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Page 1: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Kootenay Valley Financial Services

Page 2: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Two Great Questions in Life

A$$ETSWhat do What do

You Have?You Have?What do What do

You Have?You Have?

GOAL What do What do You Need?You Need?What do What do

You Need?You Need?

Page 3: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Principles for Long Term Investment Success

Asset class performance is ________________over long time frames.

Investment expense are ________ importantthan returns.

Diversification is not always ____________ .

Mutual Funds are ____________ within asset classes.

______________ asset classes based on volatility enhances return.

PREDICTABLE

MORE

EFFICIENT

RANDOM

COMBINING

Page 4: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

What are Your CORE BELIEFS?

Taxes WILL always go up, not down. ______ ______

To be financially SECURE incomemust keep pace with inflation. ______ ______

Life expectancies ARE greater than ever. ______ ______Managed Equities ARE safer than CD’s and Bonds. ______ ______

Risk is a necessary evil. ______ ______

Yes No

XX

XX

XX

XXXX

Page 5: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Speculative

Foundation

Investors typically have THREE types of Capital

To achieve a consistent investment return – You must avoid the BIG MISTAKE!

3. _______________ 2. _______

1.

Core

Page 6: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

The S&P Average MarketReturn over the last 10 Years?

12.7%

Ibbotson, Morningstar andFidelity studies show

Average Investor Returns over the last 10 Years.

2.3%

Page 7: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

The THREE Barriers to financial success

1. _____________________

2. _____________________

3. _____________________

Taxes

InflationInefficient

Diversification

INVESTMENT FRICTION

Page 8: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Let’s look at TAXES!!!

If $1 doubles every year for 20 years

$1,048,576$100 =In a

40% Tax Bracket$12,089

In a28% Tax Bracket

$51,353

Notice the huge impact TAXES can have on your wealth

Page 9: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

What is RISK?

Name the TWO kinds of risk:

1. _____________________________

2. _____________________________

Loss of Capital

Loss of Purchasing Power

Page 10: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

What Causes LOSS of CAPITAL?

It’s all about Volatility

Page 11: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Whose Numbers are those?

They are notYours - UNLESSYou are Buying orSelling

Page 12: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

How do you measure Volatility?

Average ROR

Index

Average ROR+/-

12% 17

+17%-17% 12%

High 29% Low - 5%

+29%- 5%

Risk is ALL ABOUT VolatilityRisk is ALL ABOUT VolatilityRisk is ALL ABOUT VolatilityRisk is ALL ABOUT Volatility

Page 13: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

3.0% 2.7% 1.6% 1.7% 3.3% 2.7% 2.7% 2.8% 3.0% 3.1% 6.1% 4.6% 4.4% 4.4% 1.1% 3.8% 4.0% 3.8% 3.9% 8.9%12.4%

200019991998199719961995199419931992199119901989198819871986198519841983198219811980

13.0% 9.0% 6.8% 4.8% 7.0% 12.2% 8.8% 3.4% 3.4% 5.5% 6.1% 4.7% 3.0% 3.3% 1.9% 1.2% 1.7% 1.2% 0.7% 1.5% 1.5%

1.8% 3.0% 2.0% 0.4% - 0.5% 0.6% 0.9% 5.9% 5.8% - 1.8% 2.7% 9.0% 18.2% 2.2% 2.1% 3.2% 9.3% 9,7% 1.0% - 0.5% - 2.8%

197919781977197619751974197319721771197019691968196719661965196419631962196119601959

195819571956195519541953195219511950194919481947194619451944194319421941194019391938

Now let’s look at INFLATION

AVERAGE 3.6% 4.8% 3.4%

Page 14: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

StampWoman’s SkirtHouseCarLoaf of Bread½ Gal MilkMedian Income

$ .09$ 7.50$25,000$ 3,400$ .23$ .50$ 4,594

$ .50$ 85.00$235,000$ 25,000$ 2.39$ 2.15$ 18,500

5.85%8.43%7.76%6.68%8.12%4.98%4.66%

COMMODITY 1970 TODAY INFLATION

Does History Really Repeat Itself?

What is the TRUE Inflation rate?

Page 15: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

24%?

1940 1960 1980 2000

7%

14%

% Over age 65Living to age 90

Why is Inflation such a PROBLEM?

