Investing Fundamentals Budget bootcamp whip your finances into shape! Investing Fundamentals

THE PROBLEM Client: I’m trying to plan for retirement. How much do I need to save? Advisor: No problem. Just tell me when you’re going to die.

Retirement Steps Where will I get money to live through retirement? 1 Account for all sources 2 How much do I need? Your Number How much do I need to save each month to get there? 3 What’s in your control 4 Where do I save it? IRAs, 401(k) / 403(b), Roth, Traditional

+ Withdrawal from savings = Your retirement monthly income 1 Where will you get the money? + Income / Wages + Social Security + Pension + Withdrawal from savings = Your retirement monthly income Source: Dalton, Retirement Planning and Employee Benefits, SmartPath Analysis

A word on social security… 1 A word on social security… www.ssa.gov Source: Dalton, Retirement Planning and Employee Benefits, SmartPath Analysis 5

How much will you need? 2 Monthly spend in retirement $3,000 (less) Social Security ($1,800) GAP $1,200 $______ $1200 per month

4% How much will you need? Gap $1,200 per month x 12 months/year $360,000 $______ $1200 per month 4% Gap $1,200 per month x 12 months/year Gap $14,400 per year = $360,000 4%

3 So how much each month? 20%

You have options.. What can you do? Increase savings (fuel) Reduce standard of living (today and in future) Build passive income Manage health Plan, adjust, plan $360,000 Today

….and be smart about investments (1) Which type of retirement account? (2) Which investments are best for you? Employer Plan vs. IRA Roth vs. Traditional Safe vs. Risky Fees

401(K) Investment Steps Decide on how much ‘risk’ you can take Prepare Get risk level for each fund 2 Get fees for each fund 3 Select your investments 4 Execute Buy monthly 5 Review annually 6 11

[Your Age] = % in safer stuff 1 How much can you risk? Take risks, let it grow Balance yourself, protect with growth Lock in security, protect your assets [Your Age] = % in safer stuff

Adjust to your life More Conservative More Aggressive 1 Adjust to your life More Conservative More Aggressive Significant retirement savings (beyond what you need) Ability to pass to future generations Other, defined sources of retirement income You may need the money sooner than retirement Limited safety nets (family and personal) Can’t sleep at night

401(K) Investment Steps Decide on how much ‘risk’ you can take Prepare Get risk level for each fund 2 Get fees for each fund 3 Select your investments 4 Execute Buy monthly 5 Review annually 6 14

What is TRRBX??

60% Stock, 40% Bond Mutual funds are diversified Stock Bond 2 LMAO Stock BYOR Stock Stock Bond THX Stock OMG Stock OMG Stock BYOB Bond LOL Bond BYOB Bond TBT Bond NP Stock AT Stock ABC Bond Mutual Fund 60% Stock, 40% Bond 16 16 SMARTPATH FINANCIAL WELLNESS

2 Diversification rules We are the last Dodos on the planet, so I’ve put all of our eggs safely into this basket 17 17 SMARTPATH FINANCIAL WELLNESS

Enter Fund 5 Letter Symbol 18 SMARTPATH FINANCIAL WELLNESS

Risky = US Stock + Non US Stock + Other See Allocations Safe = Cash + Bond Risky = US Stock + Non US Stock + Other 19 SMARTPATH FINANCIAL WELLNESS

401(K) Investment Steps Decide on how much ‘risk’ you can take Prepare Get risk level for each fund 2 Get fees for each fund 3 Select your investments 4 Execute Buy monthly 5 Review annually 6 20

Enter Fund 5 Letter Symbol See Fees 21 SMARTPATH FINANCIAL WELLNESS

~$128,000 Fees matter Broker Fees (Load) Management Fees (% of Assets) 3 Fees matter 30 yrs old Invests $1,000 in each of 2 identical funds Broker Fees (Load) Funds 1 fees = 1.15%, Fund 2 fees = .65% Return on the funds is 6% Management Fees (% of Assets) ~$128,000 Trading Fees Administrative fees 22 22 SMARTPATH FINANCIAL WELLNESS

401(K) Investment Steps Decide on how much ‘risk’ you can take Prepare Get risk level for each fund 2 Get fees for each fund 3 Select your investments 4 Execute Buy monthly 5 Review annually 6 23

What are her current investments and risk level? 4 Start with where you are today 40 yr old woman investing for retirement Fund Amount FKTHX (Fidelity Freedom 2035) $10,000 VTINX (Vanguard Target Retire Inc.) $20,000 Total $30,000 What are her current investments and risk level? 24 24 SMARTPATH FINANCIAL WELLNESS

Start with where you are today 4 Start with where you are today 40 yr old woman investing for retirement Amount Risky Safe FKTHX (Fidelity Freedom 2035) $10,000 90% 10% $9,000 $1,000 VTINX (Vanguard Target Retirement Inc.) $20,000 30% 70% $6,000 $14,000 TOTAL PORTFOLIO $30,000 50% 50% $15,000 $15,000 25 25 SMARTPATH FINANCIAL WELLNESS

Adjust 40 yr old woman investing for retirement If you’re too risky…. If you’re too safe…. Adjust the investments Put future money into safer investments Adjust the investments Put future money into riskier investments

Target date funds get safer as you get older 4 Target Date Funds (Lifecycle Funds) Fidelity Freedom 2035  for someone retiring in 2035 Young More stocks, Less bonds/cash Target date funds get safer as you get older Older Less stocks, More bonds/cash

Know your investments!! But they’re not all made ‘alike’ 4 But they’re not all made ‘alike’ Fidelity Freedom 2035 Wells Fargo Target 2035 Safe Safe Risky Risky Know your investments!!

