ABC Retirement Planning

ABC Retirement Planning
Week Two Date Location

Adult Financial Education Services, Inc.
Sponsored by: Adult Financial Education Services, Inc. (LOCATION)

Instructor Name Phone Email address
Contact information: Instructor Name Phone address

Disclaimer The ABC Retirement Planning Workshop is an educational program, and is not intended to sell investment or insurance products, nor is it 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. This presentation is for educational purposes only and is not intended to project the performance of any specific investment. Past Performance is no guarantee of future results. Any indices mentioned in this presentation are unmanaged and not available for direct investment. Securities offered through (BD Info). Insurance and annuity products are offered through Dressander/BHC. ©2016 Dressander BHC Inc.; text and materials incorporate or adapt portions of Bat-Socks, Vegas and Conservative Investing ©2012 David P. Vick

What Did You Get Out of Last Week?
What is Conservative Investing Changing Perceptions About Investing Technology has Created a New ‘Ball Game’ Myths and Mistakes Perhaps There is a Need for a New Model

Investing at the speed of the internet…
Let’s watch a humorous video on how the speed of the internet can change our fortunes!

The ABC Model of Investing
The New Model

The ABC Model Defined Wall Street Pyramids and Risk Tolerance
Wall Street’s typical model of investing starts with the “Pyramid of Assets” and moves on to “Asset Allocation” models. These models depend on the broker knowing your “risk tolerance,” which is the degree of variability in investment returns that an individual is willing to withstand. Wall Street uses a lot of terms that can be complex.

The ABC Model Defined A Conservative Investor’s Dilemma
Is your money safe from market losses? Are you beating CD’s? Conservative investors want that “in between space” of bank-type savings and market risk assets.” “Bat-Socks, Vegas & Conservative Investing” by David P. Vick 5.1 Do you, the conservative planner, know how to allocate your money to avoid the volatility which costs you sleepless nights? 5.2 How do you currently determine which assets to use and why you might use them? As a conservative investor, is your money safe from market losses? Are you beating CD’s?

The ABC Model of Investing- Category A: Cash Assets
This model will help you decide how much risk you want in a portfolio, and not leave it up to someone else to decide for you. Because it’s an individual choice; your individual choice. “Imagine that all your investible assets are liquid and you could set them up anyway you like, starting today. Not where they were 10 years ago or last year, but from now on. This is important because you want to have your assets set up for your needs going forward, not left in accounts that could jeopardize your future. You need to realize that not all your assets are liquid and in a position to move to your ideal situation. This will just give you a glimpse at your “ideals” in planning.” “Let’s divide assets into three categories, A, B, and C. The first column, A, represents assets that historically earn 1-5%. The principal is protected and you simply are adding interest to the accounts. They are typically taxable and liquid. They can also be set up as IRAs and tax-deferred. These are typically bank held assets like CD’s, Savings accounts, Money Market accounts, etc. We use an upward arrow to note that these assets are protected by FDIC Insurance up to $250k per account.

The ABC Model of Investing- Category B: Fixed Principal Assets
5.6 When a planner uses the term “Fixed Income Asset” what do you believe about the primary characteristic of that asset? Bat Socks, Vegas and Conservative Investing: The second column, B, represents assets that historically yield about 4-7% over a 10 year period with the principal guaranteed and all previous years gains retained as interest. They are typically tax-deferred and moderately liquid. These are indexed annuities where the interest is linked to the performance of a market index. These are assets that offer partial liquidity with potentially moderate returns. These are fixed principle assets, where the principle is guaranteed by the insurance company. Because the principle is guaranteed by the insurance company we use an upward arrow to show that there is protection of the assets in this column. (Teacher: please refer to the disclaimer that the statement is based on the claims paying ability of the insurance company)

