The Development of Superior Investing Performance 6 Strategies

The Development of Superior Investing Performance: 6 Strategies for Increasing Financial Fitness Financial Planning for Women Presented by Jean Lown Erica Abbott & Brittani Bushman Nov. 7, 2012

Take the Financial Fitness Test • 14 Questions • Score yourself (need to adjust score if single) < 25: Poor 25 -30: Baseline 31 -36: Good > 36: Very good 2

Acknowledgements • Research by David Eccles, Elizabeth Goldsmith, & Paul Ward of Florida State Univ. • The material was produced as part of a project funded by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation – www. finrafoundation. org 3

What is Financial Fitness? • Financial fitness is like physical fitness – Affects your well being & security • Physical fitness involves building muscle & aerobic capacity • Financial Fitness involves – building financial reserves – making your money work more efficiently 4

Financial Fitness is More Important than Ever • We are living longer than ever! • Average life expectancy is increasing – In U. S. Utahns live longest – Women live longer than men – This means we need more $ for retirement – Reduction in employer provided pensions – YOYO! 5

Financial Fitness • Helps cope with life’s financial challenges & increases ability to retire comfortably • Physical & financial fitness require work • Being prepared for the future • Safeguarding your family • Providing better opportunities for healthcare 6

Financial Fitness • Yes, it takes time! – Benefits far outweigh the costs though. • No more excuses! Help shape your future! • You deserve to give yourself the gift of living well through Financial Fitness 7

How Can I Increase My Financial Fitness? • We know what people should do but what do real people actually do that works? • 3 year study at Florida State University – Studied personal financial strategies that helped real people become Financially Fit & accumulate wealth • What works for you? 8

Research • Contrasted the PF strategies of householders who had similar opportunities to accumulate wealth over their lifetimes but ended up with very different amounts of wealth near retirement • Focused on the PF strategies used in “top performing” households: – Pre-retirees who were most Financially Fit 9

Study revealed six strategies: The SIMPLE 6 (Podcast) 1: Talk about it 2: Ask your employer 3: Work out what you’ll need 4: Forecast what you’ll have 5: Maximize saving & earning interest 6: Minimize debt and paying interest http: //www. lsi. fsu. edu/centers/hprc/projects/finra/ 10

1. Talk about it • Communicate with your partner (if you have one) about household finances • Work out strategies together to deal with $ • Share with your partner any understanding you gain about managing finances • Two heads are better than one • If single: talk with a trusted friend 11

15 Minute Workout: Talk about $ with partner or close friend • • • Communicate, communicate! Set up regular $ talk time Share responsibilities (or alternate years) Each needs “pocket $” (allowance) Don’t hide $ activity from your partner Get help: USU FLC (435 -797 -1569) – Marriage & family therapy – Housing & Financial Counseling 12

What works for you? • Share your story, your advice, your experience 13

2. Ask your employer • Financial/retirement advice & plans • Take advantage of employer resources • USU: TIAA-CREF, Fidelity & URS advisors provide free consultations • If self-employed/small business: IRA – Simplified Employee Pension (SEP) – Saving Incentive Match Plan for Employees (SIMPLE) 14

3. Work out what you’ll need • Estimate how much money you will need to live on in retirement (www. usu. edu/fpw) • Ballpark Estimate http: //www. choosetosave. org/ballpark • Consult fee-only financial professional – Beware of financial salespeople! – Certified financial planner (www. cfp. net) – www. NAPFA. org – http: //garrettplanningnetwork. com/ 15

4. Forecast what you’ll have • Estimate how much money you think you will have by the time you plan to retire • $Fit HHs work out how much they would have as they near retirement & compare to what they need • online retirement calculators & FPW PPTs – www. bankrate. com/calculators • http: //www. usu. edu/fpw/schedule/powerpoints. htm 16

5. Maximize saving & earning interest • Save from every paycheck (Automate) • Build emergency fund – Online savings/CDs – I-bonds • Invest in Roth IRA every month – See FPW past presentations for specific advice on low-cost mutual funds for IRAs • Save up for big ticket purchases (vehicles) 17

15 Minute Workout: Set up an Individual Retirement Account (IRA) • Lots of great info on FPW website – http: //www. usu. edu/fpw/schedule/powerpoints. htm – What’s an IRA? • Traditional vs. Roth • Best mutual funds for an IRA • Especially valuable for non-earning spouse • Fund your IRA w/ automatic monthly transfer • Use a commitment contract! Have someone hold you responsible to follow through. 18

ROTH IRA does double duty • Roth IRA doubles as true (catastrophic) emergency fund http: //www. rothira. com • you can withdraw your Roth IRA contributions at any time without paying any taxes (you’ve already paid taxes on this money) or penalties • Early withdrawal of earnings are subject to tax & 10% penalty 19

6. Minimize debt & paying interest • Pay household bills on time (automate!) • Pay full credit card balance each month – If not, you’re living beyond your means! – Don’t be a debt slave for life www. Power. Pay. org • Build an emergency fund – Autosave in online savings 20

15 Minute Workout: Create an Emergency Fund • How much? something is better than nothing – Save w/ automatic transfer from checking – Online savings accounts • FDIC insured • Higher rates than traditional accounts • No minimum – Once you build up emergency account • I-bonds (keep up with inflation; no state income tax on earnings; out of sight, out of mind 21

What Works for You? • How do you find $ to save? • Other ideas on places to stash your emergency savings? 22

Gender and Credit Card Behavior • Females: more costly credit card behavior than males • Compared to men, women were – 9% more likely to carry a balance – 11% more likely to pay only minimum – 26% more likely to incur a late fee 23

15 Minute Workout: Pay credit card in full each month • When you carry a balance, everything you charge costs LOTS more than list price! • Check out repay info on your statement – Pay only min. : pay twice the price! – Required $ to pay off in 3 years • Use https: //powerpay. org/ or get help at USU Family Life Center: 435 -797 -7224 • Once you pay off: set max. $ charge/mo. 24

6. Minimize debt continued • Pay extra on mortgage principal each month (what FF HHs did in this study) – Maybe… better to invest for retirement, save for child’s college or buy earthquake insurance or… – Refinance to today’s ultra low rates 25

Resources • Are you Financially Fit? Workbook: http: //www. finrafoundation. org/web/groups/foundation/@f oundation/documents/foundation/p 122359. pdf • Summary brochure: http: //www. finrafoundation. org/web/groups/foundation/@f oundation/documents/foundation/p 122356. pdf • Financial Fitness Project website: http: //www. lsi. fsu. edu/centers/hprc/projects/finra/ • Podcast 26

Questions? Experiences? • What is your Personal Finance Action Plan? 27

Upcoming FPW • The Quest for 850 (credit scores) – January 30, 2013 – Al Bingham – USU TSC Ballroom – 11: 30 -1 pm • Alternative Gift Market – Saturday, Dec. 1, 9 am – 2 pm – Presbyterian Church, 178 W. Center 28

FPW Website & BLOG • • • http: //ww. usu. edu/fpw http: //fpwusu. blogspot. com/ Kiplinger Personal Finance Magazine Money magazine WSJ Sunday (online): http: //online. wsj. com/public/page/sundayjournal. html 29

Money Girl's Quick and Dirty Tips for a Richer Life • http: //lauradadams. com/ • 288 MG How to Make Decisions About Personal Finances • http: //stitcher. com/s/player. php? AAKAAIH 5 N 30