>> CINDY SOBIERAJ: Our guest presenter is Steve Kampschmidt.
Steve, after graduating from RIT with an undergraduate degree in business management, decided to
take advantage of the fast track MBA RIT provided.
Steve focused on finance and economics during his pursuit of his master's degree before
entering the workforce in 2009.
Upon graduation, he pursued a career within Enterprise Holdings, one of the largest rental
car operations in the world.
After he had risen through the ranks at Enterprise and eventually managing their Newark Airport
brands, Steve opted to pursue his true passion which was in the banking and finance industry.
Steve spent time within management at Bank of America before making the leap to start
his own advisory practice with Merrill Lynch.
Steve now works on a team of advisors that specialize in developing customized, goals
based financial plans for his clients and their families.
A proud double alumnus of RIT, please welcome Steve Kampschmidt.
Our audience is all yours.
>> STEVE KAMPSCHMIDT: Thank you so much, Cindy.
I really appreciate it.
I want to say good afternoon first to everyone and good morning if anyone's joining us further
west from the East Coast.
And, again, thank you for everyone in attendance, to Cindy and RIT as well for providing me
the opportunity to go through this presentation with you today.
Initially I just want to give a brief overview of the presentation before we get into the
details.
In terms of what to expect, for the most part everything is investing basics.
We'll be covering asset allocation, diversification, periodic review, a breakdown of asset classes.
Then, more importantly and maybe what isn't described in the title itself is understanding
the foundation of a financial plan, what to look for, things like life priorities, specific
goals that you might have and creating a vision for your wealth.
Then that all boils down into something we call goals based management.
We'll go into a little more detail even in terms of creating that financial plan.
With that being said, we'll go ahead and get started.
So there's three pillars of smart investing, as you can see here.
A lot of people at this point have heard about asset allocation, diversification, but because
this is kind of an introduction to this, there may be some of you who have not.
We're going to go through a little bit in each one of these pillars to break down exactly
what that is.
Asset allocation being the true first pillar.
It's how you are choosing your assets depending upon what maybe your time horizon is or where
you are currently within your life.
So asset allocation may include a variety of different stocks or equities, bond positions
or fixed income.
You can have alternative investments and cash and cash equivalent.
In terms of how those percentages break down will determine how risky you are or conserve
you are.
Many times you'll see the risk spectrum go from conservative, there's a moderate level,
moderately aggressive and an aggressive level of investment.
So those are the most well known percentages and breakdown of what asset allocation looks
like.
As you go up that aggressive spectrum, you're going to increase your amount of stocks or
equities, as well as potentially alternative investments.
As you drift farther down the conservative level is where you're going to increase your
level of bonds and.
If you're just trying to preserve and protect as much of your principal as possible.
Within asset allocation there's also diversification.
In each of those various stocks, bonds, alternative investments, there as an increasing amount
of diversification within those.
And then there the periodic review that is of course once you designed your portfolio,
you're going to perform a periodic checkup, whether it's quarterly, annually, semiannually.
It's dependent on if you're managing things individually or perhaps you're working with
a financial advisor or planner, that periodic review will be dependent upon what your individual
situation may look like.
This is the slide that breaks down asset allocation.
You can see what I discussed before.
There's the cash equity, fixed income and alternative investments of the four components
that make up asset allocation.
You'll see within each one of these that there is further breakdown.
Within equity positions, there's all different types of equities.
You can have common stock positions.
The there's mutual funds, something that has broken out on the scene in the last couple
decades are exchange traded funds.
These are low cast passive style investments that can track sectors within the economy.
They're becoming ever increasing in popularity.
There's a number of other things but for purposes of this presentation we're not going to go
into detail about things like closed end funds that might be something for potential future
presentation.
And then within fixed income and alternative, there's a different list within those.
Fixed income you will have corporate bonds, corporate debts, there's emerging market debt
for international countries that are currently developing and coming up in emerging markets.
You will have municipal bonds which can be tax free depending on the type you are purchasing.