The ABC Model of Investing- Category C: Risk Growth Assets
5.7 What are some of the negative aspects of Column C that concern you as you plan for retirement? 5.8 What are some of the positive aspects of Column C that could help you as you plan for retirement? The third column, C, represents assets that historically go up or down 10%, 20%, 30% or more as we’ve seen several times over the past 30+ years. The principal isn’t protected, and last year’s gains may be lost in a downturn of the market. The accounts are typically liquid and taxable, although a large amount are in IRAs, 401(k)s, and those grow tax-deferred. These are assets known as “securities”, which can carry varying degrees of risk with them. There are typically two types of risk in column C, stock type risk and bond type risk”. There is no limit to the upside potential of these assets which is why people want to have some of their retirement money in these types of assets. However, unlike assets in the first two columns, there is no downside protection of assets in this column if the market goes down. To illustrate this point there is an arrow that points both UP and DOWN.

SAMPLE CONSERVATIVE MODEL
Conservative Model: Understanding how these different asset classes “work”, a sample conservative allocation of assets might look like this. 10% in Column A. 60% in column B. 30% in Column C. However, there is no right or wrong allocation. It is based on your own risk tolerance and timeline. 10% 60% 30%

SAMPLE MODERATE/AGGRESSIVE MODEL
Moderate/Aggressive Model…which one is right? It depends on you. In this sample allocation 60% of the assets are in the C column. Again, there is no right or wrong allocation. Someone might want to have more in the bank (column A), or more or less in the C column, or more or less in the B column. Understanding your risk tolerance, time horizon and goals will help you understand what works for you so that you can discuss this with any financial professional, or if you do your own planning. 10% 30% 60%

Create Your Own ABC Portfolio
Now let’s take a few minutes for you to do your own ABC allocation based on what you’ve learned about your own risk tolerance, time horizon and goals. Take a few minutes to decide what percentage you want in each column then write it down in your notes. 10% ? 30% ? 60% ?

What is Your Greatest Priority?
What are you willing to give up? Gains? Liquidity? Protection? 5.10 How do the “risk-reward” trade-offs impact your planning choices? The important thing to note about the ABC model is that with each column there are risks and rewards. If you want the liquidity of column A what do you have to give up? If you want the protection of the assets in column B what do you give up? If you want the growth of column C what do you have to give up? If we are going to have another bad decade like , how would you allocate your portfolio? What if we have another decade like the 90s? Now, looking at your ABC model again, how would you allocate your portfolio? The important thing to remember is that we can never tell what the market is going to do. It goes up and it goes down. How do the “risk-reward” trade-offs impact your planning choices?

Let’s Review… Rule of 100 5.12 Think through your current financial plan. In what ways would this help you re-allocate your portfolio? In what ways would it not help you plan? 5.13 In what ways would the ABC Planning Model help you in your financial planning? What if you are unsure how to allocate your portfolio? A good starting point is to subtract your age from 100. That number is what percentage of your assets should be allocated to column C. However, that is only a starting point. Your number could be higher or lower depending on your risk tolerance, timeline and goals. As you consider your current financial plan in what ways would this help you re-allocate your portfolio? In what ways would it not help you plan? In what ways would the ABC Planning Model help you in your financial planning?

Yellow Money Savings

Yellow Money Savings The goal of Yellow Money?
How much liquidity is right for you? The Two Yellow Money Categories Accessible with no penalties Accessible with minimal penalties Liquidity…how much cash should you have. Depends on what CDs are paying. Go with what you think about today. Financial planners would normally tell you to have enough for a year., Trip to take, college to fund, car to buy…need to keep money for that.

