the planning center and ieee preparing for retirement in days of uncertainty
TRANSCRIPT
The Planning Center andIEEE
Preparing for Retirement in
Days of Uncertainty
Purpose of Today
To Introduce
To Inform
To Educate
Introduce
Introduce Personnel
The Planning Center
Introducing The Planning Center
Financial Planning Firm
Registered Investment Advisor
NASD licensed with a Broker / Dealer
Purveyor of Order and Value
What is Financial Planning?
Process for meeting life’s goalsConsists of six steps
1. Establishing and defining relationship
2. Gathering client data, including goals3. Analyzing and evaluating financial status4. Developing recommendations5. Implementing the desired recommendations6. Monitoring
What is a Financial Planner?
A Big Question!!!
Why Certified Financial Planner?
Education
Examination
Experience
Code of Ethics
Practice Standards
Re-Certified every two years
Educate
How do markets work?
Educate
4 years of the DJIA 4/22/1999 – 4/22/2003
Educate 3M Co. MMM
Alcoa Inc. AA
Altria Group Inc. MO
American Express Co. AXP
AT&T Corp. T
Boeing Co. BA
Caterpillar Inc. CAT
Citigroup Inc. C
Coca-Cola Co. KO
E.I. DuPont de Nemours & Co. DD
Eastman Kodak Co. EK
Exxon Mobil Corp. XOM
General Electric Co. GE
General Motors Corp. GM
Hewlett-Packard Co. HPQ
Home Depot Inc. HD
Honeywell International Inc. HON
Intel Corp. INTC
IBM Corp. IBM
International Paper Co. IP
J.P. Morgan Chase & Co. JPM
Johnson & Johnson JNJ
McDonald's Corp. MCD
Merck & Co. Inc. MRK
Microsoft Corp. MSFT
Procter & Gamble Co. PG
SBC Communications Inc. SBC
United Technologies Corp. UTX
Wal-Mart Stores Inc. WMT
Walt Disney Co. DIS
DJIA Holdings as of 4/23/2003
EducateSecurity Name % Net Assets Market Value TickerMicrosoft 3.14 77,028,956 MSFTExxonMobil 2.85 69,768,450 XOMGeneral Elec 2.85 69,912,882 GEWal-Mart Stores 2.61 64,056,780 WMTPfizer 2.32 56,800,524 PFECitigroup 2.19 53,612,172 CJohnson & Johnson 1.97 48,350,859 JNJAmerican Intl Grp 1.75 42,863,040 AIGIBM 1.64 40,139,813 IBMS&P 500 (Fut) 1.6 39,102,525 Merck 1.54 37,764,902 MRKProcter & Gamble 1.38 33,757,365 PGBank of America 1.3 31,830,720 BACVerizon Comms 1.3 31,795,368 VZIntel 1.29 31,649,379 INTCCoca-Cola 1.24 30,454,242 KOCisco Sys 1.2 29,350,368 CSCOSBC Comms 1.01 24,637,964 SBCWells Fargo 0.99 24,333,969 WFCAltria Group 0.97 23,786,147 MO
Educate
Educate
Educate
S&P 500 Index Return in 1962 -8.7% Return 1962 to 1972 8.1% Return 1962 to 1974 3.1% Return 1962 to 1984 8.0% Return 1962 to 1992 10.7% Return 1962 to 1999 12.2% Return 1999 to 2002 -16.09% Return 1982 to 2002 11.98%
Educate
Educate
Educate
-60 -55 -50 -45 -40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 50 55 60
1926 1927 1928192919301931
1932
19331934 193519361937
19381939
1940
1941 1942 19431944
1945
1946
1947
1948 1949
1950
1951
19521953
1954
1955
1956
1957 19581959
1960
1961
1962
1963
1964
19651966
19671968
1969
1970
1971 1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Large Cap Stock Market Returns1926 - 1999
1998
13.3(Mean)
33.4One Standard
Deviation
-6.9One Standard
Deviation
53.6Two Standard
Deviations
-27.0Two Standard
Deviations
1999
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U.S. Inflation Returns1926 - 1999
-18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 16 18 22 24
192619271928
19291930193119321933
19341935
1936 19371938
19391940
19411942
194319441945
1946
1947
1948
1949
19501951
19521953
1954
195519561957
19581959196019611962196319641965
19661967
1968
1969
1970
19711972
1973
19741975
1976
1977
1978
19791980
1981
1982198319841985
1986
198719881989
1990
199119921993199419951996
19971998
14 20
3.2(Mean)
7.6One Standard
Deviation
-1.3One Standard
Deviation
12.1Two Standard
Deviations
-5.7Two Standard
Deviations
1999
Investing in Stocks
Stock Market Performance1925 - 1999
Hypothetical value of $1 invested at year-end 1925. Assumes reinvestment of income and no transaction costs or taxes.
