Hans Scheil Douglas Amis Cardinal Guide

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The Complete Cardinal Guide to Planning for and Living in Retirement Workbook. Copyright 2017 Hans John Scheil ChFC CLU Certified Financial Planner CFP. Chartered Advisor in Senior Living CASL All rights reserved. ISBN 978 1 946507 01 3,Cover and text designed by Hadley Kincade. First paperback edition September 2017, Other than brief excerpts for reviews and commentaries no part of this book may be repro. duced by any means without permission of the publisher Please address requests for reprint. permission or for course adoption discounts to, Leapfolio a joint venture partner with Tupelo Press. Post Office Box 1767,North Adams Massachusetts 01247. Telephone 413 664 9611,info leapfolio net,www leapfolio net.
1 Module 1 Social Security 1,2 Module 2 Medicare 15. 3 Module 3 Long Term Care 29,4 Module 4 IRA Individual Retirement Accounts 59. 5 Module 5 Investments 67,6 Module 6 Life Insurance and Estate Planning 87. 7 Module 7 Income Taxes 119,8 Module 8 Choosing Your Advisor 127. MODULE 5 Investments,Key Questions,How important is return.
What is risk management,What is an annuity,How does age factor into investment strategies. How does the likelihood of long term care affect investments. What is the best way to allocate investments to prepare for long term care. Corresponds to Chapter 6 Investing Your Money and Living on it for the Rest of Your Life. in The Complete Cardinal Guide,5 1 A Bit of Investment History. After experiencing the economic growth of the Roaring 20s many Americans were. blindsided by the Stock Market Crash of 1929 For the next 10 years the United. States dealt with its crippled economy as President Franklin D Roosevelt led relief. and reform measures that helped lessen the suffering of millions of Americans The. crash and the Great Depression made many consumers uncertain about investing in. the economy Fortunately Roosevelt helped rebuild consumer confidence by ensur. ing that financial reform was a part of his New Deal beginning with the Securities. Exchange Act of 1934 Prior to this time Blue Sky Laws regulating securities were. only enforced at the state level The Securities Exchange Act created the Securities. and Exchange Commission SEC providing for the first time the means for the. federal government to protect the public from financial fraud. 68 Investments, Congress continued to establish protections for consumers with the Investment. Company Act of 1940 Mutual funds had been created in 1924 but they were largely. unregulated This new law set federal standards for regulating investment companies. and helped build consumer confidence in this fledgling type of security. Perhaps more important Congress in 1940 also passed the Investment Advisers Act. This law defined the roles and responsibilities of investment advisors and required. them to register with the federal government All federally registered investment. advisory firms are represented by the Investment Adviser Association IAA This. not for profit trade association was founded in 1937 and played a large role in the. enactment of the Investment Advisers Act of 1940 The IAA promotes integrity and. competence by providing education and other services to members It also represents. those registered investment firms before Congress and the SEC The firms that are. registered with the IAA have to update their paperwork with both the SEC and. state securities authorities every year As a result of that monitoring and oversight. those firms must act in the best interest of their clients which includes taking into. consideration every client s financial position,Reading Check. Why is the US Securities and Exchange Commission a necessary part of our. financial system, Modern portfolio theory rests on the foundation of the relationship between risk.
and return Risks are inherent in investing theory states that efficient investors who. take more risk should be compensated with higher potential returns There are five. basic categories of investment risk,Market Risk,Interest Rate Risk. Inflation also known as Purchasing Power Risk,Liquidity and Marketability Risk. Credit Risk, Examples are for educational purposes only Do not base insurance investments financial planning. legal planning or tax planning decisions on these examples. Investments 69, As we dig a bit deeper into these basic risks you should start to understand how. various kinds of investments have different risks,Market Risk.
Market Risk is an umbrella term that encompasses different types of risk which can. be categorized into unsystematic and systematic risks Unsystematic risks are risks. that are specific to a company or industry and can be minimized through diversifica. tion Systematic risk is the unavoidable risk that comes with choosing to invest in the. market International politics war and economic recession are hazards that cannot. be controlled by the investor but they can definitely increase market risk The term. volatility refers to a type of systematic risk specifically the way that securities pric. es change on a day to day basis However while systematic risks cannot be addressed. through diversification they can be mitigated by taking defensive positions called. hedges to offset an overall bullish position or vice versa. Interest Rate Risk, The bond markets are especially sensitive to changes in interest rates Stocks can also. be affected by changes in the interest rate environment because those rates can influ. ence dividends and growth potential The world s capital markets are intertwined. with interest rates because interest rates dictate savings account earnings the cost of. loans and almost every aspect of the economy for the Mom Pops and Big Business. alike This type of risk cannot be diversified away It is systematic risk. Inflation or Purchasing Power Risk, The prices of goods and services tend to increase over time The rate of this increase. is called inflation A great example of inflation is the cost of a first class stamp The. United States Postal Service lowered the price of a first class stamp in 1919 from. 3 cents to 2 cents today as of this writing a stamp costs 49 cents This increase. equates to approximately 3 308 compounded annually Economists and finan. cial professionals often use 2 5 or 3 as an estimate of inflation over long periods of. time But this rate can under represent the inflation of certain goods or services like. health care and it is not a great predictor of short term inflation As the basic cost. of living increases over time it can outpace income growth for working individuals. Retirees are especially prone to purchasing power risk Health care tends to be one. of the largest expenses for retirees and the cost of health care tends to increase at a. Examples are for educational purposes only Do not base insurance investments financial planning. legal planning or tax planning decisions on these examples. 70 Investments, greater rate than other goods like food and gasoline Cost of living adjustments are. not guaranteed annually for Social Security Many pensions lack any type of cost of. living or inflation adjustments,Liquidity Risk, One of the most important characteristics of your investments is liquidity Liquidity. refers to how quickly an asset can be converted to cash Having money when you. need it is more valuable than wealth that is tied up or illiquid Real estate is the most. common example of an illiquid investment compared to cash which is completely. liquid Short term financial needs cannot be met with illiquid investments keep. ing an appropriate amount of liquid assets will help protect you from liquidity risk. Marketability is different,Credit Risk, The risk of default is usually called credit risk This is the risk that the payor cannot.
