The Art of Investing Craig L. Israelsen, Ph.D. Financial Planning Program Utah Valley University 2016

The Art of Investing Craig L. Israelsen, Ph.D. A True Aggie Financial Planning Program Utah Valley University 2016

BIG PICTURE The General Idea of Investing for Retirement

BIG PICTURE The General Idea of Investing for Retirement years of accumulation before retirement

BIG PICTURE The General Idea of Investing for Retirement Possibly 35 years of distribution in retirement

BIG PICTURE The General Idea of Investing for Retirement Possibly 35 years of distribution in retirement

BIG PICTURE The General Idea of Investing for Retirement Possibly 35 years of distribution in retirement

So…you’re thinking… So…you’re thinking…“I got time” 8

So…you’re thinking…“I got time” Exactly But not time to wait---time to act. 9

BIG PICTURE The General Idea of Investing for Retirement So, let’s say you need about $1.5 million in your retirement account

$1,500,000 How do I get there? 11

This is your life… 12

This is your life… 13

This is your life… 14

This is your life… 15

This is your life… 16

This is your life… 17

This is your life… 18

Graduation Job It could happen. 19

This is your life… 20

This is your life… 21

This is your life… 22

This is your life… 23

You work for a long time…and get old. 24

This is your life… 25

This is your life… 26

This is your life… 27

This is your life… 28

The outcome if…

The outcome if…

The outcome if…

The outcome if…

The outcome if…

The outcome if…

The outcome if…

The outcome if…

The outcome if…

Flashback to your life… 38

Start now…or when you’re $45,000 less invested Almost $700,000 less $1,350,000 million less

$1,500,000 How did you get there? Started early & saved 10% 40

The shortfall created by delaying… 41 Invested ½ as much 83% less 88% less

What is going on hewre?

Time Value of Money

Time Value of Money Investments need time

Don’t Judge Me! Lots of reasons why people have not saved as much as they would like. Some beyond control. Job loss, illness, divorce, accident, etc. Just do your best. Never give up.

Reality Check 46

Reality Check $75,277 47

Reality Check $75,277 The median retirement savings for people ages 65 to 69 Employee Benefits Research Institute How Your Retirement Account Balance Compares to Your Peers by Emily Brandon, US News and World Report, July 6,

Got it? Let’s do this! How do I do this? What do I invest in? 49

Delta Airlines stock

Apple stock Delta Airlines stock

Apple stock John Deere stock Delta Airlines stock

Diversified US Stock Mutual Fund

Toyota stock

Nestle stock Toyota stock

Nestle stock Deutsche Bank stock Toyota stock

Diversified International Stock Mutual Fund

Now, think 4 th dimensionally 59

Real Estate mutual fund

US Stock mutual fund Real Estate mutual fund

US Stock mutual fund Real Estate mutual fund International Stock mutual fund

US Stock mutual fund Real Estate mutual fund International Bond mutual fund International Stock mutual fund

Diversified Portfolio of Diversified Mutual Funds

salsa Building a diversified investment portfolio is like making salsa…we add different ingredients together.

Minimal Diversification Minimal Diversification One stock mutual fund

Two-Asset Diversification Two-Asset Diversification 60% in a stock fund & 40% in a bond fund

Diversified Multi-Asset Portfolio Diversified Multi-Asset Portfolio 7 mutual funds

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In 1970 you started investing: For 46 years you invested money into… In Jan 2016 your account balance was… (you saved 10% of your income each year) Bucket in your room earning 0% interest $337,755 $35,000 starting salary in 1970, 3% annual increase over 46 years 74

In 1970 you started investing: For 46 years you invested money into… In Jan 2016 your account balance was… (you saved 10% of your income each year) Bucket in your room earning 0% interest $337,755 Savings account (“Cash”) $772,573 $35,000 starting salary in 1970, 3% annual increase over 46 years 75

In 1970 you started investing: For 46 years you invested money into… In Jan 2016 your account balance was… (you saved 10% of your income each year) Bucket in your room earning 0% interest $337,755 Savings account (“Cash”) $772,573 7-Asset Diversified 7-Asset Portfolio of Stock, Bonds, Cash, Real Estate, Commodities $3,316,424 $35,000 starting salary in 1970, 3% annual increase over 46 years 76

In 1970 you started investing: For 46 years you invested money into… In Jan 2016 your account balance was… (you saved 10% of your income each year) Bucket in your room earning 0% interest $337,755 Savings account (“Cash”) $772,573 7-Asset Diversified 7-Asset Portfolio of Stock, Bonds, Cash, Real Estate, Commodities $3,316,424 $35,000 starting salary in 1970, 3% annual increase over 46 years 77 The Key is Saving 10%