401(K) Investment Steps Decide on how much ‘risk’ you can take Prepare Get risk level for each fund 2 Get fees for each fund 3 Select your investments 4 Execute Buy monthly (you’re already doing this) 5 Review annually 6 29

Dollar Cost Average – Buy each month and hold for the long term 5 Stop timing, buy every month Dollar Cost Average – Buy each month and hold for the long term (P.S. You’re already doing this if you’re contributing to retirement)

401(K) Investment Steps Decide on how much ‘risk’ you can take Prepare Get risk level for each fund 2 Get fees for each fund 3 Select your investments 4 Execute Buy monthly (you’re already doing this) 5 Review annually 6 31

Consider this…. “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” – George Soros 32 32 SMARTPATH FINANCIAL WELLNESS

FUEL: THE MOST IMPORTANT NUMBER Ask for additional ‘ground rules’

FUEL over Year

FUEL over Lifetime

THE 7-TANK SYSTEM What do you do with your financial fuel? 1 Retirement Match 2 1-Month Emergency Fund 3 Payoff Bad Debt 4 3-6 Month Emergency Fund 5 20% Gross to Retirement 6 Children’s College Savings* 7 Bucket List*

MARY WESTING What should she do? Scenario Age 34, single Income - $60,000 / year Total student loans - $53,000 What should she do? SMARTPATH FINANCIAL WELLNESS

GOALS Pay the lowest cost (monthly and/or overall) Scenario GOALS Pay the lowest cost (monthly and/or overall) Maintain flexibility SMARTPATH FINANCIAL WELLNESS

Find out what you have Student loan strategy Federal vs. Private Type (Private/ Federal) Outstanding Balance Interest Rate Payments # of Months Total cost of loan Great Lakes (federal) $16,000 6.8% $215 116 $26,100 Navient (Federal) $22,000 $307 100 $30,700 Sallie Mae (Private) $15,000 5% $318 60 $19,100 Federal vs. Private Outstanding Balance Interest Rate Payment and # of months Total cost of the loan

Your Options 1 2 3 4 5 5-7 years post residency Residency Long term Standard Repayment (10 years) Debt Free 2 IBR / PAYE Standard + Debt Free 3 IBR / PAYE (10 yrs + Nonprofit) PSLF 4 IBR / PAYE (20-25 years) Loan Forgive 5 Forbearance Standard + Debt Free

Total Cost (Monthly Payment * # of months) Consolidations and Refis Lower Costs Maintain Flexibility Monthly Payment Federal and/or vs. Total Cost (Monthly Payment * # of months) Private

Lowering Costs Do you need? Can you afford? Higher Lower Lower Higher Change in Total Cost Can you afford? Lower Lower Higher Change in Payment

Maintain Flexibility Federal Private Repayment options Deferment / Forbearance Forgiveness Varies by lender Maybe lower interest rate (see costs)

Your Options Lower Month Lower Total Cost Maintain Flexibility IBR / PAYE Consolidation (Fed to fed) Consolidation (private to private) Consolidation (Fed to private) Deferment / Forbearance Use another loan (e.g. home equity) Only with forgiveness Varies Varies Varies Varies Varies

Map it out… 2017 2018 2019 2020 2021 2022 Take home pay (after retirement) $3,100 (less) Student loan ($500) = my living expenses $2,600 Map for different repayment options Show total paid, total interest and total forgiven See what’s possible with your living expenses (and live within those means)

AGENDA A 7 Step Strategy for your money Student Loans: It Was Worth It! Credit: Bad Credit it Good Retirement: What’s My Number Investing: KISS Homeownership: The Cash Black Hole

EFX, TU, EXP, your new best friends Credit Report Credit Score SMARTPATH FINANCIAL WELLNESS

DRIVERS OF YOUR CREDIT SCORE New credit applications Mix of credit Bill payment Length of credit history Your credit score is a measure of ‘risk’ for the lender. It’s not personal. Credit usage Source: myFICO.com, vantagescore.com SMARTPATH FINANCIAL WELLNESS

CREDIT UTILIZATION GOAL Lisa Alex <$1,500 $1,000 $4,000 $5,000 Outstanding Balance <$1,500 $1,000 $4,000 $5,000 $5,000 Credit limit (on credit cards) $5,000 Credit usage ratio <30% 20% 80% Higher = More Risky

CREDIT SCORES Remember…. Your score is based on your credit report. If the report has inaccuracies, so will your score. Scores have ‘reason codes’ that will help you understand the drivers of your score and how you can improve it. Your credit score is about your past – you only have control over your future. 850 750-850 Excellent 700-750 Good 650-700 Fair 600-650 Bad 300-600 Very Bad 300 SMARTPATH FINANCIAL WELLNESS