amp O ther Long Term Goals Financial Planning for Women May 2012 Dr Jean Lown FCHD Dept USU Advanced Family Finance Students Erica Abbott Brittani Bushman Sharee Hepworth ID: 1028711
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1. Mutual Funds forRetirement (& Other Long Term Goals)Financial Planning for Women, May 2012Dr. Jean Lown, FCHD Dept., USUAdvanced Family Finance Students:Erica AbbottBrittani BushmanSharee Hepworth
2. Upcoming FPW: June 13Preparing to buy your first homePreliminary steps to get finances in orderPreparation for FLC Housing & Financial Counseling “First Time Homebuyers Workshop”2
3. Time is on your Side!(hear The Rolling Stones in the background)Today’s take away messages: You can invest with small $ amountsEven small $ grow to BIG $$$ with timeIt’s easy to get startedDelaying is CO$TLY!Your financial security is in your hands3
4. The Tale of TwinsStarting at age 27 Laura invested $5,000/yr. @ 8% for only 10 yearsStarting at age 37 Lauren invested $5,000/yr. @ 8% for 20 yearsAge 67:Laura has $778,000 (invested $50,000)Lauren has $494,000 (invested $100,000)Difference = $234,000!4
5. Start Now!Today is the first day of the rest of your lifeRegret has no place in planning for the future!5
6. Investing in an IRA is the first step to reaching your retirement dreams!
7. 7Individual Retirement AccountsTax-advantaged investingAccount growth is not taxed while it is growingWhen withdrawn $ may or may not be taxed depending on whether it is a Traditional or Roth IRA
8. 8Roth IRA Contributions are not deductibleGrows tax-free$ not taxed when withdrawn in retirement (after age 59 ½)
9. 9Why Stocks for the Long Run? Higher risk = higher potential returnsHistoric average annual rates of returnStocks: 9-10% (but VERY volatile)Bonds 5-6%Cash equivalents 3%Inflation averages 3.1%/yearSo cash gets you nowhere after taxes
10. Questions?For much more detail on IRAs: FPW website: www.usu.edu/fpw click on: “past presentations” IRAs March 2006 IRAs convert to Roth Nov. 200910
11. 11What is a Mutual Fund? A company that pools money from many investors to buy a variety of different securities (stocks, bonds, etc.)Each investor owns a pro-rata share of diverse portfolio Easy to match your investment objectiveEasy to purchase/sell sharesProfessional management
12. Mutual Fund is the cookie jar… What is your favorite cookie? Chocolate chip? StocksPeanut butter? BondsOatmeal raisin?Stocks & bondsOther flavors…12
13. Investopedia MF video(1 min. 21 sec.) http://www.investopedia.com/video/play/introduction-mutual-funds#axzz1n39ftDKp13
14. Advantages of DiversificationDiversification: more is betterAcross asset classes (stocks, bonds, cash)Within asset classesNever know which asset category will perform best next yearCallan Table: http://www.callan.com/research/download/?file=periodic%2ffree%2f548.pdf14
15. 15Mutual Fund FeesALL funds charge management fees% of fund assets (~.10 - 2.0%)Subtracted from fund assets before gains are distributed to investors Compare Expense Ratios (%)Lower is better!
16. 16Load vs. No-LoadLoad funds charge commissions ~5% of the amount you investFinancial salespersons sell load fundsNo-load (no commission) fundsSold directly to investor (avoid middleman)web sites800 phone numbermail
17. 17Index vs. Actively Managed FundsIndexSimply follows selected indexBuy & holdLow management Fees Low turnoverActively ManagedHigher management feesHigher turnover = higher trading costsHeavily advertised for beating its index… in a selected year
18. Mutual Fund ConsiderationsNo guaranteed rate of returnReturns follow market ups & downs18
19. 19Focus on the Future“Past performance is no guarantee of future returns.”Very difficult to beat “the market” in any 1 year & even harder to do consistently The only thing you know about the future is the expense ratio.