There's also treasuries that are provided by the government.
And within alternative investments you have hedge funds.
There are managed futures, something called treasurely protect securities, commodities,
precious metals, oil, harder assets and there's real estate and private equity as well.
These are the various components within the asset allocation breakdown.
As you begin to become more and more involved with investing and more comfortable, you can
become exposed to all these different types of investments that can have various risks,
different returns, of course, depending upon what you're utilizing.
As long as you're having a healthy mix and diversification so you're not overconcentrating
on anything, that's one of the most important concepts of diversification, that you're not
overconcentrated.
Why is that important?
Just briefly mention there are various levels of risk and reward but helps balance your
goals and time horizon with your risk tolerance.
So those things we look at them individually, goals, time horizon, and risk tolerance.
Let's talk about time horizon first.
I don't know everyone on this call but it can range.
We can have recent graduates or individuals within college all the way up to current retirees.
Within that spectrum everyone is going to have a different time horizon within their
various assets.
So if you have a much shorter time horizon, you have a particular goal that might be coming
up very soon, so someone who is graduated not too long ago, they may be getting close
to purchasing a home.
That is a shorter term goal at that point.
So as you're acquiring assets it may be more intelligent to be a little bit more conservative
with those types of assets and investing you're doing because you may have to use those assets
as a down payment in the very near future.
If it's an assets in an employer based plans, 401Ks are becoming more common in the workforce
at this point in time.
It's dependent upon what sector you might be in.
But within those, you're going to have those employer based plans with a longer time horizon.
Especially if you're just beginning your career or still early on within your career, you're
going to have a 10, 15, 20 plus years where you can talk about an asset allocation which
is a little more aggressive because you have that longer time horizon to suffer through
a market correction and wait for the return to come back.
There's risk tolerance.
Risk tolerance is completely upon the individual, probably dependent upon how you feel.
Something that I will do oftentimes is initially when meeting with a prospect, I might show
them a graph which can show various levels of downturn, whether it be 10%, 20%, 30%.
And then make it real by suggesting a number, depending upon their assets.
If they, for instance, $100,000, how are they going to feel if all of a sudden within two
months of becoming a client, are they going to feel it's only $60 to $70,000.
And if that gives them a great deal of concern, then it's a way of having a conversation to
figure out what your potential risk tolerance could be.
It's important, even if you do have a longer time horizon and you have specific goals in
mind, if you have a more conservative risk tolerance versus an aggressive tolerance,
then that might outweigh those goals and time horizons because of how you feel and how you
might want to preserve the principal you've built up thus far.
We'll move on to the next slide.
Within those asset classes and there's going to be this increase in diversification I was
mentioning before.
You kind of go through a few of these here.
Geography, of course, is whether or not you're investing domestically or internationally.
You might be investing within emerging markets as I mentioned earlier on in the presentation.
Various sectors and types.
Healthcare, information technology, there is a host of different sectors within these
asset classes which you can then of course invest within.
Size and style is something you might find.
You might mutual fund with a title and certain size and tile, that can be a large cap, mid
cap, small cap.
Within those large cap or large capitalization that's going to be bigger companies, your
Fortune 500 type companies which are much larger.
You'll have middle cap and smaller cap which is of course smaller companies that are just
coming about that are within your size and style.
The style portion of that, that's going to be value versus growth.
So value will be a company that are going to be a little bit more conservative.
May not have as much growth potential in terms of the price of the stock itself or of the
company, but they may be a little bit more conservative, but you may be able to increase
an income stream if they have more value based versus more growth oriented.
They might want to retain more of their cash because they're looking to grow the company
as a whole.
There's liquidity.
Liquidity is how much you're invested in.
There may be some investments especially within alternatives where you might have to tie up
your cash for a longer period of time.
You may have annuities where this can have a lockup period or a surrender charge where
if you attempt to pull those assets out you're going to potentially risk your principal.