In 1970 you started investing: For 46 years you invested money into… In Jan 2016 your account balance was… (you saved 10% of your income each year) Bucket in your room earning 0% interest $337,755 Savings account (“Cash”) $772,573 7-Asset Diversified 7-Asset Portfolio of Stock, Bonds, Cash, Real Estate, Commodities $3,316,424 $35,000 starting salary in 1970, 3% annual increase over 46 years 78 and Diversifying

%

Super Diversified Portfolio Super Diversified Portfolio 12 mutual funds

7Twelve ® Portfolio 7 Core Asset Classes Twelve Mutual Funds US Stock Non-US Stock Real Estate Resources US Bonds Non-US Bonds Cash I invented this in 2008

7Twelve ® Equally-weighted exposure to 12 mutual funds

7Twelve ® Equally-weighted exposure to 12 mutual funds And each mutual fund is a diversified basket of stuff

85 Eight Equity and Diversifying Holdings The “Engines” of the Portfolio US Stock Non-US Stock Real Estate Resources US Bonds Non-US Bonds Cash 7Twelve ®

86 Four Fixed Income Holdings The “Safety Brakes” of the Portfolio US Stock Non-US Stock Real Estate Resources US Bonds Non-US Bonds Cash 7Twelve ®

87 Equities and Diversifiers: 8 ENGINES 65% 65% of Overall Portfolio Allocation Fixed Income: 4 BRAKES 35% 35% of Overall Portfolio Allocation US Stock Non-US Stock Real Estate Resources US Bonds Non-US Bonds Cash 7Twelve ® A Multi-Asset Balanced Strategy

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90 15-Year Growth of $10, Year Standard Deviation

Main Insights Start now Invest 10% Diversify

How do I start?

Your portfolio “salsa” recipe

Where do I find the salsa ingredients? Vanguard mutual funds Fidelity mutual funds MotifInvesting.com (pre-built investment portfolios) Homestead Funds ($1 minimum to open an account if you automate)

This presentation was developed by Craig L. Israelsen, Ph.D. and is a document presenting portfolio research and analysis. This document is neither investment advice nor an investment solicitation. Implementation of the 7Twelve® portfolio is no guarantee of performance. As we all know past performance is no guarantee of future performance This is a copyrighted document, copying for redistribution is prohibited unless written permission is obtained from Craig L. Israelsen 7Twelve® is a registered trademark belonging to Craig L. Israelsen Copyright © Craig L. Israelsen All rights reserved

Craig L. Israelsen, Ph.D. Dr. Israelsen holds a Ph.D. in Family Resource Management from Brigham Young University. He received a B.S. in Agribusiness and a M.S. in Agricultural Economics from Utah State University. He taught at Brigham Young University for 9 years and at the University of Missouri-Columbia for 14 years. He now teaches as an Executive-in- Residence at Utah Valley University in the Personal Financial Planning Program in the Woodbury School of Business. Dr. Israelsen designed the 7Twelve® Portfolio in the spring of Since that time hundreds of financial advisors have adopted it as the investment model for clients. Primary among his research interests is the analysis of mutual funds and the design of investment portfolios. He writes monthly for Financial Planning Magazine and is a regular contributor to the Journal of Indexes and Horsesmouth.com. His research has also been published in the Journal of Financial Planning, Journal of Asset Management (U.K.), Journal of Performance Measurement, Asia Financial Planning Journal (Singapore), Journal of Family and Economic Issues, and Financial Counseling and Planning. His research has been cited in the Christian Science Monitor, Wall Street Journal, Newsweek, Forbes, Smart Money Magazine, Kiplinger Retirement Report, Advisor Perspectives, Dow Jones Market Watch, Family Circle Magazine, and Bottom Line Personal. Dr. Israelsen is also the developer of the 7Twelve® Portfolio ( and the author of three books. His most recent book is titled “7Twelve: A Diversified Investment Portfolio with a Plan” (John Wiley & Sons, 2010). He is married to Tamara Trimble. They have seven children (Sara, Andrew, Heidi, Mark, Nathan, Emma, Jared). Hobbies include running, biking, swimming, woodworking, and family vacations. He has competed in the Boston Marathon 5 times, but has never won. For more information about the 7Twelve Portfolio visit 7Twelve® is a registered trademark owned by Craig L. Israelsen.

Craig L. Israelsen, Ph.D. Web: The 7Twelve ® Portfolio 97