Top 5 Investment Mistakes

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Professional Wealth Management FIVE MISTAKES RETIREES MAKE WITH THEIR FINANCES And How To Avoid Them YOUR PRESENTER Sean Gallagher Vice President Investment Advisor

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Presentation that outlines the Top 5 Investment Mistakes Retirees make with their finances. If you and your loved ones have not covered all of these risks, your assets could be at risk.

Transcript of Top 5 Investment Mistakes

Page 1: Top 5 Investment Mistakes

Professional Wealth Management

FIVE MISTAKES RETIREES MAKE WITH THEIR FINANCES

And How To Avoid Them

YOUR PRESENTER

Sean Gallagher

Vice President Investment Advisor

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FIVE MISTAKES

1. Wrong time horizon

2. Not understanding or covering your risks

3. Failure to understand the stock market

4. Failure to understand investment fees

5. RRIF Owner mistakes

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1. The Wrong Time Horizon

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STATISTICS – LIFE EXPECTANCYYou’ll Be Around Longer Than You Think

Current Age Life Expectancy Years to Invest

65 – 68 85 20 years

69 – 72 86 17 years

73 – 75 87 14 years

76 – 77 88 12 years

78 – 80 89 11 years

81 – 82 90

83 – 84 91

85 – 86 92

90 95

100 103

Source: IRS Publication 590

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2. Not understanding or

covering your risks

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RISKS IN YOUR LIFE

Source: http://www.guidetolongtermcare.com/protectingassets.html#risks

Incident Occurrence Percentage Insured

House Fire 1 in 1200 0.09% Yes

Car Accident 5 in 1200 0.42% Yes

Medical Problem 105 in 1200 8.75% Yes

Long Term Health 720 in 1200 60.00% No!!!

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Who will take care of me…?

Are they qualified?

Do they want the job?

Will your relationship change?

Your Spouse

Your Children

Your Close Friends

Your Community

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Are You Prepared?

We can all pay the actual costs

tomorrow

OR

the premium today

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Return of PremiumNursing Home Policy 70 Year Old Male

Policy pays $100/day for 750 days

Cost of Basic Coverage: $170/month

Return of Premium Option: $223/month

Money Returned at Death: $49,672 (all premiums paid less any claims)

The following example is Manulife Financial, rates as of 06/14/2007, 90 day elimination, married preferred, 70 year old applicant, $100/day benefit for 750 days for nursing, asst living and 100% home health based on monthly premium. Return is calculated to life expectancy (20 years for a 70 year old) and is paid at actual death if policy is in force, less any claims paid.

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3. Failure to understand the

stock market

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EMOTIONS OF THE STOCK MARKET

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EMOTIONS OF THE STOCK MARKET

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S & P 500 – 1 Year Holding Period (1930-2007)

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Dec-2

7

Dec-3

0

Dec-3

3

Dec-3

6

Dec-3

9

Dec-4

2

Dec-4

5

Dec-4

8

Dec-5

1

Dec-5

4

Dec-5

7

Dec-6

0

Dec-6

3

Dec-6

6

Dec-6

9

Dec-7

2

Dec-7

5

Dec-7

8

Dec-8

1

Dec-8

4

Dec-8

7

Dec-9

0

Dec-9

3

Dec-9

6

Dec-9

9

Dec-0

2

Dec-0

5

Dec-0

8

Source: Investment Strategy Group

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S & P 500 – 10 Year Holding Period (1930-2009)

Source: Investment Strategy Group

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

350%1930-1

940

1940-1

950

1950-1

960

1960-1

970

1970-1

980

1980-1

990

1990-2

000

2000-2

010

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Should You Buy Based on Last Year’s Performance?

Funds 2003 2004 2005 2006 2007 2008

RBC O’Shaughnessy U.S.

Value Fund

26% 15% 1% 17% -6% -44%

TD Real Return Bond Fund 10% 14% 11% -4% 1% 2%

GGOF Cdn Large Cap Equity

Fund

26% 12% 21% 21% 11% -30%

Acuity Income Trust Fund n/a 38% 31% -9% 8% -23%

Source: Globe Fund

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4. Failure to understand

investment fees

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What are you paying?

