Financial Planning

Ron Carson is one of the most successful wealth managers in the country and offers different “boot camps” for advisors. Ron has been a CFS for close to 20 years. One of our directors has known Mr. Carson for close to 25 years—he is a class act, and so is his business practice. This is one of our favorite books because Ron has taken the practice of wealth management to a whole new level. Below are excerpts from his highly-recommended book.

In 2010, health care costs accounted for 17% of the GDP; it is projected to reach ~20% by 2017. The typical person covered by Medicare will have out-of-pocket medical expenses of more than $4,300 per year ($8,600 for a couple). These figures include health care premiums, copays, and expenditures not covered by Medicare. It is estimated a healthy 65-year-old couple will need $260,000 to pay for health care and LTC costs for the remainder of their lives.

Life expectancy has increased dramatically; a person born in 2010 can expect to live to age 79, 32 years longer than a person born in 1900. More importantly, there has been an increase in the life expectancy of a 65-year-old. In 1980, the average life expectancy for a 65-year-old male was 79.1 years. In 2010, this number increased to age 82.7. These extra three years has a great impact on retirement security. Say a person has annual expenses of $50,000 in retirement; expenses for 14 years total $700,000.

As of September 2012, there were 170 age-based investment tracks within 529 plans (source: WSJ). The difference between fund offerings can be wide. For example, one aggressive age-based option leaves 28% of the portfolio in equity funds when a child is in college; the least aggressive offering has 0% in stocks at the time.

For individual investors and advisors, there are a few sources that can help them decide which age-based track to select. Morningstar and Savingforcollege.com both rate 529 plans and include online comparison tools.

The goal of diversification is not to boost performance—it will not ensure gains or guarantee against losses—but it can help set the appropriate level of risk for an investor’s time horizon, financial goals, and tolerance for portfolio volatility. At the heart of diversification lies the concept of correlation. Simply put, correlation is a measure of how returns of two assets move together (i.e., whether their returns move in the same or in opposite directions and how often).

An early description of theory and markets came from the 1900 dissertation of French mathematician Louis Bachelier: “Past, present, and event discounted future events are reflected in market price … the determination of these fluctuations depends on an infinite number of factors; it is therefore impossible to aspire to mathematical prediction of it …”

Since 1946, there have been 11 bear markets for the S&P 500; these market drops of at least 20% occur at an average of one out of every six years.

Total foreign spending by the U.S. ($37 billion) represents < 1% of its $3.8 trillion budget (source: Office of Management and Budget).

For the first six months of 2012, home prices increased 5.9%, according to the S&P/Case-Shiller 20-City Index. The index tracks 20 metropolitan areas and reports on a two-month delay. The index was among the first to use repeat sales as its methodology—measuring prices of the same homes that have two or more recorded sales. Home sale pairs are accumulated in rolling three-month periods to keep sample sizes large enough.

Medigap insurance covers the 20% of costs not covered by Medicare Part B. These optional supplemental plans cover nine types of standardized policies offered by companies such as AARP and Blue Cross/Blue Shield. Medicare Part D (prescription drugs) is not standardized; the drugs covered and their costs vary by policy.

This article points out the pros and cons of becoming a financial advisor, as well as a suggested course of action if you decide to pursue this profession. The most important point to keep in mind is that success in the financial services industry means you must constantly market yourself. There are a number of ways to effectively market yourself (see below); the key is persistence and determination.