1. Wall Street Worries: What keeps you up at night?
Presented by: _________________
Introduce yourself and welcome the class to this Wall Street Worries: What keeps you up at night?

2. Insurance products are sold through Dressander/BHC
Wall Street Worries…
This discussion is offered free of charge. It is designed to be educational in nature and is not intended to provide tax or legal advice. Consult with your tax advisor and/or legal counsel for suitability for your specific situation. Hypothetical and/or actual historical returns contained in this presentation are for informational purposes only and are not intended to be an offer, solicitation, or recommendation. Rates of return are not guaranteed and are for illustrative purposes only. Past performance is no indication of future returns. The DJIA and S&P 500 are not available for direct investment. Projected rates do not reflect the actual or expected performance within any example or financial product. Indexed annuities are products of the insurance industry and are not guaranteed by any bank or insured by the FDIC. Claims paying ability are based on the financial strength of the carrier. Surrender charges may apply to surrenders or withdrawals taken before 59 ½ and in excess of the free withdrawal provisions.
Disclosure
Point the prospects to the disclosure page and tell them they can read it at their leisure. It’s full of all the “legal stuff” I need to say before we begin.
Insurance products are sold through Dressander/BHC
©2016 Dressander BHC Inc.; text and materials incorporate or adapt portions of Bat-Socks, Vegas and Conservative Investing ©2010 David P. Vick

3. Agenda What Keeps You Up at Night Wall Street Myths
ABC Retirement Planning
Once is Not Enough
Here are the 4 major points we will cover in this seminar.

4. What Keeps You Up At Night?
How will fluctuations in the market affect my retirement savings?
Can I depend on Social Security?
Will my investments
provide me enough income in retirement?
How will I take care of my debt when I retire?
What happens if I need Long-Term care?
Will I be able to afford health care?
Let’s start by looking at some retirement risks – What risks worry you and keep you up at night? (Take time to explore a few of these concerns to see how the audience reacts to them. Ask “can any of you identify with any of these? Which ones? Get them to interact just a bit so they become engaged in what you’re doing)
How will inflation affect my nest egg?
Will I outlive my money?

5. The Wisdom of Planning
“By failing to prepare, you are preparing to fail.” ― Benjamin Franklin
“If you don't know where you are going, you'll end up someplace else.” ― Yogi Berra
“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” ― Abraham Lincoln
You know that history has shown the importance of planning. Think of military battles won and lost because of superior or inferior planning. The Allied troops were able to defeat the Germans by planning a mock invasion force that was supposed to cross the channel at Calais, when in fact the real landing point was Normandy. It’s not just planning; it’s also execution. You have to prepare a plan to know where you are going and how you are going to get there.
Your retirement also requires planning. Did you know that most people spend more time planning their annual vacation than they do their retirement that can last as much as 30 years? The retirement planning models that we’ve all heard about for the past 30+ years just don’t work anymore. Many of the philosophies are either outdated or simply wrong because times have changed. We will take a look at some of these “Truths” and see if they still work.
NEXT SLIDE

6. Wall Street Maxims or Myths?
I haven’t lost until I sell.
The large wire houses are the best place to get professional advice.
A diversified allocation of asset classes reduce your overall risk.
Buy and hold is an effective conservative strategy.
Just buy an index fund.
Index Annuities are dangerous.
Maxim: 1. an expression of a general truth or principle, especially an aphoristic or sententious one. 2. a principle or rule of conduct
Myth: 1. a traditional or legendary story, usually concerning some being or hero or event, with or without a determinable basis of fact or a natural explanation, especially one that is concerned with deities or demigods and explains some practice, rite, or phenomenon of nature.
2. any invented story, idea, or concept: (i.e. His account of the event is pure myth).
3. an unproved or false collective belief that is used to justify a social institution.
Here are six Wall Street maxims which I believe may be myths you might hear often from investment advisors. Most people have heard these and you might have even said the same thing yourself. Some of these myths come from the world of taxation, others come from advertising, and still others are emotional crutches. They are very commonly accepted by both investors and investment professionals.
Read Slide
Again I ask, if they come from a broken culture are they valid, and did we learn anything from the last 6 years? Let’s look at each one a bit more closely.

7. Myth #1 I haven’t lost until I sell
“Realizing gains & losses”
A tax reality turned into an investing maxim.
(Not a good idea!)
If it were true that you don’t lose until you sell, then all the bad mortgages would just be a paper loss and not a reality. This myth comes from the TAX reality that you haven’t “realized” your losses (or for that matter your gains), until you sell out of them. So, from a tax standpoint there is truth to this maxim. If, say over a year, your investment goes down in value and you don’t sell and then the investment comes back to it’s original value and beyond, you didn’t “realize” the loss at the low point. This is true. But, what isn’t true is that you didn’t lose. Because, when your quarterly statements came each month and they showed a loss of value in the assets, you did experience a loss for that quarter. If you needed the money and had to sell, you would only have what was on the statement, or the value at the time of the sale. That’s reality! It is a Wall Street Myth that you haven’t lost. Similarly, when your statements show big gains because the market has been kind, unless you sell and “realize” your gain, you don’t really have that. It’s always fun to hear my clients tell me that they haven’t really lost when the market goes down, but they love to tell me how much they’ve made when it goes up!
If you lost, as many did in 2008, forty percent of your portfolio value on your December 31st statement, it would take a gain of a little over 65% to regain the value you once had. That’s a hefty percent to hope for. I believe people have an emotional problem when they experience losses on their statements. Let’s take a look at what may really be going on.