MER (Management Expense Ratio)

FE (Front-End Load)

DSC (Deferred Sales Charge)

LL (Low Load) or NL (No Load)

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5. RRIF Owner Mistakes

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The Sequence of ReturnsAccumulation PhaseStarting Value: $30,000 / No Income / 8% Compounded Rate of Return

PORTFOLIO A

POOR EARLY RETURNS;

STRONG LATE RETURNS

PORTFOLIO B

STRONG EARLY RETURNS;

POOR LATE RETURNS

AGE RETURN ACC VALUE RETURN ACC VALUE

41 -34.2% $19,740 28.2% $38,460

42 -10.6% $17,648 22.0% $46,921

43 13.6% $20,048 17.9% $55,320

And so on to retirement…

63 17.9% $131,741 13.6% $350,273

64 22.0% $160,725 -10.6% $313,144

65 28.2% $206,049 -34.2% $206,049

These calculations and projections are for demonstration purposes only.

They are based on a number of assumptions and consequently

actual results may differ, possibly to a material degree.

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Why the Sequence of Returns Matters

DECUMULATING Assumptions:

1. At 65, you have $206,049 from which to draw income

2. Drawing out 5% of the portfolio in the 1st year, thereafter adjusted

for 3% inflation annually

3. Returns are hypothetical and not actual

4. The sequence has an average compounded annualized return of

8% over 25 years and year to year volatility

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Path Dependency…Results from the Different Sequences

AGE Total

Withdrawals

Value Of

Portfolio

Portfolio A

poor early

returns

78 $167,334 $ 0

Portfolio B

strong early

returns

90 $375,619 $793,304

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RRIF Scenario

Married Couple

One of the spouses dies

RIF rolls over into the surviving spouse’s RRIF

The consolidated RRIF has a market value of $500,000

The surviving spouse changes his/her Will to leave the RRIF to two

beneficiaries… two adult children

How much will the two beneficiaries receive?

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RRIF STRATEGY – Save Thousands of Dollars

$ 500,000 RRIF

at 2nd Death

TAX BILL = $ 218,500Is there anything they can do to put that money back

into their estate for their loved ones??

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Estate Protection PlanExample based on Non Smoking Male age 66 and Female age 65

RRIF Value: $500,000 earning 5%

RRIF Withdrawal per month: $2,083

SOLUTION:

Use $296/month to pay for pre-paid taxes

program = $250,000

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Results of Pre-Paid Taxes Program

If 2nd death occurred 1 year later

Total spent on program: $3,552

If 2nd death occurred 10 years later

Total spent on program: $35,520

Total Pre-Paid Taxes: $250,000

Total RRIF Paid to Beneficiaries: $500,000

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IN REVIEW….

Invest for the correct time horizon

Analyze and cover your RISKS

Don’t get emotionally involved in the market

Understand the fees you are paying

Protect your estate from the government

Diversify your portfolio

Manage your risk exposure

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About CIBC Wood Gundy

Expertise that’s One to One

The Wood Gundy partnership opened its doors for business in Toronto on February 1, 1905.

There are about 1,400 CIBC Wood Gundy Investment Advisors working in approximately 100

branches across Canada, ensuring you are never far from the one to one expertise that

characterizes the relationships our Investment Advisors establish with their clients.

Our services are provided through your personal Investment Advisor, who can custom-design

an individual plan for you.

Access all types of investments, including:

• Domestic and global investments

• The largest inventory of fixed-income investments available in Canada

• Equity investments backed by top-ranked capital markets research and investment

strategy

Our wealth management approach encompasses money management, financial planning,

tax minimization and estate planning.

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Thank you!

Any Questions?

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Response Form

SEMINAR EVALUATION – RESPONSE FORM

What topic did you most enjoy or get the most value from today?

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AN OPPORTUNITY TO TAKE ACTION

I would NOT like a free consultation at your office to have a personal review.

I want to ensure that I have sufficient assets and make them last. I want to protect the assets I have accumulated.

I would like a free consultation at your office to have a personal review

Select a day:

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Email Address: ___________________________________

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Disclaimers

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and

is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a

position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services,

investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its

representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities

referred to above. © CIBC World Markets Inc. 2010.

This material comes from the personal calculations of Sean Gallagher. In the event of a discrepancy between the data used in this report

and the data generated by CIBC Wood Gundy, reliance must be placed on the data generated through the facilities of CIBC Wood

Gundy.

These calculations and projections are for demonstration purposes only. They are based on a number of assumptions and consequently

actual results may differ, possibly to a material degree.