20. 20Initial/Subsequent InvestmentMost funds charge $1,000-$3,000 to open an accountLower subsequent investments once in the door
21. 21ExpensesFunds charge investors fees & expenses A high cost fund must outperform a low-cost fund to generate the same returnsEven small differences in fees can translate into large differences in returnsFINRA Fund Analyzerhttp://apps.finra.org/fundanalyzer/1/fa.aspx
22. 22Fund Expense ExampleInvest $10,000 10% annual return before expenses annual fund expenses of 1.5%after 20 years: $49,725. But if fund expenses = 0.5%, then you would have $60,858 18% more $!
23. Questions on MFs?23
24. 24Target Date Retirement Funds Diversified portfolio of stocks, bonds & $“Fund of funds” Composed of multiple funds from same ‘family’Target date: year investor plans to retire5 year increments: 2025, 2030, 2035, etc.
25. 25Asset allocation automatically becomes more conservative over life of fund
26. 26AdvantagesSimpleBased on sound investment principlesAsset allocationDiversificationAutomatic rebalancingBecome more conservative as retirement nearsLittle account maintenance requiredSet up automatic deposits
27. Questions on Target Date Funds? 4 min. videohttps://personal.vanguard.com/us/funds/vanguard/TargetRetirementList27
28. 28Funds Chosen by Adv. FF ClassIndexSchwab Total Stock Market IndexActively managedVanguard WellingtonT. Rowe Price Blue Chip GrowthTarget RetirementVanguard FundsFund of FundsVanguard Star
29. 29Schwab Total Stock Market Index Fund (SWTSX)Objective – Track the DJ-Wilshire 5000 index of all U.S. publicly traded stocksVery diversified among US companiesExpect high volatility!$100 Initial investment / $1 subsequent0.11% Expense ratioFINRA Cost: $ http://www.schwab.com/public/schwab_oldpublicsite/research_strategies/mutual_funds/summary/schwab/at_a_glance.html?&ticker_sym_nm=SWTSX&schwabplan1=&type=
30. Vanguard Target RetirementDiversified among 3+ index MFs:US stocks: total stock market index fundInternational stocks: total international stock Bonds: total bond market index fundAdditional funds as retirement nears$1,000 minimum initial; $100 subsequent 0.18% expense ratiohttps://personal.vanguard.com/us/funds/vanguard/TargetRetirementList30
31. T. Rowe Price Blue Chip Growth (TRBCX)Objective: long-term capital growthcommon stocks of large & medium-sized blue chip companies$1000 Initial invest. / $100 subsequent0.77% expense ratiohttp://www3.troweprice.com/fb2/fbkweb/snapshot.do?ticker=TRBCX31
32. Vanguard Wellington (VWELX)Objective: growthBalanced/moderate: 2/3 stocks/ 1/3 bonds8.19% return since 7/1/1929!$3000 Initial invest. / $100 subsequent0.27% expense ratiohttps://personal.vanguard.com/us/funds/snapshot?FundId=0021&FundIntExt=INT 32
33. Vanguard Star (VGSTX)Fund of Funds: 11 actively managed fundsBroad diversification60% stocks/ 40% bonds$1,000 minimum initial; $100 subsequent 0.34% expense ratiohttps://personal.vanguard.com/us/funds/snapshot?FundId=0056&FundIntExt=INT33
34. 34How to Choose? If you can afford $1,000 & like TDR fund:Vanguard Target Retirement FundTo start with low minimum ($100):Schwab Total Stock Market Index FundFor more conservative asset allocation: Vanguard WellingtonVanguard StarWant active mgmt? TRP Blue Chip Growth
35. 35Don’t Wait. Start Today!Consider a Mother’s Day GiftGive mom an IRA for Mother’s Day!Lasts longer than flowersLess fattening than chocolateIf mom is not earning but Dad is, she is eligible for a spousal IRA
36. Upcoming FPWJune 13: Preparing to buy your first homePreliminary steps to get your finances in orderJuly 11: Get out of DebtAugust 8: Insurance36