[PPT] - Cumular e Asse t Manage me nt: Info Cumulare is a Re giste re d PowerPoint Presentation

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Br idging the Past and the F utur e : Inve sting for Ge ne r ational We alth – T he Re d T ips Me thod

by Alan Mille r CF A F IA Ma y 18th 2018 T his pre se ntatio n e xpre sse s o ur o pinio ns and do e s no t c o nstitute inve stme nt, le g al o r tax advic e

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Cumulare Asset Management

SLIDE 2

Cumular e Asse t Manage me nt: Info

Cumulare is a Re giste re d Inve stme nt Advisor (RIA)

– Re g iste re d with F lo rida Offic e o f F ina nc ia l Re g ula tio n (CRD# 288846) – Se pa ra te Ma na g e d Ac c o unts fo r e a c h o f o ur c lie nts – I nde pe nde nt Custo dia n is I nte ra c tive Bro ke rs L L C

Alan Mille r, CF

A

– F e llo w o f the I nstitute o f Ac tua rie s in L

ndo n, I

nve stme nt spe c ia liza tio n – E x-CE O o f Ba rc la ys’ So uth Afric a n inve stme nt ma na g e me nt b usine ss – E xpe rt in a pplying q ua ntita tive to o ls to a sse t ma na g e me nt – E q uity o rie nta tio n, b ut e xpe rie nc e d in a ll a sse t c la sse s

Stuart Brisge l

– Jo hn Ab b o tt Co lle g e in Mo ntre a l, e x-Mo rg a n Sta nle y – De ve lo pe d Po we rOne Stra te g y fo r pre fe rre d se c uritie s – Pa ssio n fo r finding a nd e xplo iting ma rke t ine ffic ie nc ie s – F ixe d inc o me & pre fe rre d se c urity o rie nta tio n

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SLIDE 3

Inve sting for Ge ne r ational We alth

“Ge ne ra tio n” = Ab o ut 30 ye a r time spa n
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a king lo ng te rm vie w o n inve stme nt pe rfo rma nc e

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de a is to pa ss o n a s muc h we a lth a s po ssib le to sub se q ue nt g e ne ra tio ns….

…while ma na g ing the risks a nd pitfa lls tha t c a n g e t yo u o ff tra c k
No ma g ic fo rmula , b ut so me ke y fa c to rs to c o nside r
Summa rize d list o f ke y fa c to rs: “RE

D- T IPS”

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SLIDE 4

RE D- T IPS

Ma ximize lo ng te rm RE

T URNS b y inve sting ma inly in e q uitie s

(c o mmo n sto c ks)

Sta rt a s E

ARL Y a s po ssib le

DIVE

RSIF Y yo ur inve stme nts

T

AX e ffic ie nc y

Use Adviso r with a n INDE

PE NDE NTCusto dia n

De ve lo p a writte n PL

AN a nd stic k to it

Ha ve the rig ht le g a l ST

RUCT UREfo r yo ur inve stme nts

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SLIDE 5

Histor ic ally E quitie s have give n gr e at long te r m Re tur ns

Co mpo und Annua lize d Re turns in USD fro m 01/ 01/ 1987 thro ug h 04/ 30/ 2018. Ba se d o n pub lishe d I nde x Pe rfo rma nc e b e fo re a ny fe e s o r c ha rg e s: US E q uitie s: 10.3% p.a . S&P 500 I nde x, T

ta l Re turns

US Gro wth E q uitie s: 13.6% p.a . Na sda q 100 I nde x, T

ta l Re turns

US Bo nds: 6.1% p.a . Blo o mb e rg Ba rc la ys US Ag g re g a te Bo nd I nde x, T

ta l Re turns

US I nfla tio n: 2.7% p.a . US Co nsume r Pric e I nde x, Urb a n Are a s

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SLIDE 6

Why do E quitie s usually pe r for m we ll

ve r

the long te r m?

E

q uitie s (c o mmo n sto c ks) re pre se nt a n e ntitle me nt to the pro fit stre a m o f the unde rlying c o rpo ra tio ns.

Ove r time , a s the e c o no my g ro ws, c o rpo ra te pro fits g ro w, a nd c o rpo ra tio ns

pa y hig he r divide nds to sto c kho lde rs.

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n the lo ng run, infla tio n sho uld flo w thro ug h to c o rpo ra te pro fits, the re fo re e q uity inve sto rs a re so me wha t pro te c te d a g a inst c ha ng e s in infla tio n.

