Presented by Curtis Erickson, CPA, PFS & Lauren Vignec, Financial Advisor

Withdrawals S&P 500 Bonds Conservative Balanced Growth Aggressive

Begin $5,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000

End $24,688 $0 $0 $157,443 $712,054 $1,334,545 $1,737,599

Return4.55%

(Inflation)9.24% 7.93% 9.43% 10.78% 11.85% 12.45%

Standard Deviation

-- 18.87 5.6 6.46 10.59 15.47 19.66

Inflation from 1973-2008 increased by a cumulative 500%

The S&P 500 runs out of money in 1990

Bonds run out of money in 1994

Stocks are riskier than bonds and thus have higher expected returns.

Some stock asset classes are riskier than others, and thus have higher expected returns.

By combining asset classes with different risk/return profiles, that go up and down at different times, you can increase returns and lower risks.

100% Stocks

0% Bonds

75% Stocks

25% Bonds

50% Stocks

50% Bonds

25% Stocks

75% Bonds

0% Stocks

100% Bonds

10 Years 5.83% 7.71% 8.62% 8.65% 7.95%

15 Years 4.38% 5.61% 6.07% 6.24% 4.93%

20 Years 3.93% 4.83% 5.12% 5.11% 3.58%

25 Years 3.67% 4.41% 4.62% 4.44% 2.87%

30 Years 3.55% 4.18% 4.34% 3.95% 2.41%

40 Years 3.46% 3.96% 4.22% 3.27% 1.84%

Annualized Returns (%) 9.24 Annualized Standard Deviation (%) 18.87 Number of Losses Greater than 5% 8

4 basic steps to building a diversified portfolio.

STEP 1: Begin with

the S&P 500 Index.

Annualized Returns (%) 9.32 Annualized Standard Deviation (%) 11.81 Number of Losses Greater than 5% 5

STEP 2: Combine Basic World Markets:

• US (S&P 500)

• International (EAFE)

• Fixed Income (Gov’t Portfolio & Fixed Income)

• Similar returns with much less risk

STEP 3: Add Small Cap stocks, both US and International.

Small Cap stocks are significantly riskier than Large Cap stocks.

However, adding them increases annualized return while adding only a small amount of risk. Annualized Returns (%) 10.45

Annualized Standard Deviation (%) 12.59 Number of Losses Greater than 5% 5

STEP 4: Add US Small & Large Cap Value stocks.

Value stocks are riskier than growth stocks.

However, due to diversification the value stocks actually increase returns and decrease risk.

Annualized Returns (%) 11.04 Annualized Standard Deviation (%) 12.29 Annual Losses Greater than 5% 4

Annualized Returns (%) 9.24 Annualized Standard Deviation (%) 18.87

Investment Period: 1973 -2008 At a withdrawal rate of 5% the S&P 500

runs out in 1990.

Annualized Returns (%) 11.04 Annualized Standard Deviation (%) 12.29

Investment Period: 1973-2008 At a withdrawal rate of 5% the

diversified portfolio never runs out and grows with inflation.

After Inflation 1801-1900 1901-2000

Stocks 6.76% 6.45%

Bonds 5.23% 1.57%

The past does NOT predict the future.

Loss Gain Necessary

-10% 11.1%

-20% 25%

-50% 100%

-90% 900%

Average Annual Return

Annualized Return

.55% 0%

2.5% 0%

25% 0%

405% 0%

Average Annual Returns – Volatility {Standard Deviation^2/2}= Annualized Returns

6 8 10 12 14 16 18 20

6

8

10

12

14

16

One Year Standard Deviation (Volatility)

Ann

ualiz

ed C

omp

ound

Ret

urn

GrowthGrowth

AggressiveAggressive

S&PS&P 500500

ConservativeConservative

BalancedBalanced

Through diversification, everyone can be made better off.

Quarters of Negative Returns: • S&P 500 – 50 • MSCI Japan 63 • 60/40 Mix - 46

#1: Failing to Plan

“There is nothing wrong with a strategy to avoid the payment of taxes. The Internal Revenue Code doesn’t prevent that.”

-William H. Rehnquist

Key to financial defense

Guarantee results

Add Taxable Income

minus Adjustments to Income

minus Deductions

timestimes Tax BracketTax Bracket

minus Tax Credits

Rate Single HoH Joint

10% 0 0 0

15% 8,351 11,951 16,701

25% 33,951 45,501 67,901

28% 82,251 117,451 137,051

33% 171,551 190,201 208,851

35% 372,951 372,951 372,951

Add Taxable Income

minus Adjustments to Income

minus Deductions

times Tax Bracket

minus Tax Credits

Pre-Tax Dollars

After-Tax Dollars

Plan TypePlan Type 401k, 401k, 403b403b IRAIRA

Consolidate AccountsConsolidate Accounts NoNo YesYes

Investment flexibilityInvestment flexibility NoNo YesYes

““Stretch” distributionsStretch” distributions NoNo YesYes

““Net Unrealized Appreciation”Net Unrealized Appreciation” NoNo YesYes

Trust beneficiaryTrust beneficiary NoNo YesYes

IRA Balance- Federal Estate Tax- State Estate Tax- Federal income tax- State income tax=Net to family