They may not be as liquid as purchasing a money market fund or even an individual stock
that you can actively trade on the market which can be more liquid.
Credit quality and maturity, there is various levels of quality from highly rated and graded.
There are corporate bonds, municipal bonds and length of maturity whether short term,
maybe only a three month or one year of maturity all the way up to a 30 year government treasury
that could be available to you.
There are varying lengths of maturity as well within this diversification.
Diversification is important.
The chart you're looking at right now is going through that size and style component that
I was discussing before.
If you look at the top line of the chart, you have the green box I want to go quickly
through this for everyone.
That would be small cap value.
The next box down, mid cap value, the blue is large cap value and the DP section which
is the diversified portfolio which would maintain a combination of all these.
There's small cap growth, mid cap growth and large cap growth at the bottom right of the
chart.
So this is part of diversification specifically within size and style.
You can see as you begin to diversify your portfolio and you don't concentrate too much
in one position, you're going to have less of an up and down as the markets go through
the different turns.
So that's why this is of increasing importance of diversification.
You'll see this now, something I did want to bring up and talk about is asset allocation
and diversification is becoming increasingly simpler to obtain because we have a lot of
companies and these exchange traded funds that are available to individuals that will
have significant amount of holdings within them that can even if we talk about a 401K
or 403B you might have a target date fund.
They have a specific year in mind when a proposed retirement would occur.
Say you have, for example, a 2050 target date fund and you invested in that, it's assuming
that you're going to retire in the year 2050.
So given it's the year 2019 that would leave you 31 years until retirement.
Initially when you first go into this target date fund, it's going to be a lot more aggressive.
You're going to be on that asset allocation spectrum with a lot more stocks and equities
and maybe a fewer percentage or lesser percentage of fixed income or bonds in cash.
As you approach that target date, 2050, that fund is going to automatically start converting
the percentages of stocks into bonds and potentially into cash, depending upon what the manager
opts to do so you don't necessarily have to take care of things on your own.
It's going to do it for you.
The introduction of these types of bonds with niece employer plans is really phenomenal.
A lot of times if individuals might be left to their own vices it can be a lot more difficult
to figure out your own diversification and ensuring that you're not overly concentrated
whether it's in domestic stocks or international or small cap that tends to be a little riskier.
These target date funds and asset allocation type funds and models that are being provided
now are extremely beneficial.
We'll move on.
Other considerations you need to keep in mind while investing, things that are not necessarily
part of asset allocation and diversification are market factors.
I meant to say earlier on in the presentation, something this presentation will not be a
2019 outlook or where we are currently in the markets.
There has been some increased volatility of course.
We're bringing this up now because these are some of the considerations you have to have
when it comes to investing.
More recently within the past year in 2018 volatility has reemerged and there are liquidity
concerns.
I talked about that earlier, how long your assets might be tied up.
Currency exposure, whether or not the dollar is strong or weakening and how it relates
to other currencies throughout the world.
There may be currency exposure depending on how you're invested.
Inflation risk.
Recently the federal reserve has raised the interest rates recently so they could try
to counteract inflation concerns.
All these factors are very important considerations that have to be made when you're putting together
a portfolio for yourself.
And depending upon those goals, the risk tolerance and time horizon, these are additional considerations
that need to be made when you're formulating that portfolio.
Risk tolerance periodic review, understanding when you need to now.
Within my own practice we will outline when we're going to perform periodic reviews prior
to entering a relationship and that can be as frequently as monthly even, a monthly,
quarterly, semiannually, potentially annually, depending upon the needs of the individual
and their family.
But there can be other triggers that will cause potential review to happen.
That can be market forces, things that we discussed in the previous slide, future economic
outlook and then even more important I think is changing personal situation.
This is something where if you have a major life event, whether it's the birth of a child,
you get married or divorced, if you're nearing retirement, the purchase of a home, all these
different factors, perhaps you're looking for a new position or you're in the marketplace
for obtaining a new job currently.
