Paul Byron Hill, CFP walks investors through wealth preservation for income withdrawals
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Transcript of Paul Byron Hill, CFP walks investors through wealth preservation for income withdrawals
Wealth Preservationfor Income Withdrawals
Presenter: Paul Byron Hill, CFPClick icon to add picture
Agenda
1. A Major Concern for Planning2. Comparing Withdrawal
Strategies3. The Perils of Investor Behavior4. A Tale of Two Engineers5. Seven Deadly (Investor) Sins6. Solution: Wealth Management
We help successful people make informed decisions about wealth for planning major concerns.
A major concern when deciding how much to withdraw in retirement is preserving wealth: not running out of money
Retirement Withdrawal Strategies
For institutional investor use only. Should not be distributed to investors of products managed by Dimensional Fund Advisors Inc. or potential investors. Dimensional Fund Advisors Inc. is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and charges and expenses of the Dimensional funds carefully before investing. For this and other information about the Dimensional funds, please read the prospectus carefully before investing. Prospectuses are available by calling Dimensional Fund Advisors Inc. collect at (310) 395-8005; on the Internet at www.dfaus.com; or, by mail, DFA Securities Inc., c/o Dimensional Fund Advisors Inc., 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401. Dimensional funds distributed by DFA Securities Inc. Performance data represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original
cost. To obtain performance data current to the most recent month-end, access our website at www.dimensional.com. Average annual total returns include reinvestment of dividends and capital gains .
Annual: January 1, 1990 - December 31, 2012
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LT1330.9
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
100% T-Bills 50% Balanced 100% US Equity
$40,000 (4% real $) per year
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
100% T-Bills 50% Balanced 100% US Equity
$50,000 (5% real$) per year
$60,000 (6% real $) per year
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$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
100% T-Bills 50% Balanced 100% US Equity
Preserving $1 Million in Bad Times
For institutional investor use only. Should not be distributed to investors of products managed by Dimensional Fund Advisors Inc. or potential investors. Dimensional Fund Advisors Inc. is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and charges and expenses of the Dimensional funds carefully before investing. For this and other information about the Dimensional funds, please read the prospectus carefully before investing. Prospectuses are available by calling Dimensional Fund Advisors Inc. collect at (310) 395-8005; on the Internet at www.dfaus.com; or, by mail, DFA Securities Inc., c/o Dimensional Fund Advisors Inc., 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401. Dimensional funds distributed by DFA Securities Inc. Performance data represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, access our website at www.dimensional.com. Average annual total returns include reinvestment of dividends and capital gains .
Annual: January 1, 2000 - December 31, 2012
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LT1330.9
$40,000 per year (4% real $)
$50,000 per year (5% real $)
$60,000 per year (6% real $) 2
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$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
100% US Equity 50% Balanced 100% Fixed
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$400,000
$600,000
$800,000
$1,000,000
$1,200,000
100% US Equity 50% Balanced 100% Fixed
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01
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20
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$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
100% US Equity 50% Balanced 100% Fixed
6
11.2%
2.5%2.7%
8.4%
6.5%
8.2%
8.1%
6.3%
Returns Reduced by Investor Decisions 20-Year Annualized Returns (1993-2012)
2.3%
Source: J.P. Morgan Asset Management
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Investor Decisions Follow Emotions
Optimism
Elation
Fear
Optimism
Nervousness
Market CycleHigher Prices
Lower Prices
People may struggle to separate their emotions from their investment decisions.
Following a reactive cycle of excessive optimism and fear may lead to poor decisions at the worst times.
Performance of the S&P 500 Index
Performance data for January 1970-August 2008 provided by CRSP; performance data for September 2008-December 2012 provided by Bloomberg. The S&P data are provided by Standard & Poor’s Index Services Group. US bonds and bills data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein is compiled from sources believed to be reliable and current, but accuracy should be placed in the context of underlying assumptions. This publication is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. Past performance is not a guarantee of future results. Unauthorized copying, reproducing, duplicating, or transmitting of this material is prohibited. Date of first use: June 1, 2006.
Daily: January 1, 1970-December 31, 2012
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Total Period Missed 1 Best Day
Missed 5 Best Single Days
Missed 15 Best Single Days
Missed 25 Best Single Days
One-Month US T-Bills
Annualized Compound Return 9.94% 9.66% 8.84% 7.47% 6.33% 5.30%
• The best single day was October 13, 2008.
• The best one-month return, October 1974, happened immediately after the second-worst one-year period.
• The occurrence of strongly positive returns has been especially unpredictable. Investors attempting to wait out an apparent downturn ran a high risk of missing these best periods.
• 8 of the top 25 days occurred between September 2008 and February 2009, during which time the S&P dropped 41.8%
• 5 of the Top 10 days occurred between October 2008 and November 2008, during which time, the S&P 500 dropped 22.8%.
Day Month 3 Months Ending
6 Months Ending
12 Months Ending
10/13/08 10/74 10/82 6/75 6/83
10/19/87 10/87 11/08 2/09 2/09 Worst Periods and the Return If Missed
Best Periods and the Return If Missed
Best/Worst Missed Period
Total Period
9.66% 9.55% 9.33% 9.05% 8.73%
11.40%11.33%10.84%10.56%10.49%9.94%
Annualiz
ed
Com
pound
Retu
rns
%
Performance of the S&P 500 Index
Time periods greater than one month are based on monthly rolling periods, and dates indicated are end of period.The S&P data are provided by Standard & Poor’s Index Services Group. Indexes are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein is compiled from sources believed to be reliable and current, but accuracy should be placed in the context of underlying assumptions. This publication is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. Past performance is not a guarantee of future results. Unauthorized copying, reproducing, duplicating, or transmitting of this material is prohibited. Date of first use: June 1, 2006.