Yo ur lo ng te rm re turn fro m e q uitie s is the sum o f:

– T he divide nd yie ld (c urre nt divide nd / sto c k pric e ) e .g . 2.5% – Gro wth in e a rning s a nd divide nds o ve r time (re a l e c o no mic g ro wth + infla tio n, ma yb e 3% + 2.5% = 5.5%)

L
ng te rm histo ric a l re turns fro m U.S. e q uitie s ha ve b e e n 8-12%, whic h is mo re

tha n mo st o the r a sse t c la sse s.

“Gro wth” e q uitie s (e .g . Na sda q -liste d c o mmo n sto c ks) ha ve o utpe rfo rme d the

g e ne ra l e q uity ma rke t, b ut with muc h hig he r vo la tility a nd risk.

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SLIDE 7

L

ng T

e r m Re tur n Compar ison

Slig htly mo re tha n 30 ye a rs, wa nt to inc lude 1987 b e c a use wa nt to inc lude

impa c t o f the “Cra sh o f 1987”

Assume tha t yo u sta rte d with $1 millio n o n 01/ 01/ 1987.
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nve ste d in a dive rsifie d po rtfo lio o f E q uitie s (S&P 500)o r Bo nds (Blo o mb e rg Ba rc la ys US Ag g re g a te I nde x), b e fo re T a xe s a nd I nve stme nt Cha rg e s, a nd a ssuming tha t a ll divide nds a nd inte re st a re re inve ste d.

Ac c umulate d Por

tfolio Value s as of 04/ 30/ 2018:

–

E quity Portfolio = $21,759,669

–

Bond Portfolio = $6,397,775

E

q uitie s o utpe rfo rme d b o nds b y a hug e ma rg in a nd a re muc h mo re vo la tile …b ut if yo u a re inve sting fo r g e ne ra tio na l we a lth, ma yb e yo u ne e d to “lo o k thro ug h” the vo la tility?

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SLIDE 8

8 F ig ure s sho wn a re b a se d o n ind e x d a ta a nd a ssume re inve stme nt o f inc o me . No fe e s o r ta xe s ha ve b e e n d e d uc te d .

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SLIDE 10

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SLIDE 11

Ar e E quitie s Ove r

Pr

ic e d Right Now?

L

ng T

e rm Growth T re nd-L ine

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f we ta ke 01/ 01/ 1987 a s the b a se , the c urre nt le ve l o f the S&P 500 is ve ry c lo se to its lo ng te rm g ro wth tre nd-line , whic h sug g e sts tha t e q uitie s a re no t c urre ntly o ve r- pric e d.

T

he tre nd-line wa s c a lc ula te d using a line a r re g re ssio n o f lo g a rithmic c umula tive re turns.

Pric e : E arnings Ratio

T

he Pric e : E a rning s (P/ E ) Ra tio o f the S&P 500 I nde x, is a me a sure o f ho w ma ny ye a rs’ e a rning s a re re fle c te d in the c urre nt inde x va lue . T he g re a te r the ra tio , the mo re e xpe nsive is the S&P 500, re la tive to its c urre nt e a rning s.

T

he c urre nt P/ E Ra tio o n the S&P 500 is 20.8 time s, ve rsus a lo ng te rm a ve ra g e (1987- 2018) o f 19.3 time s.

On this b a sis, the e q uity ma rke t a ppe a rs to b e slig htly o ve r-pric e d rig ht no w…b ut

do e s tha t re a lly ma tte r if yo ur time ho rizo n is 30 ye a rs?

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SLIDE 12

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SLIDE 13

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SLIDE 14

DIVE RSIF Y Inve stme nts

Hig h vo la tility o f e q uitie s me a ns tha t 100% in e q uitie s is no t usua lly a ppro pria te .
So me Asse t-Cla ss Dive rsific a tio n is no rma lly a dvisa b le
Mo st c o mmo n a sse t mix is 60% e q uitie s, 40% b o nds
An e q uity po rtfo lio sho uld a lso b e dive rsifie d b y:

– Se c to r (e .g . Ba nks / T e c hno lo g y / Co nsume r / Industria l) – Individua l sto c ks (e .g . fo r T e c h se c to r: ho ld a mix o f Apple , Ama zo n, Alpha b e t, F a c e b o o k, Ne tflix…no t a ll in o ne sto c k).

A b o nd po rtfo lio sho uld b e dive rsifie d b y:

– Ma turity da te – Issue r (a nd pre fe ra b ly, o nly c o nside r inve stme nt-g ra de issue rs)

T

he c o mb ine d e xpo sure to a ny o ne c o rpo ra tio n (e q uity + b o nd ho lding s) sho uld no t e xc e e d 10% o f the po rtfo lio va lue .