These are all instances where your personal situation has changed and it's important to
have review done at that point to make sure that your investments are aligned with your
current goals and outlook and strategy for the future.
Those are the reasons for the slide.
Going to the next.
Okay.
So we've now touched on a number of the basics of investing in and of itself and selecting
securities and various assets.
Now what I consider more important is the planning phase.
Before you ever end up actually selecting the various investments and where you're going
to put your money to work, understanding your life and your current goals is kind of the
bed rock of forming a financial plan.
This is something that Merrill Lynch created awhile back.
They put together these life priorities centered in on your finances which is currently in
the middle.
There is your family, giving, philanthropic efforts, work, career, home, leisure, and
health.
All of these different life priorities and they may change and various priorities may
become increased importance depending on where you are within your life at any given time.
Within the center of all these various life priorities are going to be your finances.
And this breaks it down a little bit further.
So how do your life priorities and then goals translate into an investment portfolio?
So going into each one as the priority is given, there is lots of different there are
various vehicles where you can attempt to give if you are felon arthroscopically inclined
where there's also trust that you can form within your own family.
There's the donor advised fund, things that you can take advantage of in terms of giving
for philanthropic there may be other things within your workplace.
Leisure if you're focused at a point in your career, in your life where you want to increase
the amount of travel or the vacations that you might have is going to compared potentially
within your life where you're going to have to dedicate a certain amount of assets or
money toward this particular priority and there are going to be various ways where you
can do that.
There's long term care planning.
Of course, family.
Family is at the center, of course, of everything.
Determining how you might want to set up estate planning or establishing trust for your own
family, funding vehicles like a 52 the for children for educational purposes.
All these different priorities are going to be discussed initially when you're forming
that financial plan to determine what specific goals you have.
Then as you're putting together and defining those goals, we'll talk again about risk tolerance,
the time horizon within those goals.
And then the target amount that you will need to fund that particular goal.
So if you did have a particular lifestyle need, you're going to be entering retirement,
you might want to have a particular nest egg available, depending upon what your lifestyle
needs will be.
Now there is no one size fits all especially when it comes to retirement depending upon
an individual's situation and what their needs may be, there may be differing amounts.
And figuring out what that target amount is, you won't know, until you really start to
formulate your financial plan, understand your budget and what your budget might look
within retirement.
And then after you've gone through these various life priorities and defined the various goals
you might have depending on where you are in your life, that's when putting together
an overall portfolio comes into place.
And as you accumulate wealth, there's going to be increasing complexity where you may
have access to various types of vehicles and various assets where that increase in diversification
happens.
And there's just more and more needs that might rise about as wealth continues to be
accumulated throughout careers.
This is part of the vision planning.
This is understanding what your wealth what you want your wealth to do for you.
So you may have very short term goals and in ascending order you might plan out a particular
portfolio or a strategy for your various assets for your shorter term goals.
There will be mid term and longer term goal which may be retirement or estate planning.
Understanding the various aspects of wealth and how you're dividing that portfolio is
important and making sure you're coming back and having those reviews to ensure that your
vision for your wealth is continued and things are adapted and changed as that vision might
switch depending upon potential life events that occur.
To kind of summarize everything that we've now discussed before we end up entering into
a Q and A session.
I wanted to leave a sufficient amount of time for question and answer.
This is a goals based approach, something that we use within our own practice.
It's incredibly important.
If you're not working with a financial planner, using this approach is critical.
You don't want to just to if you have a certain lump sum of money, pick the hottest thing
out there.
I would not suggest that.
I would first, any time you begin to think about how you're going to invest your wealth
or the assets that you do have available to you, you need to understand where you are
in your current life first.
And then look at what your goals are for the future.
So it's especially important for for everyone but dependent upon if you have shorter term
goals coming up soon.
Those goals depending on where you are in your life could be that purchase of a home,
funding a college education, or even retirement.
And you need to make sure that if you have a shorter term goal that you might want to
divert a portion of assets in order to make sure that you protect principal for those
things.