Yellow Money Savings 6.6 IS HAVING THE MAJORITY OF YOUR MONEY LIQUID IMPORTANT TO YOU? If not, then how much is right for you? (No right or wrong answers)

Do You Have What You Think You Have?
Green Money Assets

Fixed Income Asset or Fixed Principal Asset?
7.2 In the past, have you thought bonds guaranteed principal? Explain Explain Bonds, how they work. From FINRA.org - Bonds: A bond is a loan an investor makes to a corporation, government, federal agency or other organization in exchange for interest payments over a specified term plus repayment of principal at the bond’s maturity date. There are a wide variety of bonds including Treasuries, agency bonds, corporate bonds, municipal bonds and more. Likewise there are many types of bond mutual funds. When you invest in bonds and bond mutual funds, you face the risk that your investment might lose money, especially if you bought an individual bond and want or need to sell it before it matures. And bond mutual fund prices can fluctuate, just as stock mutual funds do. Risk will also vary depending on the type of bond you own. Bonds and bond mutual funds often can be an important component of a diversified investment portfolio. - See more at: Bonds and Interest Rates: When it comes to how interest rates affect bond prices, there are three cardinal rules: When interest rates rise—bond prices generally fall. When interest rates fall—bond prices generally rise. Every bond carries interest rate risk. - See more at: Is there ever a time that a bond can lose principal? Yes. There is risk involved with bonds. Risk factors include: Interest Rate Risk, Call risk, Duration risk, Refunding Risk and Sinking Funds Provisions, and Default and Credit Risk. While U.S. Treasury securities are generally deemed to be free of default risk, most bonds face a possibility of default. This means that the bond obligor will either be late paying creditors (including you, as a bondholder), pay a negotiated reduced amount or, in worst-case scenarios, be unable to pay at all. - See more at:

Fixed Income or Fixed Principal Assets?
What are Fixed Income Assets? Do Fixed Income Assets have Protection of Principal? Have you or anyone you know ever lost money in bonds? What is the ‘Bond Bubble’? Have you or anyone you known ever lost money in bonds…know someone who lost 1.5MM in Lehman Bond bubble, billions are going into bonds when interest rates are all time low…rush to safety in bonds that pay dirt and have one way to go. 2% bond, and interest rates go to 4%, what happens to the value of your bonds Which is larger, stock or bond market?…Bond market is four times the size of the stock market, much larger thud if it crashes. Reverse dollar cost averaging

Green Money Assets Is protecting your principal, or some of your principal, important to you?

Three Green Money Rules:
Protect Your Principal Green Money Rule #2: Retain Your Gains Green Money Rule #3: Guarantee Your Income 7.3 How do the Green Money Rules help when forming a balanced, conservative portfolio? Why bonds don’t fit into that column: the principal is not guaranteed.

What is your take on the value of Green Money Column B?
Green Money Assets What is your take on the value of Green Money Column B? Do you think it is important to protect a portion of your assets or income?

What is an Annuity? An annuity is an insurance product that pays out income, and can be used as part of a retirement strategy. Annuities are a popular choice for investors who want to receive a steady income stream in retirement. “Ultimate Guide to Retirement”, CNNMoney 7.4 What are some of the negative aspects of annuities you have heard about? 7.5 What are some of the positive aspects of annuities you have heard about? “Annuities are designed for long term financial planning and are not designed for short term investment strategies. More on Annuities coming up! Guarantees based on the claims paying ability of the insurance company. Withdrawals over the allowed percentage per year would also incur additional fees. An annuity is a contract between you and an insurance company in which the company promises to make periodic payments to you, starting immediately or at some future time. You buy an annuity either with a single payment or a series of payments called premiums. Some annuity contracts provide a way to save for retirement. Others can turn your savings into a stream of retirement income. Still others do both. If you use an annuity as a savings vehicle and the insurance company delays your pay-out to the future, you have a deferred annuity. If you use the annuity to create a source of retirement income and your payments start right away, you have an immediate annuity. Annuities come in a few varieties: fixed, variable and indexed.”