The longer people livethe higher the risk theywill “Run Out of Money”

The longer people livethe higher the risk theywill “Run Out of Money”

Page 16: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

The ‘Real’ Return of a GIC

4.3%2.4%

6.9%

10.8%8.8%8.8%

14.8%

1.3%e

0.03%

1.9%0.52%

1.2%1.9%

-2.0%1.2%

-1.2%e

2.6%1.4%

6.5%

4.5%5.3%

8.9%

0.8%e

-3.0

-1.0

1.0

3.0

5.0

7.0

9.0

11.0

13.0

15.0

Ye

arl

y T

ota

l Re

turn

s %

2.1%

GIC yearly return

GIC after marginal tax rate (40%)

GIC Real Return (after inflation)

Source: DataStream, Dec 2001 ($ Cdn)

Page 17: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Real Return on $1000 Invested 1981-2001

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

Ye

arl

y R

etu

rns

$

Source: DataStream, Dec 2001 ($ Cdn)

GIC Real Return 20 yr avg 0.84%

MSCI Real Return 20 yr avg 6.6%

TSE 300 Real Return 20 yr avg 4.3%

S&P 500 Real Return 20 yr avg 10%

$1000 invested in 1981

$6726.13

$3604.68

$2333.26

$1166.97

Page 18: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Retirement

But Remember – Risk is also Inflation

So, which Risk is Guaranteed to Happen?

Page 19: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Brinson Study

60

80

100

0

20

40

Timing

2%2%

StockSelection

4%4%

AssetAllocation

94%94%

What IMPROVES Portfolio PerformanceWhat IMPROVES Portfolio Performance

Page 20: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

1.

2.

3.

Where should I invest my MONEY?Where should I invest my MONEY?

Name THREE basic Asset Classes?

Cash

Stocks

Bonds

Page 21: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Stocks

Domestic International

Large Small

GrowthBlendValue

Medium

Page 22: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

HistoricalHistoricalReturn on Return on InvestmentInvestment

Volatility IndexVolatility Index

Small Cap

Large Cap

Corporate Bonds

Gov’t Bonds

Inflation

Is asset class performance PREDICTABLE?Is asset class performance PREDICTABLE?

12.4%

11.3%

5.6%

5.1%

3.3%

39.62%

20.17%

8.78%

9.43%

16.61%

8.51%

4.57%

4.69%

1 Year 5 Year

4.42% 3.29%

Page 23: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

The Lipper StudyThe Lipper Study

Mutual Funds in the same asset class eventuallyEarn the same average rate of return.

REGRESSION TO THE MEAN

Page 24: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Some asset classes move in Some asset classes move in OPPOSITE directionsOPPOSITE directions

-1 Zero +1

Negative – Moves in opposite directionsTotally Random – no relationshipPositive – Moves in the SAME direction

Page 25: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

U.S. vs. InternationalU.S. vs. International

Rolling

12-Month

40%

30%

20%

10%

0%

10%

20%

30%

40%

50%

60%

70%

Returns

72 76 80 84 86 90 94 98

International outperforms U.S.