8. Myth #1 I haven’t lost until I sell
“The truth is the market goes up and down. Your accounts may very well recover to their old levels, but until then, “you have what you have” is a better catch phrase to use. Reality is always a better place to begin when evaluating how to move forward. You can even say that you have lost money in your investments and if you keep them they may one day regain their value. I’m sure that’s what the owners of Enron stock said.”
This is classic denial. Your investments go up and they go down. You don’t really have what’s in your account until you sell it. You “have what you have”. It’s time to apply a “Just the facts” approach.
“Bat-Socks, Vegas & Conservative Investing” by David P. Vick

9. Myth #2 “The large wire houses are the best place to get professional advice”
“After a decade of pushing fee-based services, Wall Street is slashing and burning the infrastructure that has supported the business. The moves threaten to damage the long-term health of the wirehouse business model for financial advisers and their clients…
Read slide. A “wirehouse” is a big Wall Street firm that most of you have heard of like Merrill Lynch or Wells Fargo, etc. And it’s interesting that brokers are leaving these big brokerage houses in large numbers. If they are leaving, and you are still there, you have to wonder why.
NEXT SLIDE…
“Slash and Burn: The New Wall Street Growth Model” Mark Elzweig, Investment News, November 8, 2009

10. Myth #2 So, if they’re leaving, who are you listening to now?
“…On the new Wall Street, wirehouses are gutting the home office staff that have driven the growth of fee-based business…Even getting a simple phone call returned from the home office is turning into a trial. Forget about one- on-one attention.”
It may make one wonder if financial representatives of these firms are leaving, should you be still there? Not that you need to totally be out of securities, but maybe you need a different investing perspective.
What are we seeing today? Online brokerage accounts! TV Commercials that tout doing your OWN advising (“we’ll give you all the tools you need, etc. Babies telling you how easy it is to manage your accounts). This relieves the advisor/wirehouse from any responsibility and puts it all on you. Do you have time to watch the market every day, all day, reviewing their “tools & charts” to analyze the data and make decisions? I don’t know about you, but most of the people I know have a job that requires their attention! Wall Street is trying to create a different model that puts all the risk on YOU.
“Slash and Burn: The New Wall Street Growth Model” Mark Elzweig, Investment News, November 8, 2009

11. Myth #3 A diversified allocation of asset classes reduce your overall risk.
“When the tide goes out you find out who’s swimming naked…”
- Warren Buffett
Have you ever heard this statement from your broker: “You’re diversified”? What does that really mean? If you don’t understand what you’re doing, maybe you should consider doing something you can understand. Something a little less complex than “diversified asset classes moving in different directions” to minimize risk.
This model of “diversified asset classes” was the predominant model of asset allocation for the past years. In theory, this model would eliminate the “risk” in your portfolio. Conventional wisdom was that by holding various types of stocks, bonds, and mutual funds they would move in different directions in a volatile market (if certain assets went down, others would move up and offset any potential losses). It sounded good but…
NEXT slide…

12. Myth #3 A diversified allocation of asset classes reduce your overall risk.
FAILED
Here’s what the editor of Investment Advisor magazine, an industry journal written to advisors, says about this myth. He says “Euthanize Wealth Management Practices”… they’ve FAILED!
Investment Advisor Magazine, July 2009

13. A diversified allocation of asset classes reduce your overall risk.
Listen to the editor for Investment Advisor Magazine (July 2009 emphasis mine): “The wealth management practices of Wall Street firms and big banks are broken. Again. To understand this point, it’s important to step back and remember that regardless of which particular investment was the flavor of the month, the common theme heard over and over again in the big investment houses over the past 30 years was that by dividing your assets among many different categories that won’t move in the same direction at the same time, you were going to reduce the overall risk. This premise seemed to have some validity and was appealing to the average investor – until October 2008, when virtually every category except high quality short and intermediate fixed income investments got caught in the same downward draft. Put another way, the Wall Street wealth management model failed its biggest test. Investors who were told that they were diversified suffered losses of double or triple the magnitude of what they were told to expect during a tough year. What went wrong? The fixed income substitutes pushed by the major investment houses – “low volatility” hedge funds, preferred stocks, asset backed securities or other structured products, closed-end bond funds, income/mortgage REITs, and master limited partnerships - weren’t fixed income substitutes at all. None of them is a substitute for the most important characteristic that investors should be looking for from the fixed income portion of their portfolios: safety of principal.
Myth #3
Here’s what he says about the broken Wall Street system that many of you still take advice from. Read the slide as each section comes up. Take your time and read carefully.
So the question remains – is this diversification model a Myth or a Maxim?

14. (A little bit of humor!)

15. Myth #4 “Buy and hold is an effective conservative strategy”
“Buy and hold as a strategy is very questionable…It’s worked in the past, but in time of severe market stress it just doesn’t work.” - Ben Stein 12/28/08
Buy and Hold is another one of those long-held strategies for making money in your portfolio. The buy and hold strategy might just be a myth too. After all that went on in 2008, even the king of buy and hold, Mr. Buffet, lost a lot of value. Here’s a quote from Ben Stein. Read quote. Even Warren Buffet, the king of buy-and-hold, is changing his tune with that strategy. He’s becoming much more “strategic” and “tactical” in his approach.

