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Transcript of Wayne lippman-walnut-creek week1-investmentbasics
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The Financial Survival Guide to Retirement
http://www.yelp.com/biz/wayne-lippman-lippman-and-associates-cpas-walnut-creek-2Walnut Creek, CA
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The Financial Survival Guide to Retirement
Investment Basics
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Introductions
• Me• Class
– Name– Occupation?– Years to retirement?– Favorite dessert
• What do you want from the course?
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Course Objectives• Understand the basics of investing• Understand basic retirement strategies• Know the whys
– Why should one invest in something or not– Why retirement strategies work or don’t– Why investment strategies may or may not be good
• Be able to guide own retirement or interact intelligently with advisors
• Course will work with generic profile– Class is welcome to share information, may be
anonymous– No one will be required to share private information
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Course Outline• Retirement Basics
– How to predict the future– Simple model
• Retirement Strategies• Investment Basics• Investments and Retirement• Applying What You’ve Learned
– Critique retirement seminars– Discuss articles– Analyze portfolios
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DisclaimerWilliam Klinger is not a registered or certified investment advisor, financial planner, or broker/dealer. This material is solely for educational and informational purposes. William Klinger does not purport to tell or suggest which investment securities you should buy or sell for yourself and nothing in this talk should be construed as investment advice, either on behalf of particular investments or in regard to overall investment strategies. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. You are solely responsible for your own investment decisions.
William Klinger receives no compensation of any kind from any investment companies that may be mentioned in this talk but may hold positions in the securities mentioned. Any opinions expressed are subject to change without notice.
Securities investments are risky and past performance doesn't guarantee future results. All securities investments entail the risk of great and sudden financial loss. Returns vary and you may have a gain or loss when you sell your securities. No assurance is given that anything described here will be successful.
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Investment Basics
Questions to be answered:– How should one invest? And why?– Invest in what? – How does one
invest? – What
are the mechanics?
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What to Invest In – The Basics
Asset Classes• Stocks• Bonds• Cash
There are others but these are the fundamental asset classes. Start with these before getting fancy.
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Asset Classes• Stocks
– Ownership in a corporation• Bonds
– Corporate and government debt – Must be repaid
• Cash– Checking, savings accounts– Money market accounts– CDs– US Treasury Bills
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Stocks vs. Bonds
• How stocks work– Capital gain/loss– Optional dividends
• How bonds work– Maturity date, principle– Capital gain/loss– Interest rate
• How cash works– Interest rate (APR)
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Types of Stock
• Common stock• Preferred stock
– Convertible
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Types of Bonds
• Corporate– Debenture
• Federal Government– Treasury Bonds (T-Bonds, Treasuries)
• Municipal bonds– General obligation– Revenue
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Risk
• In finance, typically defined as standard deviation of returns.
• What are the risks for:– Stocks– Bonds– Cash
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Asset Allocation• What percent of your money should be in each asset
class?For example:
• 70% stock, 25% bonds, 5% cash, or• 30% stock, 65% bonds, 5% cash
• The answer depends upon:– Your investment objective– Your tolerance for risk
Common rule-of-thumb% stock = 100 - your age
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Investment Objectives
Possible objectives:• Must you have the money without a loss?• Do you want to generate current income?• Do you want the money to grow over a long
time?
Which asset class is best for each?
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Risk
• How much risk can you tolerate?– Can you stomach a 30% loss? A 50% loss?
• One of investors’ biggest risks is themselves.– Risk of “Greed and Fear”– End up buying high and
selling low – the worst possible strategy
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Risk – By Asset Class
Worst Annual ReturnSince 1925
Average Annual Return Since 1925
Stocks-43.4%
(-67.6% worst 12 mo.)9.6%
(162.9% best 12 mo.)
Bonds -7.8% 5.5%
Cash .1% 3.7%
Sources: personal.fidelity.com, Morgan Stanley, www.efficientfrontier.com, Federal Reserve – St. Louis
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“Typical” Portfolio Allocations
Stocks Bonds Cash
Conservative 20% 55% 25%
Moderately Conservative 40% 50% 10%
Moderate 60% 35% 5%
Moderately Aggressive 70% 25% 5%
Aggressive 80% 15% 5%
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Special Risk for Retirees
• Inflation• Insidious risk for those on fixed incomeInflation rateYears to halve purchasing power 2% 36 years 4% 18 years 6% 12 years
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In Practice• Most common approach is stock/bond allocation
– Typically 60/40 split– Many advise using 100 – YourAge = percent stocks to own
• Can continue to get diversification and returns with other investments– Foreign stocks– Foreign bonds– TIPS
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Summary
• Asset allocation is the single biggest determinate of portfolio results
• Major asset classes– Stocks– Bonds,– Cash
• How you allocate your investments depends upon the returns you need and risk you can take
• Rule-of-thumb: %stock = 100 - age
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Homework
• Inventory your assets– What are your total investable assets?– What are they invested in? By percentages.
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Sources of Information• Basics
– Money Magazine money.cnn.com • Tip: use your frequent flyer miles to subscribe
– personal.vanguard.com/us/planningeducation/education – personal.fidelity.com/misc/gettingstarted/gs-fund-allocat
e.shtml.cvsr
– “William Gross on Investing”, William Gross• Thought Provoking
– “Fooled by Randomness”, Nassim Taleb
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About Wayne Lippman
https://www.facebook.com/lippman.associates.CPAs
https://www.youtube.com/waynelippman
http://waynelippman.com
https://twitter.com/waynelippman
Wayne Lippman has forty years of experience in public accounting including twenty years with Price Waterhouse, where he served as a tax partner in the San Francisco and Oakland offices. He was previously Managing Tax Partner of the Walnut Creek office of Price Waterhouse.
http://Waynelippman.wordpress.com
Lippman & Associates CPA’s Inc.3100 Oak Rd # 350, Walnut Creek, CA 94597 waynelippman.com (925) 256-0800 Open now: 8AM–5PM