U.S. outperforms International

Page 26: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

ASIA 30.7

ASIA199419931992 1995 1996 1997 1998 1999 2000

ASIA 108.3

ASIA -9.3

ASIA -8.3

ASIA 3.4

ASIA -45.9

ASIA -4.5

ASIA 60.1

ASIA -39.8

Page 27: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Small Cap 30.2

Small Cap

Small Cap 23.8

199419931992 1995 1996 1997 1998 1999 2000

Small Cap 14.3

Small Cap 4.4

Small Cap 27.7

Small Cap 16.9

Small Cap 25

Small Cap 4.0

Small Cap 0.8

Page 28: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Nasdaq 27.0

Nasdaq199419931992 1995 1996 1997 1998 1999 2000

Nasdaq 19.3

Nasdaq 2.7

Nasdaq 36.2

Nasdaq 23.3

Nasdaq 26.9

Nasdaq 47.4

Nasdaq 77.4

Nasdaq -36.9

Page 29: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

S&P 500 18.4

S&P 500199419931992 1995 1996 1997 1998 1999 2000

S&P 500 14.5

S&P 500 7.5

S&P 500 33.9

S&P 500 23.5

S&P 500 39.2

S&P 500 37.8

S&P 500 14.0

S&P 500 -5.6

Page 30: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Canadian Bond 11.6

Canadian Bond199419931992 1995 1996 1997 1998 1999 2000

Canadian Bond 26.3

Canadian Bond 14.2

Canadian Bond 18.5

Canadian Bond 12.8

Canadian Bond -6.0

Canadian Bond 13.0

Canadian Bond 22.1

Canadian Bond -7.4

Page 31: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Global Bond 9.8

Global Bond199419931992 1995 1996 1997 1998 1999 2000

Global Bond 18.1

Global Bond -4.3

Global Bond 20.7

Global Bond 12.3

Global Bond 9.6

Global Bond 9.2

Global Bond -1.1

Global Bond 10.2

Page 32: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

T-Bills 7.1

T-Bills

T-Bills 5.5

T-Bills 4.7

T-Bills 4.7

T-Bills 3.2

T-Bills 4.8

T-Bills 7.6

T-Bills 5.4

T-Bills 5.5

199419931992 1995 1996 1997 1998 1999 2000

Page 33: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Europe 5.2

Europe199419931992 1995 1996 1997 1998 1999 2000

Europe -4.9

Europe 9.8

Europe 38.4

Europe 29.6

Europe 22.2

Europe 18.8

Europe 8.8

Europe 35.3

Page 34: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Dow Jones 4.2

Dow Jones

Dow Jones -6.2

Dow Jones 25.2

Dow Jones 13.7

Dow Jones 16.1

Dow Jones 22.6

Dow Jones 26.0

Dow Jones 33.5

Dow Jones 2.1

199419931992 1995 1996 1997 1998 1999 2000

Page 35: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

TSE 300 -1.4

TSE 300199419931992 1995 1996 1997 1998 1999 2000

TSE 300 7.4

TSE 300 31.7

TSE 300 -1.6

TSE 300 15

TSE 300 28.3

TSE 300 14.5

TSE 300 -0.2

TSE 300 32.5

Page 36: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

International

Int’l -3.1

199419931992 1995 1996 1997 1998 1999 2000

Int’l -11.0

Int’l 20.3

Int’l 29.2

Int’l 6.6

Int’l 6.9

Int’l 8.5

Int’l 14.5

Int’l 38.6

Page 37: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

19941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 200019941993 1995 1996 1997 1998 1999 2000ASIA 108.3