16. Myth #4 “Buy and hold is an effective conservative strategy”
The reality is, if you invested $100 in the S&P 500:
1/1/2008 $100
1/1/2009 $62
1/1/2010 $74
1/1/2011 $93
1/1/2012 $98
1/1/2013 $111
That’s only 2.2% a year for those 5 years, and a wild ride!
Let’s take a look at reality. For every $100 that you had invested in the market on Jan. 1st, 2008, you had $62 by the end of that year. And even though the market came back close to 20%, you still only have $74. By the beginning of this year, you have made up your loss and gained about 11%, which averages out to only 2.2% a year for the last five years. That’s a pretty wild ride! If you look at your statement and had to take money out for a car, vacation, kid’s wedding, or what ever reason, ask yourself, “Is buy & hold a true conservative strategy?” Can you really afford this in retirement?
Stats from YahooFinance.com 1/7/2013

17. Myth #5 “Just buy an index fund”
S&P 500 Index
January 3rd,
December 31st,
-23.37% LOSS!!
Myth number 5 is “Just buy an index fund.” This is a very popular concept thanks to companies like Vanguard, which allows investors to have low fees while just tracking with an index. Today, more and more people are getting into ETF’s for just this reason. And the theory is that money managers, over time, just don’t beat the indexes. There are some great managers out there, but finding them is hard and you don’t know if their hot streak will continue after you place your money in the fund. So, just following indexes should net you the return you want, right?
Let’s take a look at the first decade of the 21st Century. (Go over the numbers on the slide.) So in other words, losing 23% of your assets over a ten year period is a good thing???
Stats from YahooFinance.com 2/19/2010

18. Myth #5 “Just buy an index fund”
S&P 500 Index
January 2nd,
December 31st,
61.07% Gain
6.1% a year return over 10 years!
Let’s fast forward to the last 10 year period of We have a gain of 61.07%, or 6.1% per year BEFORE FEES. We never know what a 10 year period is going to look like. If you are lucky enough to time the market perfectly (and NOBODY does) then you can make a lot of money.
Depending on which 10 year period you use it is possible to see big losses or big gains. The problem is, nobody knows when these ups or downs will occur! Is there something else, some other vehicle that can give you decent returns without all the drama?
Next slide…
Stats from YahooFinance.com 2/3/2016

19. Myth #5 “Just buy an index fund”
SUCCESS!!
Here’s an article that highlights a study by Jack Marion and the Advantage Compendium which compares Index Annuities, CD’s, and an S&P 500 Index Fund over the 5 year period (Just read the article)
So is “just buying an index fund” the answer to investing for retirement? Well, it can be good for some of your money, but it’s certainly not the world beater it’s made out to be.

20. Myth #6 “Index Annuities are dangerous”
This advice is generally given by the same folks who brought you Myth’s 1-5!!!
Read the slide
Myth #6 is brought to you by the same people who brought you Myth’s 1-5!!

21. Myth #6 “Index Annuities are dangerous”
David F. Babbel
Professor of Insurance and Finance
The Wharton School of Business
University of Pennsylvania
While I know there is a lot of negative press out there in the media about index annuities, I’m fairly confident that much of it is a result of a business war waged between the insurance industry and the securities industry over money. Which means that much of what is written has a bias toward one industry or another. So, it would be nice to have a comment from a reliable source that doesn’t have a “dog in the fight” so to speak. Professor David Babbel from the Wharton School of Business at the University of Pennsylvania is just such a voice.
Quotes from Tom Cochrane’s Blog on AnnuityDigest.com 8/4/09 & 9/3/09

22. Myth #6 “Index Annuities are dangerous”
While I know there is a lot of negative press out there in the media about index annuities, I’m fairly confident that much of it is a result of a business war waged between the insurance industry and the securities industry over money. Which means that much of what is written has a bias toward one industry or another. So, it would be nice to have a comment from a reliable source that doesn’t have a “dog in the fight” so to speak. Professor David Babbel from the Wharton School of Business at the University of Pennsylvania is just such a voice.
Quotes from Tom Cochrane’s Blog on AnnuityDigest.com 8/4/09 & 9/3/09

23. Myth #6 “Index Annuities are dangerous”
Digging down a little further, this information is taken from Professor David Babbel and Jack Marrion’s study on FIA returns since their inception and ending in 2010, is very instructive. Just compare the S&P returns against the average FIA returns and it will tell you that FIA’’s may be useful for some of your retirement dollars.
This chart illustrates the Annualized Returns of Index Annuities versus the S&P 500 Returns in 5-year increments beginning in 1997 and ending in 2010.

24. WHAT ABOUT INEVITABLE MARKET CHANGES?
Market changes didn’t make the life changing events list, but just how serious could those market changes be? Very serious, so lets look at what we can do to protect you from significant market changes.

25. Ready for the rollercoaster?
Markets change. That’s a fact. If we look at just what has happened since 2000, we can see the drop off from the tech bubble bursting, the fall off after 9/11, then a 5 year climb back up before a precipitous fall in 2008, followed by a steady, steep climb up. The Dow topped 18,000 fourteen times in 2015 and has yet to maintain its high of 18,400+.
It is quite the roller coaster ride! Is this up and down the new norm for Americans? Is there only “upside”? How many of you remember October 1987? 2000? 2008? What happened to your retirement savings? Could it happen again? How do you protect some of what you’ve worked so hard for??