$2,846 11.3%
Average Return
EndingWealth
Large Company Stocks 12.6%$6,641Small Company Stocks
1935 1945 1955 1965 1975 1985$0
$1
$10
$100
$1,000
$10,000
1925 1999
Growth and Value Investing1927 - 1999
$.1
$1
$10
$100
$1,000
$10,000
$100,000
$1,189
1927 1937 1947 1957 1967 1977 1987 1999
10.3%
AnnualReturn
EndingWealth
Large Growth
$5,379 12.7%
Large Value
$749 9.6%
$19,764 14.7%
Small Value
Small Growth
Stock Diversification
1 2 4 6 8 16 30 50 100 1000Number of Stocks in Portfolio
Ris
k
Market Risk
Company Risk
Risk of Stock Market Loss over Time1926 - 1999
Periods with Gain
Periods with Loss
100%
60 Fifteen-Year Periods
90%
10%
70 Five-Year Periods
73%
27%
74 One-Year Periods
Do Stock Winners Repeat?Top Ten Performing Stocks 1980 - 1999
Ann
ualiz
ed R
etur
n
Annualized returns of equal-weighted portfolio of top 10 stocks by3-year return and return in subsequent 3-year period (excluding the smallest 20% of the market).
Average Returns
First 3 years 130.9%
-50%
0%
50%
100%
150%
200%
1980 1985 1990 1996
Subsequent 3 years 6.6%
Market Downturns and Recovery 1926 - 1999Downturn
9/29-6/32
6/46-4/47
8/56-2/57
8/57-12/57
1/62-6/62
2/66-9/66
12/68-6/70
1/73-9/74
1/77-2/78
12/80-7/82
9/87-11/87
6/90-10/90
7/98-8/98
34 months -83.4%
-21.0%
-10.2%
-15.0%
-22.3%
-15.6%
-29.3%
-42.6%
-14.1%
-16.9%
-29.5%
-14.7%
-15.4%
Period Length Amount
7 months
5 months
6 months
8 months
19 months
21 months
14 months
20 months
3 months
5 months
2 months
11 months
Recovery
7/32-1/45
5/47-10/49
3/57-7/57
1/58-7/58
7/62-4/63
10/66-3/67
7/70-3/71
10/74-6/76
3/78-7/78
8/82-10/82
12/87-5/89
11/90-2/91
9/98-11/98
Period Length
151 months
5 months
7 months
10 months
6 months
9 months
21 months
5 months
3 months
18 months
4 months
3 months
30 months
Principles of Investing
Power of Reinvesting1979 - 1999
Hypothetical value of $1,000 invested at year-end 1979.
AnnualReturn
$100
$1,000
$10,000
$100,000
1979 1984 1989 1994 1999
$26,817 17.9%
EndingWealth
Stocks with Reinvestment
$7,617 10.7%
Bonds with Reinvestment
$13,615 13.9%
Stocks without Reinvestment
$1,345 1.5%
Bonds without Reinvestment
Importance of Rebalancing
Assumes reinvestment of income and no transaction costs or taxes. Stocks: 50% Large and 50% Small Company Stocks. Bonds: Intermediate-Term Government Bonds.
1979 - 1999
Stock AllocationBond Allocation
Por
tfol
io W
eigh
tings
Target Asset Mix: 50% Stocks, 50% Bonds
50% 50%56%
44%
60%
40%
63%
37%
78%
22%
0%
20%
40%
60%
80%
100%
1979 1984 1989 1994 1999
Dangers of Market Timing
S&P 500 Treasury Bills
Hypothetical Value of $1 Invested from Year-End 1925 - 1999
$2,846
$15.64$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
S&P 500 minusbest 40 months
$17.07
Dangers of Market TimingHypothetical Value of $1 Invested from Year-End 1979 - 1999
S&P 500 Treasury Bills
$26.82
$3.79
$0
$5
$10
$15
$20
$25
$30
S&P 500 minus best 15 months
$6.81
Investor B 10
$4,000
Year-End 1989-1999
$40,000
$133,600
Power of CompoundingHypothetical Investment in Stocks
Investor A 10
$2,000
Year-End 1979-1999
Years Contributing:Annual Amount Contributed:
Total Amount InvestedCompounded Value at Year-End 1999
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$20,000
$295,400
Reduction of Risk over Time1926 - 1999
Each bar shows the range of compound annual returns for each asset class over the period 1926-1999.
1-Year Holding Periods
SmallCompany
Stocks
LargeCompanyStocks
GovernmentBonds
Treasury Bills
-75%
-50%
-25%
0%
25%
50%
75%
100%
125%
150%
20-Year Holding Periods5-Year Holding Periods
Compound Average Return
11.3%12.6% 5.1% 3.8%
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Can You Stay on Track?
$747
$1,091
$600
$800
$1,000
$1,200
$1,400
1971 1972 1973 1974$100
$1,000
$10,000
$100,000
1974 1999
$9,413
Stocks
Bonds50/50 Portfolio
$912
$24,107
$53,378
19941984
OUR JOB
To help you stay on track!
Sum m ary o f the Wor ldSum m ary o f the Wor ld There would be 57 Asians, 21 Europeans, 14 from There would be 57 Asians, 21 Europeans, 14 from
the western hemisphere, including North and South the western hemisphere, including North and South America and 8 from AfricaAmerica and 8 from Africa
51 would be female, and 49 would be male51 would be female, and 49 would be male
70 would be non70 would be non--white, 30 would be whitewhite, 30 would be white
66 would be non66 would be non--Christian and 34 would be ChristianChristian and 34 would be Christian
80 would live in substandard housing80 would live in substandard housing
70 would be unable to read70 would be unable to read
50 would suffer from malnutrition50 would suffer from malnutrition
Only one would have a college educationOnly one would have a college education
Half of the entire village’s wealth would be in the Half of the entire village’s wealth would be in the hands of only 6 people, and all six would be citizens hands of only 6 people, and all six would be citizens of the USof the US