ASIA -9.3

ASIA -8.3

ASIA 3.4

ASIA -45.9

ASIA -4.5

ASIA 60.1

ASIA -39.8

Small Cap 23.8

Small Cap 4.0

Small Cap 25

Small Cap 16.9

Small Cap 27.7

Small Cap 4.4

Small Cap 14.3

Small Cap 0.8

Nasdaq 19.3

Nasdaq 2.7

Nasdaq 36.2

Nasdaq 23.3

Nasdaq 26.9

Nasdaq 47.4

Nasdaq 77.4

Nasdaq -36.9

S&P 500 14.5

S&P 500 7.5

S&P 500 33.9

S&P 500 23.5

S&P 500 39.2

S&P 500 37.8

S&P 500 14.0

S&P 500 -5.6

Canadian Bond 22.1

Canadian Bond -7.4

Canadian Bond 26.3

Canadian Bond 14.2

Canadian Bond 18.5

Canadian Bond 12.8

Canadian Bond -6.0

Canadian Bond 13.0

Global Bond 18.1

Global Bond -4.3

Global Bond 20.7

Global Bond 12.3

Global Bond 9.6

Global Bond 9.2

Global Bond -1.1

Global Bond 10.2

T-Bills 5.5

T-Bills 5.4

T-Bills 7.6

T-Bills 4.8

T-Bills 3.2

T-Bills 4.7

T-Bills 4.7

T-Bills 5.5

Europe 35.3

Europe 8.8

Europe 18.8

Europe 22.2

Europe 29.6

Europe 38.4

Europe 9.8

Europe -4.9

Dow Jones 13.7

Dow Jones 2.1

Dow Jones 33.5

Dow Jones 26.0

Dow Jones 22.6

Dow Jones 16.1

Dow Jones 25.2

Dow Jones -6.2

TSE 300 32.5

TSE 300 -0.2

TSE 300 14.5

TSE 300 28.3

TSE 300 15

TSE 300 -1.6

TSE 300 31.7

TSE 300 7.4

Int’l 38.6

Int’l 14.5

Int’l 8.5

Int’l 6.9

Int’l 6.6

Int’l 29.2

Int’l 20.3

Int’l -11.0

200020002000200020002000200020002000200020002001

ASIA -23.8

Small Cap -11.5

Nasdaq -28.5

S&P 500 -11.9

Canadian Bond 8.1

Global Bond 5.2

T-Bills 4.7

Europe -15.0

Dow Jones -7.1

TSE 300 -12.6

Int’l -16.5

2002Global Bond 18.5

Canadian Bond 10.5

T-Bills 2.5

ASIA -8.2

TSE 300 -12.4

Int’l -14.9

Dow Jones -16.8

Europe -17.5

Small Cap -20.5

S&P 500 -22.1

Nasdaq -37.6

Page 38: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Why are Correlation CoefficientsWhy are Correlation Coefficientsimportant?important?

VA

LU

EV

AL

UE

TIMETIME

This is Called INEFFICIENT Diversification

Page 39: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

We need to create DISSIMILARWe need to create DISSIMILARPrice MovementsPrice Movements

This is Called EFFICIENT Diversification

VA

LU

EV

AL

UE

TIMETIME

AA

AA && BB

BB

Page 40: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Determine the REAL rate of returnDetermine the REAL rate of return

YEARYEAR

1122334455

25%25% 25%25% 25%25% 25%25%-30%-30%

RETURNRETURN

14%14% 15%15% 13%13% 16%16% 4%4%

RETURNRETURN

Average ROIAverage ROI 14.00%14.00% 12.40%12.40%

IRRIRRIRR 11.3%11.3% 12.2%12.2%

Page 41: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Determine the REAL rate of return of Determine the REAL rate of return of $100,000$100,000

IRRIRRIRR 11.3%11.3% 12.2%12.2%

YEARYEAR

1122334455

25% - $125,00025% - $125,000 25% - $156,25025% - $156,250 25% - $195,31225% - $195,312 25% - $244,14025% - $244,140

14% - $114,00014% - $114,000 15% - $131,10015% - $131,100 13% - $148,14313% - $148,143 16% - $171,84616% - $171,846

RETURNRETURN RETURNRETURN

Average ROIAverage ROI 14.00%14.00% 12.40%12.40%

-30% - $170,898-30% - $170,898 4% - $178,7194% - $178,719

Page 42: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

AGF PRECIOUS METALS

Precious Metals

-61.3

-16.9

27.5

71.9

116.3

160.8

1993 1994 1995 1996 1997 1998 1999 2000 2001 02YTD-61.3

-16.9

27.5

71.9

116.3

160.8

X X

X

XX

XX

X

X

--

----

--

--

----

--

--

--

% Annual Return for One Calendar Year December 31, 2002

5th Percentile95th Percentile1st QuartileMedian3rd QuartileTHIS FUND

RankNumber Of FundsTSX Gold & Precious MeQuartile

-- X

115.535.2

105.870.139.6

2

105.4

3.4-3.93.12.8

-0.62.8

2 3

-9.8

63.80.0

26.623.66.48.3

4 6

9.4

70.023.757.538.824.857.5

2 6

9.2

-33.7-48.2-35.2-43.3-45.9-48.2

9 9

-43.2

-1.8-58.4-6.8

-14.6-23.6-28.2

1012

-6.5 4

24.8-19.6

1.8-3.5

-10.81.5

413

-17.0 2

8.6-25.7-4.9

-14.0-15.2-14.0

713

-10.0 3

47.3-55.236.127.723.624.4

914

18.3 3

153.125.089.780.167.1

103.8

316

27.2 1

Load : Front-end or DeferredAssets: $ 101.470 MillionRRSP Eligible

AVERAGE RATE OF RETURN FOR 9 YRS. OF 11.9%INTERNAL RATE OF RETURN ????????

Page 43: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Why is this IMPORTANT?Why is this IMPORTANT?

This effect can ONLY be consistently achieved with EFFICIENT Diversification

VA

LU

EV

AL

UE

TIMETIME

Page 44: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

100% Stocks100% Stocks

80% Stocks/20% Bonds80% Stocks/20% Bonds

60% Stocks/40% Bonds60% Stocks/40% Bonds

100% Bonds100% Bonds

20% Stocks/80% Bonds20% Stocks/80% Bonds

40% Stocks/60% Bonds40% Stocks/60% Bonds

50% Stocks/50% Bonds50% Stocks/50% Bonds

YEARS

30

25

20

15

10

5

1

35 40 45 50 55 60 65 70AGE

Discover your optimal risk allocationDiscover your optimal risk allocation

Page 45: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Three Professors from the Chicago School of Economics (Miller, Sharpe and Markowitz) received the NOBEL PRIZE in 1990 for these

research conclusions:

1. Reduce Investment Risk

2. Increase Return

3. Create Dissimilar Price Movements4. Use Asset Allocation

NobelPrize

Page 46: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

What is the EFFICIENT FRONTIER?What is the EFFICIENT FRONTIER?