26. IN THE NEWS…
Yellen Faces Congress amid Direst Threat to Fed Since Dodd-Frank – MSN Money 2/23/15
Why the US stock market is one of the most dangerous in the world –
MoneyWatch 2/18/15
We're 6 years into 20-year bull market:
Belski, CNBC 11/14/2014
Tech bubble 2.0? It could happen
CNBC 2/25/2015
Look at some recent headlines…It is important to note that these are headlines from 2014 & 2015 about our current market situation. Do we heed the warnings, or do we choose to ignore history and plunge ahead with what we’ve always done the way we’ve always done it?
The Centers for Medicare & Medicaid Services said spending on health care costs from 2014 to 2024 will see an average annual increase of 5.8%. – TheStreet 7/31/15

27. We Live in Perilous Times!
On Average
Every 3 years you have a bear market.
Every 8 years you have a significant bear market.
If you hold your money for 17 years you won’t have a problem.
This last bear started in and ended 2009.
Russell Napier in his book “The Anatomy of a Bear” (published in 2005, updated in 2009) points out these facts (read them). If they are true then we live in perilous times. We’re seeing increased volatility in the market. Over the past twenty years we’ve seen a “roller coaster ride” of market swings. Is this the new norm? How should you plan in a time like this?
“The Anatomy of a Bear” Napier 2005

28. Bull vs. Bear market cycles
Take a look at this chart showing Bull and Bear markets ( ). The Bulls & Bears are always fighting for supremacy. Do you believe there will be another Bear market sometime during your retirement? There HAS to be. It is the normal cycle of markets. The concern recently is that there are a number of external forces at work trying to make sure there is no “correction” or “bear” market. Yes the market has to correct. If it is artificially propped up then the potential “correction” can be extremely painful. If you don’t have a strategy to protect your assets in both markets it can have a devastating effect on your retirement portfolio.

29. Global stock prices (January 1, 1980—January 22, 2016)
“Corrections” and “Bear Markets”
Global stock prices (January 1, 1980—January 22, 2016)
Type of Decline
Number
Ave. Return
Ave. Time from Peak to Trough
Ave. Time from Trough to Recovery
Correction 12
-13.7%
87 Days
121 Days
Bear Market 7
-33.4%
373 Days
798 Days
Corrections and bear markets: What does Vanguard think? Date: January 28, 2016
From their high on May 21, 2015, global stock prices lost about 19% of their value through January 20, The setback qualifies as a "correction," which is conventionally defined as a decline of 10% or more. The term "bear market" typically refers to a decline of 20% or more lasting at least two months.
Corrections are common
Stock market downturns—corrections and bear markets—are relatively common. Since 1980, the global stock market* has experienced 12 corrections and 7 bear markets—on average, an attention-grabbing downturn every 2 years or so. Over the past 36 years, stock prices have spent almost 30% of the trading days in corrections or bear markets.
(Note: This analysis considers price returns only. In a total return analysis, returns would be higher, and recoveries quicker, because of reinvested dividends.)
Note: Vanguard analysis based on the MSCI World Index from January 1, 1980, through December 31, 1987, and the MSCI AC World Index thereafter. Both indexes are denominated in U.S. dollars. Our count of corrections excludes corrections that turn into a bear market. We count corrections that occur after a bear market has recovered from its trough even if stock prices haven't yet reached their previous peak.
Depths and duration have varied
Some corrections are swift, others grind lower slowly. The time from a market trough to recovery has been similarly unpredictable. Consider a few observations from the global stock market data:
The average number of days from the start of a correction to its bottom was 87 days. The fastest decline was 28 days, while the slowest was 124 days.
The average number of days from a correction’s trough to recovery was 121 days. The speediest rally was 46 days, the slowest 359 days.
Bear markets have generally taken longer to reach a bottom and longer to recover.
The average number of days from the start of a bear market to its bottom was 373 days. The fastest decline was 60 days, while the slowest was 926 days.
The average number of days from a bear market trough to recovery was 798 days. The quickest recovery was 85 days, the slowest 1,928 days.
Disclaimer Notes:
All investing is subject to risk, including the possible loss of the money you invest.
Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.<
Investments in bonds are subject to interest rate, credit, and inflation risk.
Diversification does not ensure a profit or protect against a loss.
Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
Source: Vanguard, Markets & Economies 1/28/16

30. Accumulation on $500,000 Inverse Returns Effect
Hypothetical Index - Beginning Value $500,000 Annual End of Year Inverse End of Year Year Return Value Return Value 1 28% $640, % $310, % $576, % $272, % $662,400 2% $278, % $775,008 15% $319, % $782,758 26% $403, % $986,275 1% $407, % $1,134,216 17% $479, % $1,156,901 15% $547, % $1,018, % $493, % $631,205 28% $631,205
When you’re planning for your retirement it is important to know how long your money will last, and what impact the market will have on your nest egg. Let’s take a look at a hypothetical market performance over a 10 year period. If you start with $500,000 and let the market work for 10 years, using these returns, you end the 10 year period with $631,205. Not bad! But notice that in year 8 you had $1.15mm. Still, not a bad return.
Now what happens if we invert the returns. Year one starts with -38% and year 10 ends with +28%. What will your ending balance be then? (Pause and see if anyone answers)
It’s exactly the same. The rules of multiplication state that you can put the pluses and minuses in any order and the end result will be exactly the same as long as you don’t change any variable.

31. Accumulation on $500,000 Inverse Returns Effect
Hypothetical Index -Beginning Value $500,000 Withdrawal $35,000 Inflation 3% Annual Annual End of Year Year Return Withdrawal Value 1 28% $35,000 $605, % $36,050 $508, % $37,132 $547, % $38,245 $602, % $39,393 $569, % $40,575 $676, % $41,792 $736, % $43,046 $707, % $44,337 $578, % $45,667 $313,017
So what happens when you start taking your retirement income? Let’s look at this scenario where you take $35k per year inflated by 3% for inflation. At the end of 10 years you still have $313,000 left. Pretty good!