Daily: January 1, 1970 - December 31, 2012
The Tale of Two EngineersPeriod: January 1, 2001 – December 31,2012
Source: Advent from custodial data. Simulated Dimensional models and returns for benchmarking fully described in Wealth Management Plan Part 2 and Planning Perspectives for 3Q2012. Vanguard allocations follow Exhibit 2, except Vanguard Benchmark E50 follows Professional Financial 50% equity benchmark with Vanguard substitutions: 25% VTSMX, 25% VGTSX, 40% VBIIX, 10% VBISX. Dimensional 50% equity simulation linked to live client data to incorporate period client could have invested with Professional Financial, but invested through Fidelity Investments. Vanguard model is correctly adjusted to 40% equity after November 2008, but assumes a consistent 60% equity allocation prior to that time. All simulated strategy performance information is based on performance of indexes with model/back tested asset strategies; the performance may have been achieved with the benefit of hindsight; it does not represent actual investment strategies. Indexes are not available for direct investing. Provided for educational purposes only.
($609,260)
Net Contribution Additions: $187,036$1,000,00
0
$2,406,112
Abel 40% Equity -> 50% Equity only 1 year
($443,566)
Contribution Adjustment: NA
$1,007,385
$1,310,758
Bill 50% Equity -> 40% Equity last 4 years
Net Increase:
$1,828,336
Net Increase:
$746,939
The Tale of Two EngineersPeriod: January 1, 2001 – December 31,2012
Source: Advent from custodial data. Simulated Dimensional models and returns for benchmarking fully described in Wealth Management Plan Part 2 and Planning Perspectives for 3Q2012. Vanguard allocations follow Exhibit 2, except Vanguard Benchmark E50 follows Professional Financial 50% equity benchmark with Vanguard substitutions: 25% VTSMX, 25% VGTSX, 40% VBIIX, 10% VBISX. Dimensional 50% equity simulation linked to live client data to incorporate period client could have invested with Professional Financial, but invested through Fidelity Investments. Vanguard model is correctly adjusted to 40% equity after November 2008, but assumes a consistent 60% equity allocation prior to that time. All simulated strategy performance information is based on performance of indexes with model/back tested asset strategies; the performance may have been achieved with the benefit of hindsight; it does not represent actual investment strategies. Indexes are not available for direct investing. Provided for educational purposes only.
($443,556)
Contribution Adjustment:$0
$1,007,000
$972,372
Index Marketer
50% Equity -> 40% Equity in 4 years
Net Increase:
$408,928
The Seven Deadly (Investor) Sins
Gluttony: Live for Today, Undecided about a Plan
What is the problem?
Not saving seriously for realistic lifestyle after retirement
Increases spending after retirement by focus on today
What is the solution?
Disciplined living in a budget—before and after retirement
Planning ahead for informed decisions, avoiding excessive debt
Anger/Wrath: Hate Results of Unplanned Decisions
What is the problem?
Stubborn, denial of past mistakes (“aversion to regret”)
Lessons unlearned due to blaming others for uninformed decisions
What is the solution?
Have a professional investment plan with a disciplined process
Avoid emotional choices by relying on advisor to execute as needed
Sloth: Avoiding Regular Planning Decisions
What is the problem?
Set and Forget – disorganized accounts and lack of accounting
Expenses tend to be high, investment resources become wasted
What is the solution?
Have a planning process with regular professional reviews
Work with professional for “heavy lifting” of regular reviews
Lust: Love to Neglect Planning Decisions
What is the problem?
Love of money, almost emotional attachment
Avoids risks that may lose money
Sells too soon to avoid losing or losing gains
What is the solution?
Create professional investment plan with disciplined process
Look at accounts only during scheduled regular reviews
Greed: Deciding to be Rich rather than to Plan
What is the problem?
Return myopia—focus on making more
Performance chasing drives decisions
Lottery mentality, overweighing low probability of success
What is the solution?
Have planning process targeting outcomes, not returns
Comprehensive process to avoid decisions focused on short-term
Pride: Overconfidence in Making Decisions
What is the problem?
Know it all—but don’t know what don’t know
Excessive belief in personal smarts due to success elsewhere
What is the solution?
Discover humility—identify mistakes and their (opportunity) cost
Commit to a comprehensive planning process and stay disciplined
Envy: Deciding by Wanting What Others Have
What is the problem?
Wants it all now, and show it off: glamour stocks, hedge funds
A lottery mentality seeking “winners” for bragging rights
What is the solution?
No advisory solution for those with an advanced condition
Have a separate portfolio to preserve some wealth after blow up
Solution
Deciding on principles and process-driven planning
The Wealth Management Consultative Process
WM = IC + AP + RM
Five Major Concerns of Successful Families
The Wealth Management Consultative Process
INVESTMENT PLAN AND IPS
Diagnostic of current situation, our recommendations for moving
forward and details on our investing approach
THE PROFESSIONAL NETWORK
Team of carefully selected professionals, each with a high level of knowledge and skill in
key financial areas
PROFESSIONAL NETWORK MEETING
Our team of specialists applies its expertise to evaluate all aspects of your
financial situation and devise appropriate solutions
Two weeks
One week
45 days
90 days
THE ADVANCED PLAN
Comprehensive evaluation of the entire range of financial needs with
our recommendations for moving forward
INVESTMENT PLAN MEETING
Presentation of investment plan
MUTUAL COMMITMENT
MEETING
Confirmation of commitment
45-DAY FOLLOW-UP MEETING
Organization of account paperwork
REGULAR PROGRESS MEETINGS
Review of progress and implementation of
advanced plan
DISCOVERY MEETING
Complete discovery process
Second Opinion Service
Complimentary Second Opinion Service
exclusively for friends, family and associates of our valued clients
Question & Answer