Different types of annuities
Types based on investing models and guarantees Variable Annuity Fixed Annuity Fixed Indexed Annuity Types based on when annuity payments will be made Immediate Annuity Deferred Annuity Single Premium Deferred Annuity (SPDA) Flexible Premium Deferred Annuity (FPDA) Page 56

Variable Annuities A variable annuity is a tax-deferred retirement vehicle that allows you to choose from a selection of investments, and then pays you a level of income in retirement that is determined by the performance of the investments you choose. “Ultimate Guide to Retirement”, CNNMoney Variable Annuities: What is a Variable Annuity? As its name implies, a variable annuity's rate of return changes with the stock, bond and money market funds that you choose as investment options. Variable annuities are sometimes compared to mutual funds because they offer similar investment features, including investment choices—called "separate accounts"—that resemble mutual funds. However, they are different products. A typical variable annuity offers three basic features not commonly found in mutual funds: tax-deferred treatment of earnings; a death benefit; and annuity payout options that can provide guaranteed income for life. While a variable annuity has the benefit of tax-deferred growth, its annual expenses are likely to be much higher than the expenses on a typical mutual fund. And, unlike a fixed annuity, variable annuities do not provide any guarantee that you will earn a return on your investment. Instead, there is a risk that you could actually lose money. - See more at: Variable annuities are securities registered with the Securities and Exchange Commission (SEC), and sales of variable insurance products are regulated by the SEC and FINRA. - See more at:

Variable Annuities Offers market returns with some protections. “…the variable annuity puts the risk of the principal on the investor, while the fixed annuity puts the risk on the insurance company.” “Bat-Socks, Vegas & Conservative Investing” by David P. Vick Page 56

Variable Annuities Option to choose from a varied amount of side accounts which are much like mutual funds. Though, not technically mutual funds, you will pay management fees inside these side accounts along with other fees and expenses typical of variable annuities. These expenses could range from 1.25% to 5% “Bat-Socks, Vegas & Conservative Investing” by David P. Vick, pg. 77 Page 56

Variable Annuities Sample variable annuity expenses: M&E Charges % Enhanced Death Benefit .75% Income Benefit % Fund Management Fees .65% Total % 7.6 In what ways might it be an advantage or disadvantage to use a variable annuity in your portfolio? Fees and Expenses: Variable annuities typically have high annual fees and expenses, in addition to potential sales and surrender charges and early withdrawal penalties. These annual fees and expenses can include: Mortality and expense risk charges, which the insurance company charges for the insurance to cover guaranteed death benefits, annuity payout options that can provide guaranteed income for life or guaranteed caps on administrative charges. Administrative fees, for record-keeping and other administrative expenses. Underlying fund expenses, relating to the investment subaccounts. Charges for special features, such as stepped-up death benefits, guaranteed minimum income benefits, long-term health insurance or principal protection. Make sure you understand all the fees, expenses and other charges related to the variable annuity recommended to you before you make a purchase. - See more at:

Fixed Annuities Fixed annuities are essentially CD-like investments issued by insurance companies. Like CDs, they pay guaranteed rates of interest, in many cases higher than bank CDs. Fixed annuities can be deferred or immediate. The deferred variety accumulate regular rates of interest and the immediate kind make fixed payments. “Ultimate Guide to Retirement”, CNNMoney What is a Fixed Annuity? With a fixed annuity, the insurance company guarantees both the rate of return (the interest rate) and the payout to the investor. Although the word "fixed" might suggest otherwise, the interest rate on a fixed annuity can change over time. The contract will explain whether, how and when this can happen. Often the interest rate is fixed for a number of years and then changes periodically based on current rates. Payouts can be for an entire lifetime, or you can choose another time period. While you are accumulating assets in a deferred fixed annuity, your investment grows tax-deferred. The insurance company agrees to pay you no less than a specified rate of interest during the time that your account is growing. With an immediate fixed annuity—or when you "annuitize" your deferred annuity—you receive a pre-determined fixed amount of money, usually on a monthly basis (similar to a pension). These payments may last for a specified period, such as 25 years, or an unspecified period such as your lifetime or the lifetime of you and your spouse. The predictability of a fixed annuity makes it a popular option for investors who want a guaranteed income stream to supplement their other investment and retirement income. Fixed annuity payouts are not affected by fluctuations in the market, so they can provide peace of mind for investors who want to ensure that they will have enough money to carry them through retirement and cover identified future expenses. Things to Consider While a fixed annuity can remove market risk from your returns, there are other risks to consider when deciding if a fixed annuity is for you. An annuity's "guarantee" is only as strong as the insurance company that issues the annuity. There may be state guarantees in the event of an insurance company's failure, but annuities are not guaranteed by the FDIC, SIPC or any other federal agency if the insurance company that issues the contract fails. Payments in a fixed annuity typically do not have cost-of-living adjustments to keep pace with inflation, so the value of the money you receive in your payments may decline over time. Annuities with inflation protection can be purchased but the cost, in general, is significantly higher. It may be difficult to get your money back once you pay the premium to the insurance company. Even if you only receive a few payments under a fixed annuity contract, the insurance company may not be obligated to continue payments to your spouse or refund your premiums to your estate. If there are changes to your fixed annuity and you want to withdraw your money early, you could incur surrender charges that cut into your returns. Fixed Annuity Regulation Fixed annuities are regulated by state insurance commissioners. Be sure to check with them to confirm that your insurance broker is registered to sell insurance in the state, and inquire about whether your state has a guaranty association that provides some level of protection if an insurance company doing business in that state fails. - See more at:

Fixed Indexed Annuities Provides you with the best features of a traditional fixed annuity - a guarantee of principal. Unlike most securities or mutual funds where your account balance can fluctuate due to market performance, premium deposited into a fixed index annuity is guaranteed to never go down due to market downturns. A contract owner of a fixed index annuity participates in market-indexed interest without market-type loss. Fixedindexannuity.com Page 56

An FIA Simple Four Year Graph
12%+ 8%+ 4% 10% 0% 4% 4% cap Year One Year Two Year Three Year Four 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% F&G prosperity 7 market goes up 1/2 % you get 4% Allianz 5yr, How do you allocate money…25% fixed…want it to get something. Annual point to point….various strategies for using indexing in various ways. 6% -40% 15% Items to Consider: ___Surrender Duration ___Liquidity Options ___Caps ___Income Riders ___Crediting Methods ___Other

Actual FIA Historical Performance*
Be sure to refer to the disclosure on the slide…The results should not be an indication that Indexed Annuities will outperform the S&P 500. This simply demonstrates the powerful benefits of Indexed Annuities with annual reset interest crediting design. *DISCLOSURE: This is a Graph that reflects the actual interest crediting methods used by a specific insurance company from a time period beginning 09/30/1998 and ending on 9/30/2015. Individual results may vary and be dependent upon crediting methods, caps and participation rates. This is for illustration purposes only to show how a Fixed Index Annuity may have performed over a specific period of time. Chart Source: American Equity . S&P 500 is not available for direct investment ABC Retirement Planning Course Week 2

FIA Basics 7.7 How does the structure of an Indexed Annuity protect your principal and retain your gains? 7.8 Would you be upset with “0%” in year two? 7.9 Would you be upset if you did not get a greater return in year four when the market went up 15%? Note: Annuities are designed for long term financial planning and are not designed for short term investment strategies. Guarantee periods or annuity payments may be subject to restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuing insurance company. NOTE: State Insurance Guarantee Funds

