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Building Personal Wealth: Creating the Life You’ve Imagined www.northstarfp.com Presented by: Melinda Davis, CRPC.

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Presentation on theme: "Building Personal Wealth: Creating the Life You’ve Imagined www.northstarfp.com Presented by: Melinda Davis, CRPC."— Presentation transcript:

1 Building Personal Wealth: Creating the Life You’ve Imagined Presented by: Melinda Davis, CRPC

2 o Fewer than two in 10 women feel “very prepared” to make wise financial decisions. Half indicate that they “need some help,” and one-third feels that they “need a lot of help.” o We are going to live longer than men, yet we tend to invest more conservatively than them. o Nearly two-thirds of U.S. women ages 40 to 79 have already dealt with a major financial “life crisis,” such as job loss, divorce, the death of a spouse, or serious illness o The average age of widowhood is 55 years old. (US Census Bureau) Why is it important for you to be here today and take control of our personal finances?

3 Financial Knowledge = Security

4 The secret to building personal wealth is THERE IS NO SECRET. It takes discipline, making good financial decisions, possibly giving things up, all over a good amount of time. You DON’T have to be a genius or have the best business idea. You DO have to save!

5 Financial Freedom Peace of mind Opportunity Living your dreams Happiness Being in control Creating the life you want

6 8 Steps to Building Wealth 1.Have a Plan: “Those who fail to plan, plan to fail” 2.Take Your Financial Measurements 3.Start Saving Early – Pay Yourself First 4.Create an adequate cash reserve 5.Keep Investing Simple 6.Use Tax-deferred Accounts 7.Protect your Wealth with Insurance 8.Stay Disciplined

7 Create a Financial Plan o Set goals. o Envision what you want your life to be and create a roadmap to get there. o Determine how much you need to save to get there. o Creating a plan will help you make more conscious decisions about what you are spending money on. o Understand when you say “Yes” to something what you might be saying “No” to.

8 Take Your Financial Measurements : You can’t get to where you want to be if you don’t know where you are Create a Net Worth Statement What is a Net Worth Statement? o A Summary of your Assets and Liabilities (What you HAVE and what you OWE) Assets Include: Cash Accounts Investment Accounts Retirement Accounts Real Estate & other personal assets Liabilities Include: Personal Debts (credit cards, auto loans) Home Loans ASSETS – LIABILITIES = NET WORTH

9 Sara contributed $5,000 per year from age 25 to age 35, for a total of $55,000. Mary didn’t start contributing until age 35, and contributed $5,000 per year until age 65, for a total of $155,000. Assuming an investment return of 8% per year, Sara has a balance more than 35% higher than Mary’s, with a third of the amount contributed. SAVE EARLY

10 Create a cash reserve Why: It will reduce financial stress and set you up not to reach for credit cards or cash out of retirement accounts when an un-expected event comes up like medical costs or the loss of a job. How Much: Typically 6 month of your basic expenses. If you have a job with inconsistent income or you own a business, you may want more. Where to keep it: This money should be in safe, liquid investments such as a money market account. You want to make sure you will have access to it when you need it.

11 Keep Investing Simple Control What You Can Control o Use Low-Cost Investments – Fees Matter o Be Diversified o Don’t Chase Trends o Don’t try to time the market o Be resilient in times of crisis

12 Fees Matter For illustrative purposes only. o Fees matter. o Over long time periods, high management fees and related expenses can be a significant drag on wealth creation. o Passive investments generally maintain lower fees than the average actively managed investment by minimizing trading costs and eliminating the costs of researching stocks. IC $4,983,951 $3,745,318 $2,806,794 1% Fee 2% Fee 3% Fee $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 1 Year3 Years5 Years10 Years20 Years30 Years Time Dollars Assumed 6.5% Annualized Return over 30 Years

13 Be Diversified – Asset Allocation Matters Asset allocation: the process of allocating money across financial assets with the objective of achieving a desired return while maintaining an appropriate level of risk. An appropriate level of risk is when you have enough risky assets (stocks) to meet your rate of return goals, without creating so much volatility that you sell out when markets come down. ** If you are a business owner, remember to have investments outside of your business