100%100% InternationalInternational

100% 100% Large CapLarge Cap

Retu

rn

Risk

Optimum MixOptimum Mix

Page 47: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Recession #1 – 1974/75

Source: Datastream

US GDP and S&P 500

Recession EndsRecession Ends

50

55

60

65

70

7580

85

90

95

100

Jun-

74

Jul-7

4

Aug-

74

Sep-

74

Oct-7

4

Nov-7

4

Dec-

74

Jan-

75

Feb-

75

Mar

-75

Apr-7

5

May

-75

Jun-

75

Jul-7

5

Aug-

75

Sep-

75

Oct-7

5

Nov-7

5

Page 48: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Recession #2 : 1981/1982US GDP and S&P 500

Source: Datastream

RecessionEnds

RecessionEnds

80

90

100

110

120

130

140

150

160

170

180

Jun-

81

Aug

-81

Oct

-81

Dec

-81

Feb

-82

Apr

-82

Jun-

82

Aug

-82

Oct

-82

Dec

-82

Feb

-83

Apr

-83

Page 49: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Recession #3: 1990/1991US GDP and S&P 500

Source: Datastream

Recession EndsRecession Ends

250

270

290

310

330

350

370

390

410

Jun-

90

Jul-9

0

Jul-9

0

Aug-

90

Aug-

90

Sep-

90

Sep-

90

Oct-9

0

Oct-9

0

Nov-

90

Nov-

90

Nov-

90

Dec-

90

Dec-

90

Jan-

91

Jan-

91

Feb-

91

Feb-

91

Mar-9

1

Mar-9

1

Apr-9

1

Apr-9

1

May-

91

May-

91

May-

91

Jun-

91

Jun-

91

Page 50: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

A Tale of Three Recessions

1H ’91+ 34%Sept 1990

Q1 ’83+ 67%Aug 1982

Q2 ’75+ 47%Dec 1974

Recession EndS&P +1 yearMarket bottom

Page 51: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

History and Crisis Events – DJI % Reaction

33.7%24.7%15.1%-11.3%8/18/1998- 10/8/1998Russia default, LTCM Crisis

6.5%4.7%-11.2%-0.3%8/7/1998- 8/10/1998US Embassy Bombings In Africa

25.0%10.5%8.8%-12.4%10/7/1997- 10/27-1997Asia Stock Market Crisis

12.9%9.7%3.9%0.6%4/19/1995- 4/20/1995Oklahoma City Bombing

20.7%8.4%2.7%-2.8%10/11/1994- 12/20/1994Russia,Mexico,Orange County

8.5%5.1%2.4%-0.5%2/26/1993- 2/27/1993World Trade Centre Bombing

9.2%3.2%0.6%-6.0%9/14/1992- 10/16/1992ERM UK Currency Crisis

11.3%1.6%4.4%2.4%8/16/1991- 8/19/1991Gorbachev Coup

18.7%19.8%17.0%-4.5%12/24/1990- 1/16/1991Gulf War Ultimatum

8.0%0.3%-2.7%-1.9%12/15/1989- 12/20/1989US invasion of Panama

15.0%11.4%11.5%-34.2%10/2/1987- 10/19/1987Financial Panic ’87

-1.0%-4.1%-4.3%2.6%4/15/1986- 4/21/1986US Bombs Libya

-3.2%-2.8%3.9%-2.7%10/24/1983- 11/7/1983US Invades Granada

20.8%-9.8%-8.5%4.3%4/1/1982- 5/7/1982Falkland Islands War

25.8%16.2%6.7%-15.0%2/13/1980- 3/27/1980Hunt Silver Crisis

6.8%-4.0%6.7%-2.2%12/24/1979- 1/3/1980USSR in Afghanistan

12.5%-5.7%-7.9%-15.5%8/9/1974- 8/29/1974Nixon Resigns

7.2%10.2%9.3%-17.9%10/18/1973- 12/5/1973Arab Oil Embargo

13.5%3.8%0.4%-4.2%5/4/1970 -5/14/1970Kent State Shootings

20.7%20.3%9.9%-14.4%4/29/1970- 5/26/1970US Bombs Cambodia

15.1%12.4%7.2%-2.9%11/21/1963- 11/22/1963JFK Assassination

24.2%17.1%12.1%1.1%10/19/1962- 10/27/1962Cuban Missile Crisis

7.2%6.7%5.5%-9.9%10/3/1957- 10/22/1957Sputnik

11.7%6.6%0.0%-6.5%9/23/1955- 9/26/1955Eisenhower Heart Attack

19.2%15.3%9.1%-12.0%6/26/1950- 7/13/1950Korean War

-4.9%

-6.5%

-17.1%

Date Range % Loss/Gain

11/2/1948- 11/10/1948

12/6/1941- 12/10/1941

5/9/1940 - 6/22/1940

Reaction Dates

Truman Upset Victory

Pearl Harbor

Fall of France

Event

1.9%3.5%1.6%

-9.6%-2.9%3.8%

7.0%8.4%-0.5%

126 mkt days63 mkt days

22 mkt days

Page 52: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