32. Accumulation on $500,000 Inverse Returns Effect
Hypothetical Index Beginning Value $500,000 Withdrawal $35,000 Inflation 3% Annual Annual End of Year Year Return Withdrawal Value 1 -38% $35,000 $275, % $36,050 $205, % $37,132 $172, % $38,245 $160, % $39,393 $163, % $40,575 $124, % $41,792 $103, % $43,046 $75, % $44,337 $23, % $45,667 -$15,078
Now let’s invert the returns just like before and take the $35k per year with the 3% inflation increase. What happens? You run out of money somewhere in year 9. If that happens what do you do? You get to go back to work!
Again, this is a hypothetical sequence so this may never happen exactly this way. We never know when the negative years will happen, but they can have a devastating impact on your portfolio – especially in the first 10 years of your retirement. If you have a few negative years in your first decade of retirement your lifestyle will be greatly impacted.
Is there any way to guarantee an income stream for your retirement (other than Social Security)?

33. A Few Questions
Do you know how all of your assets (stocks, bonds, mutual funds, annuities, Life Insurance, etc.) work together to achieve the amount of risk you want in your total portfolio?
How does your current portfolio protect you in a bear market?
How does the average person determine which assets to use in a conservative portfolio?
What is your plan to manage risk?
Do you need a degree in finance to know how to manage risk?
Look at these questions. If you are like most people, you don’t know the answers to the first four questions and that would make you normal. It’s not unusual to assume the answer to the last question is yes, or at least it feels that way; especially since we’re moving more and more into the “manage your own portfolio” as we discussed earlier.
Let’s take a quick look at a planning model that may very well be an answer to those difficult questions in investing. It’s call the ABC Planning Process.

34. A Plan to Keep Your Retirement Assets from Being Subject to a Repeat of Negative History.
The ABC Model of Investing is a powerful tool to manage risk so you won’t repeat negative history. Let’s take a look how it works by looking at how we define Asset Classes and help you understand risk, reward, and liquidity needs.

35. Three Green Money Rules: Rule #1: Protect Your Principal
Rule #2: Retain Your Gains
Rule #3: Guarantee Your
Income
Three RED Money Rules:
Rule #1: Must be tactical
Rule #2: Must be liquid
Rule #3: Must be long term
1% – 3%
3% – 7%
+30% – -30%
Taxable
Liquid
Bank
CDs
Savings
Checking
Tax-Deferred
Moderately Liquid
Taxable
Liquid
401k
IRA’s
Stock/Bond
Let’s divide assets into categories, A, B, and C, which represent three types of assets. Category A is your cash reserves. Cash assets potentially carry low returns, but the principal is guaranteed, and interest is compounded. According to the Federal Reserve the average six month CD rate from was 4.37% (20 years); was 3.32% (10 years); from was 3.99% (5 years).(1) It is interesting to note the average inflation rate from was 2.57%, which leaves the five year return averaging less than 1.5% before taxes. (2)
These accounts are typically taxable and have optimum liquidity. However, they can also be set up in various tax-advantaged strategies such as traditional IRA’s, Roth IRA’s, etc. Most often these are bank held assets like CDs, savings accounts, and money markets.
Financial advisors will often refer to this as short term money, or emergency funds. If your furnace breaks down, your roof leaks, or you have a medical emergency, category A is where you save for such an occurrence. If you are saving for an exciting vacation or a new car, this is where the money goes. It is also where you might want to keep a savings account to replace any income lost due to a prolonged illness, injury, or job loss. Commonly, financial advisors will tell you to have six months to a year of income put away for these instances. The illustration below shows Column A assets. Imagine them as “Yellow Money” accounts.
The second category is Column B, the Green Money Column, and holds Protected Growth assets. They offer potentially moderate returns, are tax-deferred and offer partial withdrawals. The principal is protected, and previous years gains are retained as interest. The annual returns on these assets vary greatly. In my own practice I have seen them yield from 0% to as high as 16%. Some include bonuses from 3% to 7%. These assets are designed to be the middle ground between CDs and the market.
I prefer using fixed indexed annuities in column B which link the interest credits to the performance of a market index, such as the S&P 500, S&P Midcap 400, DOW, Russell 2000, Euro Dow, etc. Column B money is set aside for a longer period, often 5-10 years. Annuities have strings attached for withdrawals, but can be an excellent source of income over a lifetime. In other words, don’t allocate money to the B Column if you will need more than 10% next year, especially considering there could be a tax penalty on certain withdrawals prior to age 59 ½.
Generally assets in this column offer only partial withdrawals without a penalty, yet many include riders that waive surrender fees in the event of a nursing home stay or terminal illness. Indexed annuities are designed to function as the middle ground between lower interest rates of bank and savings accounts and the potential higher returns of risk-oriented market money.
This is the Fixed Principal Asset column, where the principal is protected. The ABC Model looks at Fixed Income Assets different than Wall Street does. Over the years, Wall Street has used a laddered portfolio of bonds to accomplish the goals of column B, yet a bond can lose value. From 1999 to 2009, if you were holding Lehman Brothers, Bear Stearns, ENRON, or World Com bonds, you might have thought you were safe, but found out just how much you could lose in a bond. If you are holding a California bond right now you might be a little insecure. That is why we use Fixed Principal Assets in column B rather than Fixed Income Assets.
Column C represents our Red Risk Growth assets which move up or down with the market. Investors usually chase higher returns over time, though these assets can gain or lose 30% in a year or even more. The S&P 500 lost 38% in 2008, but the average annual return from was over 25%. (4) The market “giveth” and the market “taketh” away, there are no protections or limits. This money is invested in securities like stocks, bonds, mutual funds, variable annuities, options, REITs, and the like. The principal isn’t protected and last year’s gain may be lost in a downturn of the market. While these accounts are associated with a longer time horizon they are usually more liquid due to the “sellable” nature of securities, unless they are in a variable annuity which offers partial withdrawals.
The majority of the assets found in column C are in retirement accounts such as 401(k)’s, 403(b)’s, IRA’s and variable annuities. Column C monies can also be found in the form of non-qualified (after-tax) brokerage accounts, mutual funds, stocks, or bonds, held by an individual, jointly, or even in trust. You can be your own manager or hire a professional investment adviser to manage this part for you. Let’s paint these investments Red for Risk.
Sometimes it’s confusing as to which assets belong in which column. Column B has Three Green Money Rules which are: Protect your principal, retain your gains, and guarantee your income. If an asset can’t do those three things it doesn’t belong in the ABC Model’s Column B. Bonds don’t follow those rules so they must go in the next Column C. Therefore, a Fixed Indexed Annuity is probably an ideal asset for column B.