FIA CREDITING METHODS FIA Guarantee Example: Premium $100,000
87% of Premium $ 87,000 Minimum Interest % Number of Contract Years Minimum Guaranteed Balance $106,053 Fixed Indexed Annuities are guaranteed by the issuing insurance company who provides a contractually stated guarantee in each annuity. Insurance companies offer a minimum guaranteed return by using a 1%-3% interest rate on a portion of the initial premium for the duration of the contract. This enables the contract holder to receive their premium back at the end of the surrender period. Usually, the insurance company uses something less than 100% of the principal upon which to credit the minimum interest. For example, an insurance company might credit a minimum of 2% on 87% of the premium as we see here. If the contract is held for 10 years, at which point it is out of surrender period, the Minimum Guaranteed Balance would be $106,053. State of IL Annuity Buyers Guide: Your equity-indexed annuity, like other fixed annuities, also promises to pay a minimum interest rate. The rate that will be applied will not be less than this minimum guaranteed rate even if the index-linked interest rate is lower. The value of your annuity also will not drop below a guaranteed minimum. For example, many single premium annuity contracts guarantee the minimum value will never be less than 90 percent of the premium paid, plus at least 3% in annual interest (less any partial withdrawals). The guaranteed value is the minimum amount available during a term for withdrawals, as well as for some annuitizations (see "Annuity Income Payments") and death benefits. The insurance company will adjust the value of the annuity at the end of each term to reflect any index increases.

FIA CREDITING METHODS Fixed Rate Annual Point to Point with a Cap Annual Point to Point with Participation Rate Monthly Point to Point with a Cap Monthly Average with a Cap or Participation Rate Multi-Year with a Mix of Interest and Percent of the Market 7.10 Which of the crediting methods most appeal to you?

Additional FIA Points Taxes Fees with FIAs Liquidity with FIAs
7.11 Compare an Indexed Annuity’s liquidity to other assets.

Additional FIA Points Planning for Income – Withdraw or Annuitize the Annuity? Annuitizing means you convert the pool of money you’ve accumulated in your contract into a stream of income, which typically is paid to you monthly. If you don’t annuitize, you can take your money out in a single lump sum or in multiple payments. The major difference is what happens to the account value when you choose either of these two options.

Additional FIA Points Guaranteed Withdrawal Benefits
Accumulation Value The current value of your annuity’s cash account which includes any bonus and all interest credits to date, less any withdrawals. Income Account Value The current value of your annuity’s income account which includes any bonus and all interest credits to date, less any withdrawals. Note: there is no cash value here.

Current Surrender Value The current value of your annuity’s cash account which includes any bonus and all interest credits to date, less any withdrawals, and minus any surrender charges that would apply if you chose to liquidate. Guaranteed Minimum Surrender Value The current value of your annuity’s cash account which includes any bonus and the minimum guaranteed interest credits to date, less any withdrawals, and minus any surrender charges that would apply if you chose to liquidate.

Guaranteed Withdrawal Percentage: Ages 60 – % Ages 70 – % Ages 80 & up 6-7% Disclosure: Past performance is no guarantee future results. Crediting rates including caps for FIA’s can change and are determined by the insurance companies at the time of issue. Future performance cannot be predicted or guaranteed. FIA’s are not registered as a security with the SEC and is not invested directly in any stock, bond, or security investment. FIA products, features, and benefits vary by state. Annuity Contracts are products of the insurance industry and are not guaranteed by any bank or insured by the FDIC. When purchasing a fixed indexed annuity, you own an annuity contract backed by the insurance company, you are not purchasing shares of stocks or indexes. Product features such as interest rates, caps, and participation rates may vary by product and state and may be subject to change. Surrender charges may apply for early withdrawals. Be sure to review the specific product disclosure for more details. Guarantees are based on the financial strength and claims paying ability of the insurance company. This information is not intended to give tax, legal, or investment advice. Please seek advice from a qualified professional on these matters. Lifetime income benefit riders are used to calculate lifetime payments only. The income account value is not available for cash surrender or in a death benefit. Excess withdrawals may reduce lifetime income and may incur surrender charges. Fees may apply. Guarantees based on the financial strength and claims paying ability of the insurance company. See specific product disclosure for more details.

Additional FIA Points Guaranteed Withdrawal Benefits Example:
Guaranteed Income Account Growth Rate: 6.5% Bonus: 8% Premium: $100,000 Age at Issue: 60 Age Withdrawals Chosen: 70 Guaranteed Withdrawal Percent: 6% Income Account Value: $202,731 Guaranteed Annual Withdrawal Benefit: $12,164

Additional FIA Points 7.12 In what ways would you see a GWB enhancing your situation?

