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Investing 101

Investing 101. L. Gattis Monday 7PM-8:30PM March 18, 2013 103 Career Services Building. Agenda. How much do I need in retirement? How much do I need to save today for retirement? How do I allocate funds among asset classes? How do I select securities? Take Aways.

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Investing 101

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  1. Investing 101 L. Gattis Monday 7PM-8:30PM March 18, 2013 103 Career Services Building

  2. Agenda • How much do I need in retirement? • How much do I need to save today for retirement? • How do I allocate funds among asset classes? • How do I select securities? • Take Aways

  3. How Much Do I Need in the First Year of Retirement? • Maybe 40% – 70% of final year income < Plug < Smooth

  4. How Much Wealth do I Need at Retirement? • Maybe 8-12 times final year income

  5. How Much of My Income Do I Need to Save? • Assumes long term average returns and Age in Bonds Rule • Maybe 10-15% if you start at age 25 • You mayneed to save over 17% if you start at age 35! • Assumptions • $100K Salary • 11% Savings Rate • Age in Bonds Allocation • 6% Real Stock Returns • 2% Real Bond Returns

  6. How Do I Select Securities? • Mutual Funds “Managed” • E.g., Fidelity Magellan Fund • 0.53% Net Expense Ratio, 10-Year Return = 5.32% • Index Funds • E.g., Fidelity Spartan 500 Index • 0.10% Net Expense Ratio, 10-Year Return = 8.16% • Target Retirement Date (Life Cycle) Funds • E.g., Vanguard Target Retirement 2045 • 63% U.S. Stock Index • 27% Intl Stock Index • 10% Total Bond Index

  7. Personal Financial Risks • Death/Disability/Unemployment of Working Spouse • Life and Disability Insurance, 6-month emergency fund • College Debt (and other personal debt) • Need to save about $5,000 per year per child (starting at birth) to fully fund $25,000/year college • Market crash near retirement • Life cycle investing (reducing risk over time) • Downsize or delay retirement • Retirement Healthcare • LTC, Medi-gap insurance policies • Home equity • Long Life • Long Life Insurance • Purchase Life Annuity at Retirement • Reverse Mortgage

  8. Take Aways • Need retirement wealth of 8-12 times final year income to smooth retirement transition • Save 10-15% of your salary starting at age 25 • Save more than 15% if start at age 35 • Reduce portfolio risk as you approach retirement – either by annual reallocations or life cycle funds • Risk Mitigation: Emergency Fund, Insurance, Home Equity, Retirement Flexibility (downsize/delay)

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