Again, it's going to be heavily dependent upon your own level of tolerance, time horizon.
Performing those periodic reviews, staying on track, making sure that you have a process,
not just attempting to do things here and there or if you're finding yourself all of
a sudden, man, I forgot to check that or I haven't looked at my 401K portfolio in a long
time, if you're not doing that with a systematic approach, I suggest that you put a plan in
place whether you have an Outlook reminder or a calendar invite where you're ensuring
on a periodic basis you're looking at these things and getting an understanding, depending
whether you're doing it on your own or with a planner, make sure you have a systematic
approach in place to ensure you're reviewing these things.
Because your personal situation may change, market forces change, and your goals are going
to change.
So you need to ensure that your portfolio is adapted and modified to go along with it.
I believe that is everything within the slides that I have for the presentation today.
You'll find my contact information, of course, on the slide.
I believe the presentation is going to be provided to everyone as well.
I would encourage you to ask questions now and then again later.
With that being said, I would be happy to open things up back to you.
We've hit the 12:30 mark and open it up for questions.
>> CINDY SOBIERAJ: Yes, thank you, Steve, for that presentation.
A question's come in from Diana.
I would like to invest my kids' savings account, do you have any reduced risk suggestions for
doing so?
>> STEVE KAMPSCHMIDT: I'll say this.
I'm glad we got this question initially.
I would be happy to answer this type of question.
I would be more comfortable, of course, doing it on an individual level.
So if anyone does have these types of questions for their individual situation, I would be
more than happy to answer them.
I will do the best I can.
I just want to address that first.
If you don't mind repeating the question for me, Cindy, I'll try to answer it now.
I need to be careful too, if I'm not working with somebody on an individual level, there
are things within my industry where I have to be careful about providing advice if we're
not currently working in an established relationship.
Go ahead and answer the question again, Cindy, I'll see what kind of advice I might be able
to provide.
>> CINDY SOBIERAJ: Great.
Thank you.
That's understandable.
Diana's interested in knowing a little bit more how she might go about investing her
kids' savings account.
She's looking for opportunities that are reduced risk suggestions so like maybe in a broad
stroke you might be able to answer that.
>> STEVE KAMPSCHMIDT: Sure.
I think I mentioned this in the introduction.
There are 52 the accounts.
More and more people are using 529s, especially now where you're actually able to use 529s
on a broader scale.
Where before it was only higher educational purposes.
There have been additional changes within the tax law this prior year where you can
now utilize these assets for earlier education as well.
Now in terms of tax benefits, I should also mention I'm not a certified public accountant
but in terms of tax benefits in utilizing 529s, you may gain from using them.
The jury's still out within the states.
Some states you can get a deduction when you're placing funds in a 529 while other states
you cannot.
You have to be careful.
I encourage to speak with a tax consultant as well in deciding whether or not you want
to fund a 529 and then funding the 529 you mentioned becoming more conservative.
Any type of, whether it's within a 529, if you're also using a UGMA transfer to minor
type accounts, those can be extremely conservative which they're basically invested in cash and
an FDIC deposit.
An I FDIC insured deposit is insured by the federal government up to $250,000.
If it's within a banking environment or an FDIC insured bank that would be considered
very conservative.
Now there's absolutely nothing that provides you no risk even putting your people have
mentioned this saying, putting money under their mattress, that carries a risk of itself.
Regardless of whether you hold, cash, stocks, bonds, everything has a certain degree of
risk.
There is nothing that has no risk itself.
Within a 529 you can have increasingly conservative portfolios or funds that should be available
to you within those 529s.
If I didn't already, the 529, just briefly, are tax advantaged children's education type
savings accounts.
I'll stop there without going into too much deeper to allow further questions.
I hope that helps a little bit with the question that you did have.
>> CINDY SOBIERAJ: Okay.
Thank you, Steve.
Diana, if you have additional questions, Steve's email is on the slide.
So feel free maybe I shouldn't say, feel free to send Steve an email but his email is there.