Are You Good at Forecasting?
Red Money Investing

Definitions: DOW and S&P 500
What is the 'Dow Jones Industrial Average - DJIA‘ The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The DJIA was invented by Charles Dow back in Often referred to as "the Dow," the DJIA is one of the oldest, single most- watched indices in the world and includes companies such as General Electric Company, the Walt Disney Company, Exxon Mobil Corporation and Microsoft Corporation. When the TV networks say "the market is up today," they are generally referring to the Dow. What is the 'Standard & Poor's 500 Index - S&P 500‘ The Standard & Poor's 500 Index (S&P 500) is an index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. Companies included in the index are selected by the S&P Index Committee, a team of analysts and economists at Standard & Poor's. The S&P 500 is a market value weighted index - each stock's weight is proportionate to its market value. Just to refresh your memory from last session, here are the definitions of the DOW and S&P 500. Source: Investopedia.com The Dow and the S&P 500 are not available for direct investment. Past performance is no indication of future results. ABC Retirement Planning Course Week 2

Red Money Language Do you need a degree in finance to understand the following: Systematic Risk Variance Volatility Beta Alpha Standard Deviation R- Squared What are these terms, what do they mean and what if you don’t know them? Is all lost? If you plan on managing your own red money, you should know what these terms mean and how they will affect your investments. If you are using an investment advisor to manage your red money, make sure they know these terms and are adjusting for the effects.

Red Money Language Systematic Risk, Volatility, and Variance
Probability of loss common to all businesses and investment opportunities, and inherent in all dealings in a market. Also called market risk, it cannot be circumvented or eliminated by portfolio diversification but may be reduced by hedging. 9.2 How does “systematic risk” make you feel? DNA of the market…risk runs through every asset of the market (systematically), cannot hold a market asset without an element of risk. Beta…measure of risk against an index…Beta of one is as volatile as S&P. Up ten you go …50% more volatile. Typical growth fund is 1.3 to 1.6% R squared is the policeman, how reliable is the Beta number….90 and up reliable, under 70 unreliable…SD is wobble factor, It all means nothing.

Red Money Language Beta, Alpha, Standard Deviation, and R-Squared
Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Alpha gauges the performance of an investment against a market index used as a benchmark, . Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation R-Squared is a statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index DNA of the market…risk runs through every asset of the market (systematically), cannot hold a market asset without an element of risk. Beta…measure of risk against an index…Beta of one is as volatile as S&P. Up ten you go …50% more volatile. Typical growth fund is 1.3 to 1.6% R squared is the policeman, how reliable is the Beta number….90 and up reliable, under 70 unreliable…SD is wobble factor, It all means nothing. ABC Retirement Planning Course Week 2

Morningstar Publications
“Hulbert’s data shows that more than 84 percent of mutual Funds underperform the market over a 5-year period. Over ten years, that number rises to 90 percent.” Hulbert Financial Digest: Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now.

Stock Type Risk & Bond Type Risk
As you look at Column C Red Risk Money, what percent of your Red Risk Money do you want in stock-type risk and what percent do you want in bond- type risk?

Stock Type Risk & Bond Type Risk
Red Money Rule: “Unless you have over two million dollars in investible assets you probably want to stay away from individual stocks.” If you are market savvy and don’t consider yourself a conservative investor, you may not agree with this Red Money Rule. *Bat Socks, Vegas & Conservative Investing, David P. Vick, pg. 98 8.3 Do you agree or disagree with this Red Money Rule? Why?

WHO CHOOSES YOUR ASSETS?
Yourself, through self-directed accounts? Financial Advisor/Broker? Charles Schwab, Fidelity Investments, etc.? Registered Investment Advisor? Why?

