Financial Planning Helps Weather Bear Markets

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Financial planning helps weather any market

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So, what is happening in the markets?

The S&P is down by 41% at its lowest point through October 31

Global equity markets have performed even worse

Fixed income provides no refuge

Investors are fleeing to cash positions

How has the financial crisis impacted you and your loved ones?Have you delayed…

• Retirement?

• Planned home renovation?

• Paying off mortgage early?

• Children's college funds?

Having a financial plan can make a difference

Because a financial plan takes into account uncertain times, clients who have a financial plan:

• Feel 50% more comfortable with their situation

• Have a clearer sense of direction

Gaining perspective: what history tells us

Data source: Standard and Poor’s. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Stocks in this example are represented by the Standard & Poor’s 500 ®, an unmanaged group of securities and considered to be representative of the stock market in general.

-86.19

Great Depression

-36.64

WWII

-48.20

1970s Oil Crisis

-31.47

1987 Crash

-49.15

Dot comand 9/11

-41.34

Today’sCredit Crisis

The average downturn for the five post-1929 events is 41.36%. Today, we are at a comparable decline.

Sept 1929- June 1932

Jan 1973-Oct 1974

Oct 1939- Dec 1941

Oct 5–Oct 19 1987

March 2000–Oct 2002

Jan 2008-Oct 27 2008

U.S. stock market downturns, 1929-2008, S&P 500 returns

Is it 1929 all over again?

Sources: Stock Decline: Bloomberg; Unemployment: U.S. Department of Labor; Foreclosures: St. Louis Federal Reserve (Great Depression) & Mortgage Bankers Association (Today); UBS Banking Support Systems & World Trade: UBS Wealth Management Research

Great Depression

Stock market decline

• By the low point in July 1932, stocks had dropped almost 90%

Unemployment • At its peak was 25%

U.S. banking support systems

• No insurance, so bank runs and panics resulted

World trade • Protectionism choked trade

Today

• Markets down just over 41% as of October 31, 2008

• As of October 2008, was 6.5%

• FDIC • Strong, engaged

Fed injecting liquidity into system

• World Trade Organization provides safeguards

Historically, markets recover from crises

Source: Underlying data is from the Stocks, Bonds, Bills, and Inflation® (SBBI®) Yearbook, by Roger G. Ibbotson and Rex Sinquefield, updated annually.

Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1926. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index.

© 2008 Morningstar, Inc. All rights reserved. 3/1/2008

Large stocks are represented by the Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general. Government bonds are represented by the 20-year U.S. government bond, Treasury bills by the 30-day U.S. Treasury bill, and inflation by the Consumer Price Index. Underlying data is from the Stocks, Bonds, Bills, and Inflation® (SBBI®) Yearbook, by Roger G. Ibbotson and Rex Sinquefield, updated annually.

Stocks represent ownership in a corporation, while bonds, if held to maturity, offer a fixed rate of return and fixed principal value. Small company stocks are generally more volatile than large company stocks. Government bonds and treasury bills are guaranteed by the full faith and credit of the U.S. government as to the timely payment of principal and interest, while corporate bonds are not guaranteed.

Compound annual return 1926 – 2007:

Great Depression WWII

1970s Oil Crisis

1987 Crash

Dot comand 9/11

Sept 1929- June 1932

Jan 1973-Oct 1974

Oct 1939- Dec 1941

Oct 5–Oct 19 1987

March 2000–Oct 2002

0.10

1

10

100

$10,000

1,000

1926 1946 1966 19861936 1956 1976 1996 2006

Large company stocks 10.4% Government bonds 5.5% Treasury bills 3.7%

$3,246

$79

$20

$12

Inflation 3.0%

Regardless of market conditions, here’s what you should do

Revisit your financial plan periodically

Create a financial plan to guide your decisions

Discuss and outline your short- and long-term goals

A 360° view of your financial lifeA financial plan can:

A financial plan is not set in stone

Coordinate all your goals and finances

Evaluate where you stand today versus your goals

Identify potential insurance needs

Assess your cash flow needs

Review your investments and asset allocation strategy

Address estate planning needs

A financial goal analysis can help determine the likelihood of reaching your goals

What happens if you get

average returns?

What happens if you experience bad market conditions?

What is your probability of success?

Are you in your confidence zone?

Likelihood of funding all goals

Estimated % of goals funded

Average return?%

Bad timing?%

? Confidence zoneProbability of success ?%

Important: The projections or other information generated by FGA regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.

Meet Michael and Susan Clark (They do not yet have a financial plan)

Case study

• Ages 53 and 50 • Investable assets of $1.5 million • 14 year-old daughter

Here are their financial goals:• Retire at 62, but willing to delay until 66• Target $175k a year for annual expenses, but

okay with $140k• Fund four years of college • Travel every year in Europe or Asia in first 10

years of retirement• Committed to fundraising for college alma

mater

Here’s what we found—Michael and Susan are likely to fall short of reaching their goals



Average return

95%Bad timing

75%

Below confidence zone (85% – 99%)

Probability of success <40%

Current scenario

Ideal ageMichael 62Susan 62

Ideal amounttotal spending for life of plan$5,130,791

Current savings$20,250 this year

Current: $1,493,00065% StockReturn 7.55%Risk 11.08%


Max aggressive: $1,493,00067% StockReturn 7.47%Risk 10.42%

Savings$45,250 this year

Total spending for life of plan$4,275,840

Michael 64Susan 64

2% more stock

Increased $25,000

Reduced 17%

Michael & Susan retire 2 years later

What Susan and Michael could do to improve their probability of success



Average return

100%Bad timing

100%

In confidence zone (85% – 99%)