So if she reaches out, you guys can chat further.
Let's see.
Jeffrey has a question.
I've got to scroll up.
My wife and I's annual income is over the limit for rotting contributions, any good
ideas for an alternative back door rotting, question mark.
>> STEVE KAMPSCHMIDT: Sure.
This is very, very important.
I'll take this an opportunity to explain Roth and traditional accounts for those who might
not be aware.
Traditional retirement accounts are pretaxed funds that you're placing into a retirement
account.
Both accounts will have tax deferred growth while they're within these accounts.
But a traditional account or a traditional IRA will be taxed upon the distribution of
the accounts.
Roth account is different where it's posttaxed funds.
What is so beneficial about them is they're still tax deferred like a traditional account
is.
When you end up taking distributions from a Roth retirement account there are no taxes.
They're a phenomenal tool.
If you haven't already investigated into investing in a Roth, look into it.
Depending upon your personal situation you may not be able to use one.
There are ones that are increasingly available in 401K plans as well or 403B.
If that option has become available to you recently, I would encourage looking into it
and determining and whether or not you do this on your own again or with a planner finding
whether or not this could work to your benefit.
I wanted to give that breakdown of the different types.
To answer your question, there is ways to do a back door Roth conversion.
What they're asking is once you reach a certain income, this is dependent upon your tax bracket.
If you're a single filer or married filed jointly, I believe they've recently changed
for 2019 but in the range of 190 to $200,000 for married filing jointly.
So if you've reached that threshold or you're passing that threshold, you may or may not
be able to perform this back door Roth conversion.
I may not even though you could.
You have to be careful.
Again, this is something where I have to be careful because I'm not necessarily a CPA.
I encourage you to talk to a tax consultant.
I can tell you that if you don't have a traditional IRA, a personal traditional IRA, this is outside
an employer based account.
There are 401Ks that are separate from this.
If you don't have a traditional IRA, it can be a little easier to perform a back door
Roth conversion because you don't have what's called a basis already.
This may be getting a little more complex and maybe too complex because this is considered
investing basics.
If you don't already have a traditional IRA it may be easier for you to make a nondeductible
contribution into a traditional IRA and then you should allow these assets to sit for a
period of time before processing what's called that Roth conversion.
You can do this without experiencing any kind of tax detriment if you don't have assets
already in a traditional IRA.
It can be get more complicated however if you do already have a traditional personal
IRA where you're looking to perform this back door Roth conversion and you can conversion.
I'll probably say this a number of times.
I encourage you to seek out a tax professional to make sure if you're doing a back door Roth
conversion you're doing it with all taxes being considered.
So I hope that kind of helps answer your question around that back door Roth conversion.
>> CINDY SOBIERAJ: Thank you, Steve.
I hope it does.
Now let's move on to the question how do we go about selecting a good quality target data
retirement fund?
>> STEVE KAMPSCHMIDT: Sure.
So that will be dependent most are kind of on a five year basis.
You'll see ones 2025 all the way out to 2060 and beyond potentially with five year intervals.
It's highly dependent upon when you plan to retire.
That really shouldn't be the only consideration too.
That is what many people will use in terms of determining which one they want to, but
just know that within each one of those different target date funds, one of the the potential
downfalls, I already mentioned they're a phenomenal tool because they give you an increasingly
level of diversification and asset allocation for you.
The downfall is if you have a different level of risk tolerance and/or perhaps a time horizon
that maybe it is different or maybe it changes.
So if you've set up a particular target date fund with 30, 35 years from now, perhaps you
have a life event.
Maybe you have inherited assets or you obtain assets in some other capacity where it might
not make sense to then use that same type of target date fund because you might want
to preserve your principal more or become more aggressive if you have enough assets.
It is highly dependent.
If you're simply if you're looking at it in a simple manner, yes, you're going to think
if you want to retire at age 60 or have the ability to retire at 60 or 65, whatever that
number might be, you just have to go out and select that particular target date.