36. 10% 60% 30% 1% – 3% 3% – 7% +30% – -30% Taxable Liquid Bank CDs
Savings
Checking
Tax-Deferred
Moderately Liquid
Taxable
Liquid
401k
IRA's
Stock/Bond
I think it might be helpful to see an example. If you had $500,000 of investable assets and wanted a “conservative” portfolio, here is how you might allocate your assets in each column (Go through the slides again, re-stating the benefits of each column). Here we have a typical 10/60/30 split which would put $50,000 liquid in Bank Accounts (Column A), $300,000 in Fixed Indexed Annuities (Column B), and $150,000 in securities such as stock mutual funds, bond mutual funds, or managed accounts. You can be as aggressive or conservative as you would like in Column C because 70% of your assets are protected from any market volatility. Ask yourself (remember that there are NO WRONG ANSWERS):
“So, what percent would you like in column A?”
“And, what percent would you like in column C, the risk column?”
“So that means you would like _____% in the B column.”
Remember you have to establish YOUR OWN priorities (Next slide)
10%
60%
30%

37. What is your client’s greatest priority?
What is your client willing to give up?
Gains? Liquidity? Protection?
Cash
Protective Growth
Risk Growth
Potentially higher returns
Taxable or tax-deferred
Offer partial withdrawals or liquid
Potentially lower returns
Taxable or tax-deferred
Liquid
Potentially moderate returns
Tax-deferred
Offer partial withdrawals
Now let’s take a glance at what you gain and lose in each column. There is a “Risk-Reward” for each column, which means, you stand to gain or lose something by placing assets in each scenario.
If your main goal in placing money in column A is good liquidity, you will probably have to put up with low interest rates. So, you would be capturing liquidity and losing some potential gains. If you want the protection of Column B, then you will have to consider a longer-term mindset, putting up with 10% liquidity each year. If what you want by placing money in Column C is higher potential gains, you will have to give up protection of those assets.
Said differently, in Column A you give up GAINS to get more LIQUIDITY. In column B you give up some LIQUIDITY to acquire PROTECTION from risk, and in Column C you give up POTECTION for higher potential GAINS, as illustrated.
Liquidity
Protection
Gains
Gains
Liquidity
Protection

38. ABCs of Conservative Investing
Investor Steve’s Allocation of $600,000
Finally, you might not have a clue how much money you want in each column and need a little guidance. It might be helpful to picture money as being either GREEN or RED; GREEN for Safe and RED for Risk. GREEN Safe money is money not exposed to risk in the market. RED Risk money is just that, money in the market.
It might also help to picture my friend Steve the Investor. He’s a 65 year old retired salesman with $600,000 of investible assets, but worrying about preserving his retirement nest egg is keeping him up at night. Steve’s advisor suggests an often used formula called the Rule of 100 to help him determine how much he wants in Columns A, B, and C.
Very simply he used the formula of 100 minus his age, to determine how much money he wants in Green protected accounts and Red risk accounts.
Steve decides to put 65% in the first two columns. Steve first determines he wants 10 % or $60,000 in Column A for emergency fund, plus he’s planning a “restful” vacation in Seattle. Next, he puts the balance of the green money portion from the Rule of 100 which is 55% or $330,000 in a laddered portfolio of indexed annuities in Column B. Steve has 35% or $210,000 left to be placed in Column C’s Red Risk assets. He chooses a professional money manager who manages a conservative portfolio of funds.
Steve is finally able to find peace with his assets and finally able to sleep knowing how all of his assets fit together to accomplish HIS goals for retirement.

39. An FIA Simple Four Year Graph
12%+
8%+ 4%
10% 0% 4%
4% cap
Year One
Year Two
Year Three
Year Four 6%
-40%
15%
This four year graph shows a simple, base-model chassis of an index annuity. Let’s say that the market goes up 10% in the first year. The annuity company will cap your earnings in some manner, so let’s say the cap is 4%. Now, if the market went down the next year 40%, how much would you lose? Zero! So, would you be upset if the market went down 40% and you got zero? Of course not. Zero is your hero. In fact the 4% stays in the account unless you pull money out. In the third year, if the market went up 6% and the cap was still 4%, the company would give you 4% compounded on top of the first year’s earnings. In the fourth year, if the market went up a whopping 15%, and the cap was still at 4%, you would throw in another 4%. Now you are up 12 plus percent because of compounding, while the market isn't even back to where it started in year one!
Sounds too good to be true, doesn't it? So, let’s take a look at some negative aspects of the annuity. Once you deposit money in an annuity you will have limited liquidity, usually 10% a year of the account value, after the first year. The length of term can be anywhere from 3 to 16 years. You can choose a ladder of maturities that never go over 10 years or even less if you’d like. That’s why you develop liquidity in Columns A and C of the ABC Model. You need to find out about caps and other riders that can limit or enhance your earning power, which is something we discuss on an individual basis.
What would you say to your broker If he got this for you in 2008? Would you be upset if you didn’t get 4% when everyone around you lost 40%?
Has drawbacks. Sounds too good to be true? If you found it was true, would you want some of this?
Drawbacks…surrender charges
Liquidity options, 10% free.
Caps can go up and down…4% to 11%
How do you allocate money…25% fixed…want it to get something. Annual point to point, monthly point to point, etc….
Items to Consider:
___Surrender Duration ___Liquidity Options ___Caps ___Income Riders ___Crediting Methods ___Other

40. What if a bear market happens again?
Let’s look at 3 different 10-year periods of market performance to test our ABC Planning Process
Let’s take a look at how the ABC’s can make a difference in your portfolio over a few different decades. Here are the three time periods we have chosen to review; the most recent decade ( ), , and “the lost decade” Let’s see what an ABC allocation of assets might look like in some hypothetical situations.