Probability of success 87%

What if scenario 1 – All values are within your acceptable range

Results

Suggested changes

InvestmentsSavingsGoalsRetirement age


The power of financial planning: using a wide range of potential returns

$18,000,000

$16,000,000

$14,000,000

$10,000,000

$8,000,000

$6,000,000

$4,000,000

$0

$12,000,000

$2,000,000

2010 2020 2030 2040 2050

Safety Margin

$14,476,008

$6,020,937

$4,161,962

Ran out of money

$138,153

Sample of 100 Trials

All trials Average return Bad timing

Michael retires Susan retires Michael’s plan ends Susan’s plan ends


We can help you shape your future

Your financial goals

Grow your wealth now and into the future

Grow your assets

Access your funds when and where you need to

Manage your cash flow

Take on new opportunities and enjoy life to the fullest

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Safeguard what you’ve worked so hard to build

Protect what you’ve achieved

Do your best for the people and causes you care about

Care for others

Once we present your financial plan, our team of specialists will support your wealth planning needs

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Retirement services

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Your Financial Advisor candraw on a team of specialists

Your Financial Advisor

What’s next?

Create a plan for your future

Results using Monte Carlo—probability of success

IMPORTANT: The projections or other information shown in this report regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.Monte Carlo results use probability simulations to show how variations in rates of return each year can affect your results. A probability simulation calculates the results by running it many times, each time using a different sequence of returns. Some sequences of returns will give you better results, and some will give you worse results. These multiple trials provide a range of possible results, some successful (you would have met all your goals) and some unsuccessful (you would not have met all your goals). The percentage of trials that were successful, given all the underlying assumptions, is shown as the probability of success. Analogously, the percentage of trials that were unsuccessful is shown as the probability of failure. The results using Monte Carlo indicate the likelihood that an event may occur as well as the likelihood that it may not occur. In analyzing this information, please note that the analysis does not take into account actual market conditions which may severely affect the outcome of your goals over the long term.This analysis is not a guarantee, prediction or projection and the results shown can change over time and with each use if any of the underlying assumptions are changed. In addition, please note that this probabilistic analysis does not take into account actual market conditions that may severely affect your portfolio results over the long term. This analysis neither evaluates the future performance of specific securities nor presents the results that could occur from an extreme market event, either positive or negative, due to the low probability of such an occurrence. You should understand that there may be asset classes not presented that have characteristics similar or superior to those analyzed in this analysis.Financial Goal Analysis (FGA) uses a specialized methodology called Beyond Monte CarloTM, a statistical analysis technique that provides results that are as accurate as traditional Monte Carlo simulations with 10,0000 trials, but with fewer iterations and greater consistency. Beyond Monte CarloTM is based on sensitivity simulations which rerun the plan only 50 to 100 times using small changes in the return. This allows a sensitivity of the results to be calculated which, when analyzed with the mean return and standard deviation of the portfolio, allows the probability of success for your plan to be directly calculated. A scenario is counted as unsuccessful if any of the goals is not fully funded. The percentage of successful scenarios is shown as the "probability of success." The highest calculated probability of success is 99%. Even a probability of success of 99% does not constitute a guarantee that your actual outcome will be as shown.

Important considerations

It is important that you understand the ways in which we conduct business and the applicable laws and regulations that govern us. As a firm providing wealth management services to clients in the U.S., we are registered with the U.S. Securities and Exchange Commission as an investment adviser and a broker-dealer, offering both investment advisory and brokerage services. Though there are similarities among these services, they are separate and distinct, differ in material ways and are governed by different laws and separate contracts. We make financial planning services available to you in our capacity as a registered investment adviser. Our financial planning services terminate when the plan is delivered to you and your receipt of this service does not alter or modify in any way the nature of your UBS accounts, your rights and our obligations relating to these accounts or the terms and conditions of any UBS account agreement in effect. You are not required to establish accounts, purchase products that we distribute or otherwise transact business with UBS Financial Services Inc. or any of our affiliates to implement any of the suggestions made in connection with the financial planning services we provide. Should you decide to implement an investment strategy with us, we will act as either a broker-dealer or an investment adviser, depending on the investment product or service that you select. For more information on the distinctions between our brokerage and investment advisory services, please speak with your Financial Advisor or visit our website at www.ubs.com/workingwithus.

Wealth Management services in the United States are provided by UBS Financial Services Inc., a registered broker-dealer offering securities, trading, brokerage and related products and services. Neither UBS Financial Services Inc. nor its employees (including its Financial Advisors) provide tax or legal advice. You should consult with your legal counsel and/or your accountant or tax professional regarding the legal or tax implications of a particular suggestion, strategy or investment, including any estate planning strategies, before you invest or implement.

Attorneys in the Attorney Network are independent of and unaffiliated with UBS Financial Services Inc. These attorneys may refer clients to us, but receive no compensation for these referrals. UBS Financial Services Inc. does not provide tax or legal advice. You should consult with your legal and tax advisors regarding your personal circumstances.

For more information, please visit our website at www.ubs.com/workingwithus.

© 2008 UBS Financial Services Inc. All rights reserved. Member SIPC. UBS Financial Services is a subsidiary of UBS AG.

Financial Planning Helps Weather Bear Markets

Economy & Finance

Transcript of Financial Planning Helps Weather Bear Markets