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SLIDE 15

T he Ma g ic of Dive rsific a tion: Combining Unc orre la te d Asse ts Re duc e s Risk

Equity Volatility 14.5% Bond Volatility 4.3% Average (50:50) Volatility of Equities and Bonds 9.4% Actual Volatility of 50:50 Balanced Portfolio 7.6% "Free Lunch" Reduction of Risk 1.8%

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SLIDE 16

Star t as E ARL Y as possible

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inste in sa id: “Co mpo und inte re st is the mo st po we rful fo rc e in the unive rse ”.

Whe n po sitive re turns a re re inve ste d, g ro wth ta ke s pla c e o n a

b ig g e r c a pita l b a se a nd re turns “c o mpo und”.

41% + 41% = 100%
25% + 25% + 25% = 100%
T

he lo ng e r yo u c a n ke e p inve sting , the g re a te r the po we r o f c o mpo unding .

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SLIDE 17

What Age Should You Star t Inve sting?

Co nside r thre e pe o ple e a rning the sa me sa la ry, o f $200 000 pe r a nnum

a t a g e 30, who inve st 10% o f the ir sa la ry.

Assume :

– inve stme nt re turns: 8.0% p.a . – sa la ry inc re a se s: 4.5% p.a . – CPI infla tio n 2.5% p.a . – No ta x o r c ha rg e s

Re a l (Infla tion Adjuste d) Va lue of Ca pita l a t Ag e 65:

– Sta rte d a t 30: $2.55 million – Sta rte d a t 40: $1.50 million – Sta rte d a t 50: $0.75 million

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SLIDE 18

T ax Syste m F avor s a L

ng T

e r m, E quity Or ie nte d Por tfolio

F
r a lo ng -te rm o rie nte d e q uity po rtfo lio , with infre q ue nt tra nsa c tio ns (lo w

turno ve r), re turns a re typic a lly in the fo rm o f:

– L

ng te rm c a pita l g a ins

– Qua lifie d Divide nds

Bo th o f the se ite ms a re ta xe d a t the L
ng T

e rm Ca pita l Ga ins T a x Ra te (ma ximum ra te c urre ntly 20% + 3.8% NI I T = 23.8%)

F

ixe d I nc o me / Bo nd Re turns a re g e ne ra lly ta xe d a s re g ula r inc o me (ma ximum ra te 37%).

A sho rt-te rm tra ding o rie nte d po rtfo lio (e q uitie s o r b o nds) will b e ta xe d o n

sho rt te rm c a pita l g a ins (ma ximum ra te 37%)

Re tire me nt a c c o unts like I

RAs a nd 401(k)s o ffe r a dditio na l ta x a dva nta g e s.

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SLIDE 19

Inde pe nde nt Custodian

Avo id a Ma do ff-type sc e na rio .
F
r yo ur pro te c tio n, the firm tha t ma na g e s yo ur a sse ts, sho uld

no t a lso ha ve c usto dy o f yo ur a sse ts.

Be st pra c tic e is to c ho o se a n inve stme nt ma na g e r with a la rg e

inde pe nde nt c usto dia n (e .g . Cumula re use s I nte ra c tive Bro ke rs L L C).

T

he I nde pe nde nt Custo dia n e nsure s tha t, while the inve stme nt ma na g e r c a n b uy a nd se ll a sse ts fo r the c lie nt’ s b e ne fit, a ny tra nsfe rs o f mo ne y o ut o f the Ac c o unt, c a n o nly g o to the c lie nt,

r a s a utho rize d b y the c lie nt.

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SLIDE 20

Stic k to your Plan

Ha ving a we ll tho ug ht-o ut a nd writte n inve stme nt pla n, he lps to de fe nd

yo u fro m the wa ve s o f e mo tio ns tha t c a n a ffe c t yo u in situa tio ns o f ma rke t vo la tility.

T

he mo st c o mmo n mista ke is b uying o r se lling inve stme nts in re spo nse to ne ws a nd da y-to -da y “b uzz”. T his c a n ha ppe n a nytime , b ut is mo st c o mmo n whe n ma rke ts a re mo ving wildly a nd e mo tio ns a re running hig h.

Whe n yo u a re te mpte d to ma ke a d-ho c c ha ng e s, fo rc e yo urse lf to first

re a d thro ug h yo ur writte n pla n.

E

q uitie s g e ne ra lly pro vide the b e st lo ng te rm re turns, b ut the y e a sily lo se 30% o f the ir va lue in a sho rt pe rio d o f time . I f yo u c a n’ t ha ndle this, the n do n’ t inve st 100% o f yo ur a sse ts in e q uitie s.