1. What do you have?

2. What do you need?

3. How do you fill the gap?

Page 53: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

What do you HAVE? What do you NEED?What do you HAVE? What do you NEED?

1. Invest in pure assets• Institutional instead of retail• Avoid style drift

2. Combine dissimilar asset classes• Stay on the efficient frontier• Utilize multiple asset classes

Page 54: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

What do you HAVE? What do you NEED?What do you HAVE? What do you NEED?

3. Minimize the tax effect• Reduce turnover• Use tax-free investments when

appropriate• Achieve deferred TAX growth,

if possible

4. Minimize expenses• No wrap fees• No loads• No surrender charges• No trading costs

Page 55: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

What do you HAVE? What do you NEED?What do you HAVE? What do you NEED?

1. How many years do you have until you retire?

35+ 30 25 2015 10 5

2. What is your investment time horizon?

35+ 30 25 2015 10 5

Page 56: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

How much retirement incomeHow much retirement incomeWill you NEED each month?Will you NEED each month?

$ _____________ Current Annual Income

$ _____________ Your retirement goal

=

X

$ _____________ Your INFLATIONINFLATION Factor

=$ _____________ Your INFLATIONINFLATION Adjusted Income

at retirement.

$42,000$42,000

$ _____________ % required at retirement

X

70%70%

$29,000$29,000

1.901.90

$55,100$55,100$55,100$55,100

123456789101112131415161718192021222324252627282930313233343536373839404142434445

1.031.071.101.141.171.211.251.291.331.381.421.471.521.561.621.671.721.781.841.901.962.022.092.152.222.302.372.452.532.612.702.782.872.973.063.163.273.373.483.593.713.833.964.084.22

Years toRetire

InflationFactor

20 1.90

Page 57: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Now we will estimate your Social Security IncomeNow we will estimate your Social Security Income

Step 1. Enter your current monthly income.

Annual income 12 = $42,000$42,000

1212= $3,500$3,500

Step 2. Enter your Year of Birth. 19651965

Step 3. Age of Expected Retirement. 6565

Page 58: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

To Calculate Your Factor – Follow These StepsTo Calculate Your Factor – Follow These Steps

Step 4. Find the Social Security Factor.

Year of Birth1940

orBefore

1941to

1957

1958or

After

0.270.290.320.340.360.37

0.260.270.300.320.340.37

0.240.260.280.300.320.35

Age at

Retirement

62 or Prior6364656667

$3500 per month

3. And your AGE at retirement. ________

2. Then use your Birth YEAR. ________

4. FIND the correct monthly factor. ________

1. Using your income, find the correct

BOX. _________ $3,500$3,500

65 0.34 0.32 0.30

6565

19651965

1958or

After

0.300.30

Page 59: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Now we will estimate your Social Security IncomeNow we will estimate your Social Security Income

Step 5. Figure your Social Security Income.

First – Determine The SmallerSmaller Of Your Annual Income or $68,400.

Second – Input your Social Security Factor.

X

Third – Calculate your projected Social Security Benefit.

=

0.300.30

$42,000$42,000

$12,600$12,600

Page 60: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

Let’s calculate how much NET INCOMELet’s calculate how much NET INCOME you’ll need at retirement.you’ll need at retirement.