Tactical Management vs. Buy and Hold
Tactical management is “an active management portfolio strategy that rebalances the percentage of assets held in various categories in order to take advantage of market pricing anomalies or strong market sectors.” The “buy & hold” strategy is “a passive investment strategy in which an investor buys stocks and holds them for a long period of time, regardless of fluctuations in the market.” Investopedia.com Definitions: Investopedia.com Investopedia.com ABC Retirement Planning Course Week 2

Tactical Management vs.Buy and Hold
8.4 What are the positives and negatives about the “Buy and Hold” Style?

What is Tactical Tacking or coming about is a sailing maneuver by which a sailing vessel (which is sailing approximately into the wind) turns its bow through the wind so that the direction from which the wind blows changes from one side to the other.

Strategic Allocation, Tactical Management
This is a graphical representation of a tactical asset allocation model based on articles written by Redhawk advisors.

All in or all out signal This is a graphical representation of a tactical asset allocation model based on articles written by Redhawk advisors.

Tactical Management Style
How does tactical management differ from buy and hold strategy? Do you feel that tactical management may be the future of investing, as the author suggested? Tactical Management described by the author of “Bat Socks, Vegas & Conservative Investing”, David P Vick. Tactical Management: Like Sailing a Boat by Dan Hunt, Redhawk Wealth Advisors.

Red Money isn’t “bad” money…
“The market” is still a very good place for some of your money. You need “Red Money” in your portfolio. It is how we stay ahead of inflation and continue to “grow” some of our money in retirement. History shows that approximately 66% of the time the market rises (conversely, 34% of the time it falls). However, exactly when the market rises is not predictable so you shouldn’t try to “time” the market – either up or down. A sound, tactically managed portfolio of Red Money that is balanced for your level of risk is an important part of your strategy for retirement.

What is the value of Red Money when planning for retirement?
Red Money Investing What is the value of Red Money when planning for retirement?

The ABC Model of Investing
8.5 Do you see certain types of annuities fitting in with Red, Yellow or Green Money? 8.6 Which type(s) seems to fit with Cash Assets? Fixed Principal Assets? Risk Assets?

What if it happened again?
The Worst Bear Market What if it happened again?

WHAT IF IT HAPPENS AGAIN?
“The way to make money is to buy when blood is running in the streets.” John D. Rockefeller “We simply attempt to be fearful when others are greedy and to be greedy with others are fearful.” Warren Buffett

The Anatomy of a Bear 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. The last bear started in 2000 and didn’t end until 2009. Remember what we saw/discussed in Week 1: In his book “Anatomy of a Bear” Russell Napier, an economist, examines historical Bear Markets since 1900, looking for common attributes; things that indicate what to expect. Some of his conclusions are (read the slide). What can we conclude from this? I think it indicates that markets will go up, and markets will go down! It isn’t rocket science. Nobody can predict when markets react. Today markets react at “the speed of information”. These dramatic swings in the stock market (up 150 points one day and down 200 hundred the next) is a relatively new phenomena. We’ve only seen this type of market activity develop over the past years. Prior to that up or down 35 points was a big move for the market. What do you think? Will the “speed of information” increase or decrease over the next 30 years? A different world has resulted in a new and different market, which calls for a new investment model. “The Anatomy of a Bear” Napier 2005

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 Remember from Week 1: 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

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 cash earning an average of 2% and 90% allocated to the market (through 401(k), 403(b), IRA’s etc.) 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 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™

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 give up some of the gains 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™

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™

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™

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™

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™

What Do You Think? 9.4 Do you see the market over the next decade more or less volatile than the previous ten years? 9.5 Considering the ABC Model’s performance in a Bear Market, is it something that you would use in your portfolio?

Read “Social Security Made Simple”
Next Week Date______________ Time ____PM – _____PM Read “Social Security Made Simple” Also, if you haven’t already done so… Complete Workbook, Financial Review Forms and Your ABC Profile in the Appendix

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