Do n’ t try to “time ” the e q uity ma rke t b y jumping in a nd o ut. I

n o ur e xpe rie nc e , mo st pe o ple who do this, la nd up muc h wo rse -o ff.

Re vie w yo ur pla n a nnua lly with yo ur F

ina nc ia l Adviso r.

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SLIDE 21

T he Right L e gal Str uc tur e

K

e y po int is tha t yo u wa nt to b uild up a po o l o f a sse ts fo r the b e ne fit o f yo ur fa mily, whic h is inde pe nde nt o f yo ur da y-to -da y b usine ss a ffa irs a nd pro te c te d fro m yo ur c re dito rs a s fa r a s po ssib le .

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n ma ny c a se s, “E RI SA” re tire me nt a c c o unts like 401(k)’ s a nd I RAs pro vide pro te c tio n fro m c re dito rs, a s we ll a s multiple ta x a dva nta g e s.

T

rusts c a n b e use d, in so me c irc umsta nc e s, to :

– E nsure tha t a sse ts a re pro pe rly ma na g e d a nd distrib ute d a fte r yo ur de a th – Pro te c t a sse ts fro m c re dito rs (b ut o nly if the T rust is “irre vo c a b le ”) – Avo id Pro b a te a nd re duc e o r e limina te E sta te T a x

Ge t pro fe ssio na l a dvic e o n the rig ht le g a l struc ture fo r yo u a nd yo ur

fa mily.

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SLIDE 22

Disc laime r

I nve stme nt pe rfo rma nc e fig ure s q uo te d a re b a se d o n g ro ss inde x pe rfo rma nc e , b e fo re fe e s a nd c ha rg e s. T his pre se nta tio n is inte nde d to illustra te so me hig h-le ve l inve stme nt c o nc e pts a nd princ iple s. I t is no t inte nde d to pro vide , a nd sho uld no t b e re lie d upo n fo r, a c c o unting , le g a l, o r ta x a dvic e o r inve stme nt re c o mme nda tio ns. Yo u sho uld c o nsult yo ur ta x, le g a l, a c c o unting , o r o the r a dviso rs a b o ut the ma tte rs disc usse d he re in. I nve stme nt re turns ma y a lso ma y b e a ffe c te d b y a va rie ty o f risks no t disc usse d he re in. No re pre se nta tio ns o r wa rra ntie s o f a ny kind a re ma de o r inte nde d, a nd no ne sho uld b e infe rre d, with re spe c t to the e c o no mic re turn o r the ta x c o nse q ue nc e s fro m a ny inve stme nt stra te g y. No a ssura nc e c a n b e g ive n tha t e xisting la ws will no t b e c ha ng e d o r inte rpre te d a dve rse ly. Pro spe c tive inve sto rs a re no t to c o nstrue this pre se nta tio n a s le g a l

r ta x o r inve stme nt a dvic e . E

a c h inve sto r sho uld c o nsult his o r he r o wn c o unse l a nd a c c o unta nt fo r a dvic e c o nc e rning the va rio us le g a l, ta x, E RI SA a nd e c o no mic ma tte rs c o nc e rning his o r he r inve stme nts. A pro spe c tive inve sto r sho uld o nly c o mmit to a ny inve stme nt stra te g y if suc h pro spe c tive inve sto r unde rsta nds the na ture o f the inve stme nt a nd c a n b e a r the e c o no mic risk o f suc h inve stme nt. I t is po ssib le tha t a pa rtic ula r stra te g y’ s inve stme nt o b je c tive s will no t b e a c hie ve d, a nd the inve stme nt re sults ma y va ry sub sta ntia lly fro m ye a r to ye a r o r e ve n fro m mo nth to mo nth. As a re sult, a n inve sto r c o uld lo se so me o r a ll o f his c a pita l. I n a dditio n, a stra te g y’ s fe e s a nd e xpe nse s ma y o ffse t its pro fits. I n ma king a n inve stme nt de c isio n, yo u must re ly o n yo ur

wn e xa mina tio n o f the pro po se d stra te g y a nd the te rms o f a ny inve stme nt a g re e me nt.

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SLIDE 23

Cumular e ’s Contac t De tails

We bsite :

www.c umula re a sse tma na g e me nt.c o m

Offic e Phone :

954 736 4699

Ala n Mille r – Pa r tne r : a mille r@ c umula re a sse tma na g e me nt.c o m

954 374 3809

Stua r t Br isg e l – Pa r tne r :

sb risg e l@ c umula re a sse tma na g e me nt.c o m 954 610 1220

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