Again, for round numbers, say if you're 40 years of age, and you want to retire at age
65, you're going to want to look at a 2055 target date fund, in a simple capacity.
That's giving you I'm sorry.
That would be a 2045, it's giving you an additional 25 years before you're potentially reaching
retirement.
Happy to discuss in more detail.
So many of these type of questions are really going to be depending upon your own individual
situation.
>> CINDY SOBIERAJ: That makes sense.
The next question is in terms of saving and investing, what are some of the changes from
last year to this year?
I'm hoping that makes sense.
I'm reading it verbatim.
>> STEVE KAMPSCHMIDT: Yeah.
So this is one of those where I'm going to be careful because the marketplace has changed.
Certainly I'll talk in generalities, we've gone through a longer bull run.
If you're looking at any kind of analyst or financial analyst, if you turn on the news,
you probably heard more recent 12 months how we've been in this longer term bull run since
we had a larger downturn or correction in late '08 or '09.
These are one of these market factors where you're having to look at things and identify
how you might want to adjust your portfolio tactically.
I can tell you that me personally I'm not a fan of making drastic choices or drastic
swings and changes within portfolios, depending upon what your individual situation is.
If you have to absolutely have to, I feel like it's a bit of a copout by saying this
but it really is highly dependent upon your situation, because you can't just look at
market factors alone and have that be the sole reason for adapting your portfolio or
changing your investments.
You have to more importantly look at what's going on in your life right now, what your
priorities are and what you're saving for.
That's what you need to look at first and then look at market factors and market considerations
and what's going on on a year to year basis.
>> CINDY SOBIERAJ: Excellent.
Thank you.
I hope that helps.
Evan's question is, how are financial planners, advisors paid?
For instance, how do I know it's worth having a financial advisor whether it's a good investment
or not?
>> STEVE KAMPSCHMIDT: That's a very important question.
When you're looking for a financial planner or financial advisor, there are going to be
different ways that planners and advisors can be paid.
I will tell you confined of the different things that you might end up encountering.
The financial advisor of quote unquote stock brokers, this is still true to this day, they
might charge a commission on a sale of a particular investment or if you're purchasing a mutual
fund, for instance and they charge a particular commission up front or an ongoing trail commission
it might be called.
It's dependent on who you work with.
There may be different ways in which they're compensated.
You have to look at the value, of course, of what's being returned to you, first and
foremost.
And be careful.
There's no there's probably no right or wrong answer when it comes to a percentage.
There are those who charge commission.
And then there are those that charge an asset under management fee or an advisory fee.
I tell you I largely operate on an advisory basis where it's essentially a percentage
of the assets that you have managed for you.
Those percentages can range anywhere from half a percent up to 1 and a half percent.
That's dependent upon the individual, what your needs are, how large your wealth might
be.
I encourage everyone because there's variability within the industry.
You need to ask them and they need to be transparent.
If you're working with any advisor if you don't feel their pricing is transparent and
you don't understand how they're being paid, I would caution you to at minimum seek out
an additional reference point and speak with another person just so you can get some of
that extra reference and have something to compare it to.
Because if they're not being transparent with exactly how they're being compensated and
paid, there could be cause for concern.
Maybe not, but I would just be leery of working with anyone who isn't able to clearly break
down to you exactly how they're being paid.
By and large it's either on a commission type basis or an advisory approach where they typically
charge a percentage of the assets that they are directly managing.
>> CINDY SOBIERAJ: Thank you, Steve.
I hope that helps Evan.
A question came in from Mike.
Is there a recommended target split of Roth versus pretax retirement savings so that you
could withdraw some Roth savings, parentheses, no tax during a first stage partial retirement
and then parentheses still working but at a lower paying job and save the pretax when
fully retired.
Minimal I hope that makes sense.
I can read it again.
>> STEVE KAMPSCHMIDT: No, it's okay.
It's a little bit more individualized and a complicated question.
I like this question because I think it is important to have a balance.