41. 2006 through 2015
The hypothetical illustration above shows the S&P 500 returns for the years 2006 through 2015 on the left. The investible assets are $500,000. This hypothetical example shows a typical investor who has about 10% in bank assets (Asset type A) earning an average of 2% and 90% allocated to the market (through 401(k), 403(b), IRA’s etc.) represented by the S&P 500 (Asset type C). We use the broad market index to approximate what investing in the market in general was like over that period of time. Certainly an investor could have been in more or less risk than illustrated here. Yet, the hypothetical illustration shows in general terms how the market performed from Notice, there are no monies allocated to Column B, which are Index Annuities.
The hypothetical chart shows at the end of the ten year period this investor would have grown their portfolio to over $797,700. So it looks like a very good decade in the market, except for that one glitch in 2008, a 38.5% loss.
Hypothetical and/or actual historical returns contained in this presentation are for informational purposes only and are not intended to be an offer, solicitation, or recommendation. Rates of return are not guaranteed and are for illustrative purposes only.
Next slide
Hypothetical and/or actual historical returns contained in this presentation are for informational purposes only and are not intended to be an offer, solicitation, or recommendation. Rates of return are not guaranteed and are for illustrative purposes only. Past performance is no indication of future results. The S&P 500 is not available for direct investment.
Chart: Retirement Analyzer Software 2016™

42. 2006 through 2015
$-74,949
Using the same $500,000 over the identical ten year scenario, let’s allocate 60% to laddered maturities* in indexed annuities. Using the same caps and interest rate in the previous illustration, the ABCs with 60% allocation to Green Money didn’t perform as well. This hypothetical portfolio grew to $722,754 during that same period of time. That’s about a 9% difference in the overall performance. That’s .9% per year, about $7,500 less per year. Why?
Bull Market – this 10 year period of time is considered to be one of the most historic bull runs we’ve ever experienced
Green Money is NEVER designed to outperform Red Money. It is the middle ground between bank assets and the market. Look at what happened to the Red Money in Then look at what happened to the Green Money in You didn’t lose a dime! The purpose of Green Money is preservation of principal with the potential for modest growth. So, a conservative investor is willing to take only a portion of the gain in exchange for PROTECTION of their assets in the event a market takes a downturn like it did in 2008, and the early part of 2016.
This is just one 10-year period of time that likely will never be repeated exactly this way again
Let’s take a look at a couple of Bear market decades, remembering that you need to plan for 30 years in retirement. Let’s see if the ABC Allocation makes any difference.
(*Maturity = Out of Surrender Penalty Period)
Next slide
Hypothetical and/or actual historical returns contained in this presentation are for informational purposes only and are not intended to be an offer, solicitation, or recommendation. Rates of return are not guaranteed and are for illustrative purposes only. Past performance is no indication of future results. The S&P 500 is not available for direct investment.
Chart: Retirement Analyzer Software 2016™

43. 1969 through 1978
$-74,949
The illustration above shows the S&P 500 returns for the years 1969 through 1978 on the left. How many of you remember that decade?! The investible assets are $500,000. This example uses the same criteria for caps in the index annuities, but uses the 7% average bank rate for the decade. Wouldn’t you love that again! We use the broad market index to approximate what investing in the market in general was like over that period of time..
The chart shows at the end of the ten year period this investor would have gained a little over $14,770. Look at all the negative years in that decade! 4 out of 10 years were negative, and 2 years that had almost no growth!
You were letting out a big exhale because you just made it through a very rough 10 year period of time and you could breathe again!
So, let’s take a look at how an ABC allocation during this same time period of time might have performed…
Hypothetical and/or actual historical returns contained in this presentation are for informational purposes only and are not intended to be an offer, solicitation, or recommendation. Rates of return are not guaranteed and are for illustrative purposes only. Past performance is no indication of future results. The S&P 500 is not available for direct investment.
Chart: Retirement Analyzer Software 2016™

44. 1969 through 1978
$120,195
$-74,949
The ABC allotment of 10/60/30 grows by more than $134,900, which is a $120,195 difference! That’s with 4 out 10 years negative, and 2 years with almost no growth! Very positive toward the ABC bear market strategy for retirement.
Now let’s take a look at a really nasty decade. One we’re all familiar with.
Next slide.
Hypothetical and/or actual historical returns contained in this presentation are for informational purposes only and are not intended to be an offer, solicitation, or recommendation. Rates of return are not guaranteed and are for illustrative purposes only. Past performance is no indication of future results. The S&P 500 is not available for direct investment.
Chart: Retirement Analyzer Software 2016™