pay the payee This situation can occur between a lender and a borrower or between. any other two parties when one party cannot live up to their obligations Counter. party risk is a form of credit risk Buying government securities like Treasury notes. and bonds is one way you can avoid credit risk Investors the world over purchase. debt from the United States Treasury because of the full faith and credit clause. of the Constitution that empowers the government to tax This clause is seen as a. backstop or guarantee that gives these Treasury notes and other government debt a. risk free status, Examples are for educational purposes only Do not base insurance investments financial planning. legal planning or tax planning decisions on these examples. Investments 71,Fig 5 1 Risk Comparison, This chart shows the different risks involved with each investment vehicle Each one. varies by what risk they present but all of them present risk in some way. Investment Market Inflation Interest Liquidity Credit. Vehicle Risk Risk Rate Risk Risk Risk,Equities Stock High Low Moderate Low Moderate. Bonds Low High High Low Moderate,Equity Indexed Low Moderate Low High Low. Fixed Rate None High Low High Low,Bank CDs None High Low High None.
Cash Money None High None None Low,Real Estate Moderate Low Low High None. Gold High Mixed Moderate Low Low,Commodities,Options High None Mixed High Moderate. Reading Check, Explain the five types of risk How does each specific type of risk affect the. management of your money,5 3 Equity Investments Common Stock. To familiarize you with some of the most common investments let s look at some of. the basic principles behind stocks and bonds, When news reports or articles refer to the stock price of a given company they are.
referring to the common stock issued by the corporation Though there are other types. of stock e g preferred stock common stock is more popular with ordinary investors. Examples are for educational purposes only Do not base insurance investments financial planning. legal planning or tax planning decisions on these examples. 72 Investments,What Is Stock, Common stock is a form of ownership in corporations Stock is sold as a way for a cor. poration to raise money to finance its operations By owning shares of the common. stock you are entitled to a share of the company s profits The first stock company. the Dutch East India Company was established in 1602 on the Amsterdam Stock. Exchange Today more than 4 000 stocks are traded on major exchanges and another. 15 000 are traded directly between investors over the counter or OTC. Are Stocks Risky, Yes but not very risky If a company goes bankrupt and is liquidated the common. stockholders may get paid but they are last in line after bondholders preferred stock. shareholders and other debt holders This is one of the reasons that stocks tend to. outperform bonds common stock has a higher risk of default than bonds do Com. mon stockholders share the earnings of the company while bondholders receive only. the interest stipulated in the bonds,How Do You Buy Stock. When a stock corporation is formed shares are created These shares can be sold to. the public in a variety of ways including an initial public offering or IPO Selling. the shares privately or through private placements is another option Before a stock. can be listed on a major exchange like the New York Stock Exchange certain size and. listing requirements must be met,Reading Check, As a stockholder in a company what do you own What do you get in return. for your ownership share, Examples are for educational purposes only Do not base insurance investments financial planning.
legal planning or tax planning decisions on these examples. Investments 73,Fig 5 2 Morningstar Stock Analysis, This is the analysis of one individual stock in the portfolio. Examples are for educational purposes only Do not base insurance investments financial planning. legal planning or tax planning decisions on these examples. 74 Investments,5 4 Debt Investments Bonds and Notes. Bonds and notes are a form of debt issued by corporations and governments When. you buy a bond or a note you are loaning money to that entity The principal of the. loan from you to the company or government entity bond is due on the maturity. date of the bond The yearly interest is paid to you by that entity This regular interest. payment is the reason investors put their money in bonds The US Treasury issues. bonds for terms longer than 10 years and notes for terms between one year and 10. years Treasury bills are issued for terms under one year. Are Bonds and Notes Different, Though these are both debt instruments that represent an obligation to pay there. are differences in how notes and bonds are constructed and viewed by regulatory. agencies For example all bonds are considered securities while notes may or may. not be classified as securities Securities are heavily regulated so notes not classified. as securities are subject to fewer rules,Are Bonds and Notes Risky. Bonds and notes are generally less risky than common stock because bondhold. ers can protect themselves with insurance and protective covenants and they have. a higher claim during a bankruptcy or liquidation procedure But bondholders do. experience risk They are especially sensitive to interest rate risk and purchasing pow. er risk That s because of the relationship between the price of bonds and interest. rates These move in opposite directions As the interest rate in the general market. THE COMPLETE CARDINAL GUIDE TO PLANNING FOR AND LIVING IN RETIREMENT WORKBOOK NavigatiNg Social Security Medicare aNd SuppleMeNtal iNSuraNce loNg terM care ira life iNSuraNce poSt retireMeNt iNveStMeNt aNd iNcoMe taxeS Hans Scheil Douglas Amis A joint venture partner of Tupelo Press North Adams Massachusetts The Complete Cardinal Guide to Planning for and Living in Retirement Workbook

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