% penalty on funds withdrawn before age 65.

32. Why is tax deferral important? Invest $10,000 Money Grows at 8% per year for 30 years with no taxes. Value = $100,627 Invest $10,000 Money Grows at 8% per year. Pay 25% in Taxes Each Year. Earns 6%. Value = $57,435

33. Two Categories of Broker-Dealers Full Service Typically Charge More May offer more services May have larger research operations Discount Brokers Typically Cheaper You may have to research investments on your own. May have limited services available

34. Individuals Who Work for Broker- Dealer Called Registered Representatives Must register with FINRA Must pass a qualifying exam Series 6 – Can only sell mutual funds Series 7 – Can sell broad array of securities Must be licenses by state securities regulator

35. Registered Representatives Salesmen People used to use the term “broker” to refer to these individuals May go by GENERIC TITLES as ◦ FINANCIAL CONSULTANT ◦ FINANCIAL ADVISOR ◦ INVESTMENT CONSULTANT

36. Different Ways Fees are Assessed Buying Stocks and Bonds: Commission Based – Charged a fee every time you buy or sell. Full Service Brokers charge more – provide more services. Online brokers charge less – may have limited access to research or services. Buying Mutual Funds: A, B, C, or No Load Wrap Account or Fee Based – One fee charged no matter how many trades are made, typically as a percent of assets, and can include Stocks, Bonds, Mutual Funds, and other types of investments.

37. Discretionary Account Give the Investment Professional permission to make decisions for you including what securities to buy or sell, at what price, and at what time. Fees typically charged as a percent of assets on a sliding scale that declines as amount increases. You have to sign an agreement Could have several “Managed Accounts”

38. Non-Discretionary Account Investment professional NOT AUTHORIZED to buy or sell securities for your account without your approval. May make recommendations, but ultimately you have to make the decisions. Could be commissioned based fee structure Or Asset based fee structure.

39. Resources FINRA list of questions Sources of Information on Background Check Professional Designations http://apps.finra.org/DataDirectory/1/prode signations.aspx

40. BE CAUTIOUS Of Investment Professionals who promise above average account performance! Who say you are making “Risk-Free” investments. Who Guarantee that your investments will grow at a particular rate or Who Guarantee that you won’t lose Money

41. Don’t Be Intimidated You should find out about who you plan to trust with your life savings! You should seek out someone who offers the products and services you want. You should not be rushed to make a decision. You should ask questions about things you do not understand. Does your investment professional’s advice make sense?

42. Pick Someone Compatible with Your Needs Services Fee basis Psychological

43. Don’t Expect Your Investment Professional to teach you everything you need to know about investments. Your investment professional to be able to do a good job if you are not willing to give him/her ALL of your information. – ESPECIALLY for financial planning. Your Investment Professional to work for free. Every Investment Professional to have the same level of experience or expertise.

44. Mutual Fund Fees Some Different Types of Fees: Front End Load = One time fee - Percent of Investment $ deducted at time of purchase (reducing amount actually available to invest). 12b-1 = Charge deducted each year – Percent of account value. Management Fees or Expense Ratio: Charge deducted each year – Percent of account value. Back End Load (CDSC) - One time fee - Percent of Account Value deducted at time of sale. (typically declines to a value of 0 over several years).

45. Example: ABC Mutual Fund Class A Shares: Load = 5.75% 12b-1 =.25% per year CDSC = 0 Expense Ratio = 1% per year Class B Shares:Load = 0% 12b-1 = 1% per year CDSC = 7% year 1, 6% year 2, 5% year 3, 4% year 4, 3% year 5, 2% year 6, 1% year 7, and 0 thereafter Expense Ratio = 1% per year Class C Shares:Load = 0 12b-1 = 1% per year CDSC = 1% year 1, 0% thereafter Expense Ratio = 1% per year Same mutual fund, different fee structures.

46. Invest $10,000 leave it in 10 years A Shares: Invest $10,000 - Load 575 = 10000X.0575 $9,425 Say fund Returns 8% per year Fund Return = 8.00% -12b-1 = -.25% - Expense Ratio-1.00% Return After Expenses6.75% per year Value After 10Years = $18,111.74

47. Invest $10,000 leave it in 10 years B Shares: Invest $10,000 - Load 0 $10,000 Say fund Returns 8% per year Fund Return = 8.00% -12b-1 = -1.00% - Expense Ratio-1.00% Return After Expenses6.00% per year Value After 10Years = $17,908.47

48. Invest $10,000 leave it in 10 years C Shares: Invest $10,000 - Load 0 $10,000 Say fund Returns 8% per year Fund Return = 8.00% -12b-1 = -1.00% - Expense Ratio-1.00% Return After Expenses6.00% per year Value After 10Years = $17,908.47

49. Invest $10,000 leave it in 3 years A Shares: Invest $10,000 - Load 575 = 10000X.0575 $9,425 Say fund Returns 8% per year Fund Return = 8.00% -12b-1 = -.25% - Expense Ratio-1.00% Return After Expenses6.75% per year Value After 3Years = $11,465.29

50. Invest $10,000 leave it in 3 years B Shares: Invest $10,000 - Load 0 $10,000 Say fund Returns 8% per year Fund Return = 8.00% -12b-1 = -1.00% - Expense Ratio-1.00% Return After Expenses6.00% per year Value After 3Years = $11,910.16 -4% CDSC $476.41= $11,433.75

51. Invest $10,000 leave it in 3 years C Shares: Invest $10,000 - Load 0 $10,000 Say fund Returns 8% per year Fund Return = 8.00% -12b-1 = -1.00% - Expense Ratio-1.00% Return After Expenses6.00% per year Value After 3Years = $11,910.16

52. Fees Differ Across Funds http://financials.morningstar.com/fund/expe nse.html?t=AIVSX&region=USA&culture= en-US http://financials.morningstar.com/fund/expe nse.html?t=PAMVX http://financials.morningstar.com/fund/expe nse.html?t=FUSEX

53. FINRA Mutal Fund Expense Analyzer http://apps.finra.org/fundanalyzer/1/fa.aspx

54. Why is tax deferral important? Invest $10,000 Money Grows at 8% per year for 30 years with no taxes. Value = $100,627 Invest $10,000 Money Grows at 8% per year. Pay 25% in Taxes Each Year. Earns 6%. Value = $57,435