45. 2000 through 2009
$-74,949
The hypothetical illustration shows the S&P 500 returns for the years 2000 through 2009 on the left. The investible assets are $500,000. This example shows a typical investor who has about 10% in cash earning an average of 3% and 90% allocated to the market represented by the S&P We use the broad market index to approximate what investing in the market in general was like over that period of time. Certainly an investor could have been in more or less risk than illustrated here. Yet, the illustration shows in general terms how the market performed from Notice, there are no monies allocated to Column B, which are Index Annuities.
The hypothetical chart shows at the end of the ten year period this investor would have lost $91,330 ($500,000 - $408,669). I don’t know about you, but an 18% loss in my portfolio is devastating when it comes to retirement! Imagine if you were 55 years old in 2000 and planning to retire when most people do, at age 65. Would you do what many have had to do, which is work another 3-5 years (or more) in hopes of recovering those assets needed to retire? Isn’t that what many people did after ? They saw major losses in their portfolio and realized they had to work “a few more years” in order to get back what they had lost.
And what if it happens again? When I show this graph to students they tell me, “Yep, that’s about what happened to us.” Yet, the same students will surprisingly stay in this broken down Wall Street model attempting to recover with a hope and a prayer.
What if the next ten years aren’t any better than this decade? Can you afford to lose another 10%, 15% or possibly more? Can you continue to push off your retirement indefinitely? Let’s do some math: If you lose 25% of your total account value in one year, what percentage do you have to make the next year just to get back even? $100,000 – 25% = $75,000 x 33% = $100,000. These types of losses can have a devastating impact on a retiree’s lifestyle. What if the first 10 years of your retirement looked like this?
There has to be a better way, and I believe there is.
Next slide.
Hypothetical and/or actual historical returns contained in this presentation are for informational purposes only and are not intended to be an offer, solicitation, or recommendation. Rates of return are not guaranteed and are for illustrative purposes only. Past performance is no indication of future results. The S&P 500 is not available for direct investment.
Chart: Retirement Analyzer Software 2016™

46. 2000 through 2009
If the next ten years saw a 10%, 20%, or 30% loss in the market, how would it affect your retirement?
$191,684
Using the 10/60/30 ABC split, this person gains $100,354 instead of losing over $91,000! A difference of $191, Now that’s a strategy that works for retirement years. It does so because it obeys Warren Buffet’s first rule of investing, “Never lose any money.” BTW, that happens to be rules number 2 and 3 also. And it has to be true, especially for retirees or those heading into retirement.
Simply putting some of your money in the green money column protects you from those down years and now with the tremendous guaranteed income payouts the green money column is even more “a must” for retirees. We don’t want you to get totally out of the red, or growth money assets, but it’s obvious that the green money column is perfect for conservative clients looking for alternatives to Wall Street’s roller coaster rides.
Hypothetical and/or actual historical returns contained in this presentation are for informational purposes only and are not intended to be an offer, solicitation, or recommendation. Rates of return are not guaranteed and are for illustrative purposes only.
Hypothetical and/or actual historical returns contained in this presentation are for informational purposes only and are not intended to be an offer, solicitation, or recommendation. Rates of return are not guaranteed and are for illustrative purposes only. Past performance is no indication of future results. The S&P 500 is not available for direct investment.
Chart: Retirement Analyzer Software 2016™

47. What to do?
“The first rule is not to lose. The second rule is not to forget the first rule.” -Warren Buffett
Pay attention to Green Money Rule #1. It is the same as Warren Buffett’s first rule.

48. It’s All in the Planning
“You have had a dream for so many years. Let today be the day you make a plan for it. Just think about how much more likely you are to hit your target when you finally aim at it.” ― Steve Maraboli, Unapologetically You: Reflections on Life and the Human Experience
Now it is up to you. You can continue dreaming or you can change your life by making a plan. Let us help you with that by using the ABCs of Conservative Investing.

49. Once is Not Enough
“To improve is to change; to be perfect is to change often.” ― Winston Churchill Once your plan is implemented, you have to allow for change. Things will happen in your life that require adjustments to your plan.
Once the plan is developed, it is important to make sure it is flexible enough to adapt to change. There are any number of incidents that occur as a normal part of living that greatly impact financial plans. We never know what may happen in the world that can have a dramatic impact on your retirement monies. Having a plan that protects your hard-earned money while participating in the upside of good markets helps you weather the storms of life with confidence. The ABC Model protects your assets in Bear Markets and helps you grow your assets in Bull Markets.

50. Now What???
Set up an appointment and see how the ABC Process works for you (no obligation!)
If you are happy with the results, share your feelings with friends and associates
Partner with me to establish a long term, high-value relationship
I believe in the partnership between the client and advisor. The advisor’s role is to create, implement, and adjust the financial plan tailored to the needs of the client. The advisor is partnering with the client to see them succeed in their retirement. Partnership is a two way street by definition. The role of this client partnership is very important.
The role of the Client-Partner is to talk with others about the experience of working with the advisor and invite them to meet the advisor at a client event, workshop, or at an individual conference. As you are out in the community with your friends, family, and acquaintances the subject of finances comes up. All you need to do is say, “you might want to speak with Tom.” If they say they already have an advisor, drop the subject. Yet, if they ask you who your advisor is, tell them about this “experience” with the ABC’s of Conservative Investing. Then simply invite them to meet with you and me for lunch (I will pay), or invite them to the next client event or workshop. This will enable your friend to meet me in a casual setting to see if this proven method is interesting, and if I’m the “kind of person” they might want to work with.
You can always call me after speaking with your friend and get permission to have them call or come to an event. The advisor can take it from there.
The relationship of an advisor and client-partner can be a long and prosperous one for both parties. Bringing your friends who have expressed a financial need to meet your advisor is a major compliment. Finding an advisor you trust, like, and is competent makes it all the more enjoyable.
The journey of a thousand miles begins with the first step. Are you ready to take the first step?
Thank you for your time.