Estate Tax

Income Tax

Net to Family

Solutions: • Roth Conversions

• “Stretch” IRA

• Trust Beneficiary

• Charitable Beneficiary

• Life Insurance TrustEstate Tax

Income Tax

Net to Family

Based on Dec. 31 balance

Start by April 1 of the year after reaching 70½

Waiting can means two distributions in first year

Taxed as ordinary income

Included in “provisional income”

50% penalty tax

Life ExpectancyLife Expectancy

AgeAge PeriodPeriod

7070 27.427.4

7575 22.922.9

8080 18.718.7

8585 14.814.8

9090 11.411.4

9595 8.68.6

IRA TypeIRA Type RegularRegular RothRoth

Taxable withdrawals?Taxable withdrawals? YesYes NoNo

Included in provisional income?Included in provisional income? YesYes NoNo

Required minimum distributions?Required minimum distributions? YesYes NoNo

Income taxed to beneficiaries?Income taxed to beneficiaries? YesYes NoNo

Can you? • “MAGI” < $100,000

• If Married, Joint Filer

Should you?• Tax Rates?

• Where will you find the money to pay the tax?

• Age 59½?

• How long can you let the account grow?

True Tax Planning

Written Tax Plan• Family, Home & Job• Business• Investments

Review Returns

We will do this ALL with our Tax Coach Service

Rebalancing is how you stay in control of your portfolio.

When you start your portfolio, you have a certain percentage in each asset class. As time goes on, those percentages change.

Rebalancing means returning to the original percentages. This can be done by adding new money or by selling assets that did well and buying ones that did not do as well.

Rebalancing means buying low and selling high.

You can rebalance every year, every quarter or even every day.

By 2007 it is a totally different portfolio!

Loses 44.6% in 2008

Way outside the risk tolerance of some one who just wants a 50/50 portfolio.

Rebalanced Portfolio:

• Returns: 9.45%

• Standard Deviation: 10.48%

Portfolio without Rebalancing:

• Returns: 8.98%

• Standard Deviation: 14.50%

Take a simple 50/50 portfolio, with half stocks in US and half in international – 1972-2008.

You lost 0.5% per year, and the risk goes higher.

According to the DALBAR study, the average investor earns significantly less than the market indices, and investors that time the market actually lose money over the period measured.

Category 1989-2009 Annualized Returns

S&P 500 Index 8.64%

Average Equity Fund Investor

1.87%

Systematic Equity Fund Investor

2.7%

Market Timer Equity Fund Investor

(-0.83%)

Inflation 2.98%

Seeing the whole portfolio as one portfolio

Dealing with fear, greed, and envy

Overconfidence

Predictions make us feel we are in control

Sunk Costs

5,040 Trading Days Return of S&P 500 Index

Growth of $10,000 Investment

Stay Fully Invested 8.43% $50,455

Missed the 5 Best Days 6.27% $33,720

Missed the 10 Best Days 4.89% $26,006

Missed the 15 Best Days 3.65% $20,500

Missed the 20 Best Days 2.58% $16,630

Missed the 25 Best Days 1.57% $13,654

Missed the 30 Best Days 0.61% $11,283

January 1, 1989 – December 31, 2008

Finance Professors Brad Barber and Terrence Odean found that women’s investment returns beat men’s on a risk-adjusted basis by almost 1% per year.

Women traded less.

Women suffer from less over-confidence.

This study is one of many that shows the losses suffered because of market timing.

Fidelity study of 502 married couples:• Only 38% make decisions together.

• Only 15% confident that either spouse is prepared for financial responsibility.

• 60% don’t agree on retirement age.

• 44% don’t agree on whether they will work in retirement.

Commissions necessarily lead to conflicts of interest.

Risky investments pay high commissions.

Unfortunately, the industry sells complexity and confusion instead of simplicity and diversification.

$ 907,084

$2,567,531

$3,986,548

$5,628,943

$6,836,400

Average All Mutual Funds

$-

$2,000,000.00

$4,000,000.00

$6,000,000.00

$8,000,000.00

$10,000,000.00

$12,000,000.00

Year

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Avg All Mutual Funds Aggressive Growth Moderate Conservative

Withdrawals S&P 500 Bonds Conservative Balanced Growth Aggressive

Begin $5,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000

End $24,688 $0 $0 $157,443 $712,054 $1,334,545 $1,737,599

Return4.55%

(Inflation)9.24% 7.93% 9.43% 10.78% 11.85% 12.45%

Standard Deviation

-- 18.87 5.6 6.46 10.59 15.47 19.66

Inflation from 1973-2008 increased by a cumulative 500%

The S&P 500 runs out of money in 1990

Bonds run out of money in 1994

Are you ready to shift your personal experience of money and investing from a scarcity mode to an abundance mode?

Thank you for joining us!