Five Keys to Developing Wealth Management Strategies

Get FRANK with your Money

• frank¹ Definition • frank (fraŋk)• adjective• Archaic free in giving; generous • open and honest in expressing what one thinks or feels;

straightforward; candid • free from reserve, disguise, or guile; clearly evident;

plain showing frank distaste

Get FRANK with Your Money

• Foundation• Rebalance• Asset Allocation• Nervous Decisions• Know the Rules

Get FRANK with Your Money

Your foundation helps determine your stability.

Foundation

• Foundations are not pretty or glamorous.• It is not what you highlight when showing the building.• The depth of your foundation is a major factor in

determining how high you can build.

Foundation

• In the financial world, your foundation is your:– Cash flow– Savings– Health insurance– Life insurance– Disability insurance

• Will you be able to stand against the storms of the unexpected?

Foundation

Temptation: Immediate gratification

Foundation

If you really did have a goose that laid golden eggs, would you insure the eggs or the goose?

Foundation

YOU ARE THE GOOSE! Insure the Goose.

Foundation

Determine that your financial house will stand when storms come. Imagine the worst – how would you (your loved ones) survive? Take an inventory of your insurance amounts and type.

Foundation

• Rebalancing your portfolio on a systematic basis helps keep your risk exposure in line with your strategy.

• How do you land a jet on an aircraft carrier?– By trusting your instruments!

Rebalance

• Our goal is to buy low – sell high. • Rebalancing your portfolio helps you do this

automatically. • It is our natural tendency to chase after returns, but

rebalancing helps us fight this natural tendency.

Rebalance

• Your portfolio will change and without you doing anything. – Investments in your portfolio will change in value at

different rates. – Those investments that have done well will naturally begin

to take up more of your portfolio; those that haven't done as well will take up less of your portfolio.

• This naturally brings your portfolio out of the original mix that you created, and out of line with your original investment strategy.

Rebalance

• Rebalancing is the process of restoring your portfolio to its original mix.

• Temptation:– Greed and relying on your emotions

Rebalance

YOU ARE THE PILOT!Use your instruments.

Rebalance

Put your portfolio balancing on autopilot. Force yourself to stay disciplined by using quarterly or semi-annual rebalancing.

Rebalance

• Risk is an inevitable part of investing. There are strategies to help manage that risk, however, and help ensure it is in line with your investment strategy.

• Asset allocation is one method of balancing your comfort for risk with your investment goals.

No strategy such as asset allocation can guarantee a profit, nor can it protect against loss in times of declining value.

Asset Allocation

What is asset allocation?• Asset allocation is the process of combining stocks,

bonds, and cash in an investment portfolio. Doing so creates a mixture of assets, each of which reacts differently to changes in the economy and financial markets.

Asset Allocation

• Stocks (also referred to as equities): Have historically offered the best opportunity for long-term growth, but do so by exposing investors to more potential risk and volatility. They have also produced a wider range of results.

• Bonds (also referred to as fixed-income): Have historically earned returns within a much more narrow range, indicating that they are less volatile than stocks, but still subject to interest rate risk and other risks. Their investment returns historically have also been generally lower than equities.

• Cash: Offers the least risk, but also the least opportunity to grow an investor's money. Still susceptible to risks, such as inflation risk.

Asset Allocation

• What explains a portfolio's performance over time?• You may think decisions on individual assets to own and when to

buy or sell them are the most important aspects of investing. – According to a study*, overall asset allocation policy is

responsible for more than 90% of a portfolio's performance variability over time.

– The choice of securities and timing of purchases and sales historically have had a low impact on performance variability for long-term portfolios.

– This makes the asset allocation decision one of the most important decisions you will make as an investor.

* Source: Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower, "Determinants of Portfolio Performance,“ Fancial Analysts Journal, January/February 1995.

Asset Allocation

Source: Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower, "Determinants of Portfolio Performance,“ Fancial Analysts Journal, January/February 1995.

Factors Affecting Performance Variability in a Portfolio Over Time

Asset Allocation

Combining all three types of assets in a portfolio can help manage risk by:• Reducing exposure to a single asset class and its related

risks. • Giving the portfolio the potential for gains when each type

of asset is in favor.

Asset Allocation

Don’t put all of your eggs in the same basket!

Asset Allocation

• Take a look at your portfolio and make a list of the type of assets you hold.

• Categorize them by type of holdings and size. • Schedule a review with your financial professional.

Asset Allocation

Nervous decisions aren’t always the best decisions.

Nervous Decisions

Story of Frank and his wood-burning stove• Situation could have been handled much better with a

little calm and strategic thinking.• The solution was right in front of Frank if he had not

panicked.

Nervous Decisions

Don’t make major life decisions when you are fearful or depressed.

“When people get greedy…I get nervous. When people get nervous…I get greedy.”

- Warren Buffet

Nervous Decisions

Temptation: Acting out of fear

Nervous Decisions

• Determine your risk tolerance ahead of time.• Use dollar cost averaging. • Establish a strategy and stay disciplined.

Dollar cost averaging does not guarantee a profit nor protect you from loss during a declining market. You should consider your overall investment objectives and your ability to continue investing throughout various market cycles before beginning this or any investment program.

Nervous Decisions

• Did you ever play games as a kid with someone who kept changing the rules as you went along? Isn’t that frustrating?

• Recently Donovan McNabb, the quarterback for the Philadelphia Eagles, admitted after the end of a tie game that he didn’t know the game could end in a tie at the end of the overtime period.

• The legislatures and IRS have some pretty complicated rules. They seem to change something important every year.

Know the Rules

• Knowledge is king. Not knowing the rules has the potential to cost you and your family significantly.

• Don’t operate on yourself.

Know the Rules

Temptation: Going it alone.

Know the Rules

Put together a financial strategy that addresses potential pitfalls,

including IRS and legislative rules!

Know the Rules

• You can’t know everything.• Seek professional help. • Schedule an appointment today.

Know the Rules

Insurance products from the Principal Financial Group® (The Principal ®) are issued by Principal National Life Insurance Company (except in New York) and Principal Life Insurance Company; Des Moines, IA 50392 Securities are offered through Princor Financial Services Corporation, 800-247-1737, member SIPC, and/or independent broker/dealers.  Securities sold by a Princor Registered Representative are offered

through Princor ®. Principal Life and Princor ® are members of the Principal Financial Group ®, Des Moines, IA 50392.

While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or

accounting obligations and requirements.

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