14 The Randomness of Returns – Don’t Chase Trends In US dollars. US Large Cap is the S&P 500 Index, provided by Standard & Poor’s Index Services Group. US Large Cap Value is the Russell 1000 Value Index. US Small Cap is the Russell 2000 Index. US Small Cap Value is the Russell 2000 Value Index. Russell data copyright © Russell Investment Group , all rights reserved. US Real Estate is the Dow Jones US Select REIT Index, provided by Dow Jones Indexes. International Value data provided by Fama/French from Bloomberg and MSCI securities data. International Small Cap data compiled by Dimensional from Bloomberg, StyleResearch, London Business School, and Nomura Securities data. International Small Cap Value data compiled by Dimensional from Bloomberg and StyleResearch securities data. Emerging Markets is the MSCI Emerging Markets Index (gross dividends), copyright MSCI 2013, all rights reserved; see MSCI disclosure page for additional information. One-Year US Fixed is the BofA Merrill Lynch One- Year US Treasury Note Index, used with permission; copyright 2013 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. Five- Year US Government Fixed is the Barclays Capital Treasury Bond Index 1-5 Years, formerly Lehman Brothers, provided by Barclays Bank PLC. Five- Year Global Fixed is the Citigroup World Government Bond Index 1-5 Years (hedged), copyright 2013 by Citigroup. Indexes are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Annual Return (%) DV Each color represents a different asset class, such as large company stocks, short-term bonds, international stocks, etc. You’ll notice there is not one LEADER. 14

15 All US StocksExcluding the Top 10% of Performers Each Year Excluding the Top 25% of Performers Each Year Compound Average Annual Returns: Missing Opportunity in Equities Results based on the CRSP 1-10 Index. CRSP data provided by the Center for Research in Security Prices, University of Chicago. o Strong performance among a few stocks accounts for much of the market’s return each year. o There is no evidence that managers can identify these stocks in advance — and attempting to pick them may result in missed opportunity. o Investors should diversify broadly and stay fully invested to capture expected returns. LT1395.5

16 Timing the Market is Risky and Rarely Works Performance data for January 1970-August 2008 provided by CRSP; performance data for September 2008-December 2012 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 should not 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 this material is prohibited. Date of first use: June 1, Daily: January 1, 1970-December 31, 2012 LT Total Period Missed 1 Best Day Missed 5 Best Single Days Missed 15 Best Single Days Missed 25 Best Single Days One-Month US T-Bills Annualized Compound Return 9.94%9.66%8.84%7.47%6.33%5.30% 16

17 October 1987: Stock Market Crash August 1989: US Savings and Loan Crisis September 1998: Asian Contagion Russian Crisis Long-Term Capital Management Collapse March 2000: Dot-Com Crash September 2001: Terrorist Attack The Market’s Response to Crisis – Be Resilient Balanced Strategy: 7.5% each S&P 500 Index, CRSP 6-10 Index, US Small Value Index, US Large Value Index; 15% each International Value Index, International Small Index; 40% BofA Merrill Lynch One-Year US Treasury Note Index. The S&P data are provided by Standard & Poor’s Index Services Group. The Merrill Lynch Indices are used with permission; copyright 2012 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. CRSP data provided by the Center for Research in Security Prices, University of Chicago. US Small Value Index and US Large Value Index provided by Fama/French. International Value Index provided by Fama/French. International Small Cap Index compiled by Dimensional from StyleResearch securities data; includes securities of MSCI EAFE countries in the bottom 10% of market capitalization, excluding the bottom 1%; market-cap weighted; each country capped at 50%; rebalanced semiannually. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be construed as investment advice. Returns of model portfolios are based on back-tested model allocation mixes designed with the benefit of hindsight and do not represent actual investment performance. Performance of a Normal Balanced Strategy: 60% Stocks, 40% Bonds LT September 2008: Bankruptcy of Lehman Brothers 17

18 This graph shows the difference in value between an investment of $100,000 over 25 years in a taxable account vs. a tax-deferred account, each growing at 8% per year. The gains in the taxable account are taxed at a 20% tax rate.

19 Protect Your Wealth Make sure that you and your spouse have enough insurance to cover your goals if something were to happen to one of you. Life InsuranceDisability InsuranceMedical Insurance Term Insurance Least expense Life Insurance. Covers a specific period of time (10 years, 20 years, etc.). Best for insuring goals like College and Retirement Covers a % of your income if you were to become disabled. Important to cover necessities. Very important if you are commissioned. Company may only cover salary. Have at least catastrophic coverage. Medical Debt is the leading cause of personal bankruptcy filings.

20 Stay Disciplined “The three great essentials to achieve anything worth while are: Hard work, Stick-to-itiveness, and Common sense.” - Thomas A. Edison Remember: o Have a Plan: Think of Your Financial Freedom o Save early and often. Make it automatic! o Make conscious decisions with your money o Create a Cash Reserve o Control what you can control o Don’t chase investing trends o Protect Your Wealth

21 Prioritize Your Future As women, we worry. We are more conservative. We can be good planners and are better investors. Plan for your success now. Find someone who will help you be accountable to creating a plan. Winston Churchill once said, “ Let our advanced worrying become advanced thinking and planning.”

22 Resources Sign up for our Free Whitepaper : “ Guide to managing Your Wealth: Six Keys to Financial Wellness”


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