$55,100$55,100$55,100$55,100First – Enter your Adjusted Annual Income

at retirement.

$12,600$12,600Second – Now enter your projected annual

Social Security benefit.

-

Third – Your NET Inflation Adjusted Retirement (NIA) Income.

=

$42,500$42,500

Page 61: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

LifeExpectancy

Factor

Ageat

Retirement

55565758

59606162

63646566

67686970

7172737475

18.7518.4118.0017.66

17.2516.8316.4216.00

15.5015.0814.5814.08

13.5013.0012.4211.83

11.2510.589.929.258.58

Pension FactorPension Factor Let’s calculate how much CAPITALLet’s calculate how much CAPITALwill be needed to provide this income.will be needed to provide this income.

Step 1. Your projected NIA income.

Step 2. Your projected pension benefit, if any.

-

Step 3. Your NIA income less any pension benefit.

=

Step 4. Now select your life expectancy factor.

X

Step 5. Total CAPITAL required to meet your goal.

=

$42,500$42,500

$0$0

$42,500$42,50065 14.58

14.5814.58

$619,650$619,650

Page 62: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

How much will my current SAVINGS How much will my current SAVINGS help me reach my goal.help me reach my goal.

List your Assets – 401(k), IRA, 403(b), Mutual Funds

1. __________________2. __________________3. __________________

________________________________________________

________________

$15,000$15,000$25,000$25,000$ 5,000$ 5,000

Type FMV

Total

IRA401(k)

Mutual FundsMutual Funds

$45,000$45,000

Step 1. Your Accumulated assets.

Step 2. Growth Factor.

X

$45,000 $45,000

??

Page 63: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

6% 10%8%Yrs toRetire

Growth FactorGrowth Factor

1.061.121.191.261.341.421.501.591.691.791.902.012.132.262.402.542.692.853.033.213.403.603.824.054.294.554.825.115.425.746.096.456.847.257.698.158.649.159.7010.2910.9011.5612.2512.9913.75

1.081.171.251.361.471.591.711.852.002.162.332.522.722.943.173.433.704.004.324.665.035.445.876.346.857.407.998.639.3210.0610.8711.7412.6813.6914.7915.9717.2518.6320.1221.7223.4625.3427.3729.5631.92

1.101.211.331.461.611.771.952.142.362.592.853.143.453.804.184.595.055.566.126.737.408.148.959.8510.8311.9213.1114.4215.8617.4519.1921.1123.2325.5528.1030.9134.0037.4041.1445.2649.7954.7660.2466.2672.89

123456789101112131415161718192021222324252627282930313233343536373839404142434445

30 5.7410.0617.45

Figuring the Growth FactorFiguring the Growth Factor

Step 1. Determine the number of Years to retirement.

AGE at Retirement

Current AGE

Years until Retirement

6565

3535

3030

Step 2. Look up Growth Factor at 8%. 10.0610.06

X

Step 3. Accumulated assets. $45,000 $45,000

=Step 4. Capital Available at 65. $452,700$452,700

Page 64: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

6% 10%8%Yrs toRetire

122540577595117141168198230265304347393444500560626699777863956

1058116812881419156117151883206522622476270929613235353238544202458049905434591464356999

122539557290110132155181208238269304341381423470519572629691756827902983

1069116212611367148116021731187020172175234425232715292031383371361938844166

1226415878100124151182216254297344397455520592672761859968

108812211368153117101909212823712638293332593618401444514933546560506696740781919055100061105412209

123456789101112131415161718192021222324252627282930313233343536373839404142434445

Saving FactorSaving Factor How much MORE will you haveHow much MORE will you haveto SAVE to reach your goal?to SAVE to reach your goal?

Step 1. Total CAPITAL required to meet your goal.

$452,700$452,700Step 2. Capital Available at 65.-=

Step 3. Additional CAPITAL you need to create before retirement.

$619,650$619,650

$166,950$166,950..Step 4. Determine the Saving Factor

Years until Retirement 3030

Look up Saving Factor at 8%.

18831883

30 1367 1883 2638

Step 5. The Additional amount you need to SAVE

=$89 $89 per monthper month

Page 65: Kootenay Valley Financial Services. Two Great Questions in Life A$$ETS What do You Have? What do You Have? GOAL What do You Need? What do You Need?

1. What do you have?

2. What do you need?

3. How do you fill the gap?