Regardless of what area of your life now, again this is not across the board for everyone.
I encourage everyone to kind of be careful with this and I would be happy to talk with
anyone on an individual level, but I think I can tell you that having a balance, I absolutely
advocate and unless you're much further down the road and in a place of a larger tax bracket,
it may or may not at that point make sense.
There are so many factors, what future tax rates might be and how much your current spending
level might be and what it might be in retirement.
If you're a lower tax bracket in retirement, that's obviously going to change what balance
you might want to have.
In an attempt to answer your question, having a little bit of both or hopefully a lot of
both can be very beneficial.
Like you're mentioning it's going to give you some of that additional flexibility.
If you're in that first stage you'll be able to draw down assets whether you're pulling
from nonqualified accounts.
I might not have mentioned this that's going to be a nonretirement vehicle.
If you have a regular taxable brokerage account versus a qualified account which would be
a Roth IRA or traditional IRA you're going to have an increased flexibility and depending
upon what the tax rates are and capital gains rates are if you have them on a qualified
portfolio as well, these are factors in determining how you draw down assets especially when you're
in a partial retirement situation or approaching that full retirement.
This is probably one of the most critical areas for anyone is when you're getting closer
and closer to retirement and understanding the drawdown of assets.
If anyone hasn't researched bucketing strategies, I would encourage you to write that down and
look that as well.
Bucketing approach or bucketing strategy, essentially you have different buckets which
you have your shortest time horizon or safer bucket.
You have a second bucket that may be middle time horizon, three to five years or maybe
a little longer and then a longer term time horizon, this equips those who are approaching
retirement or within retirement with the ability to look at assets in a certain way where you
have more peace of mind.
Because you're ensuring that you're refilling bucket one which is going to provide for your
ongoing retirement expenses and then you'll have your second bucket and third bucket which
will be devised of your various assets whether they're in qualified or nonqualified accounts
and those are going to be replenishing that first bucket.
Once you get to point where you're reaching age 70, when you reach 70 or 70 the required
minimum distribution in traditional IRAs you have to start withdrawing funds within the
IRA at that point.
You're required to take minimum distributions.
A Roth account you don't actually have to take RMDs once you reach 70 and a half.
I'm giving you a detailed answer to a detailed question.
There are a lot of factors.
I wanted to hit on as much as possible because depending upon the various assets that you
have, it might make more sense to use your nonqualified accounts and if you do have assets
in that bucket because you're going to get a better tax rate on selling those investments.
It's highly dependent upon what assets you have.
I hope that does kind of help with a portion of that question.
>> CINDY SOBIERAJ: Great.
Thank you, Steve.
The question coming in Eric, how often should I be meeting with my financial advisor to
review my portfolios?
For example, only during life changing events, every five to ten years, I'm thinking, during
market changes, or should I be meeting with my financial advisor on an annual basis?
>> STEVE KAMPSCHMIDT: I can tell you what I do, Eric.
Our team within Merrill Lynch we require annual reviews.
I think that might be a standard for a lot of firms out there is a required annual review.
But then it depends upon the person and their situation again.
I have clients where I talk on a monthly basis, especially in recent times.
And I have clients that don't want to be bothered.
They might not want to be meet until that annual review.
I would encourage, I think an annual review at minimum.
I think a five to ten year time frame is definitely too long.
There are a lot of things that can happen within five years and a lot that can happen
within one year.
If you're working with an advisor or planner that's important to do.
But then, more frequently than that, it depends.
Again, it could be as often as a monthly get together or call or semiannually or quarterly.
It's going to be dependent upon how much time you have and then just what you have going
on within your life.
So it's really dependent.
At minimum I would encourage an annual review.
>> CINDY SOBIERAJ: All right.
Thank you.
Question came in from Holly.
I don't remember the term but how do we do go about guaranteeing the advisor it is operating
in the client's best interest?
>> STEVE KAMPSCHMIDT: That is fiduciary.
Working with a fiduciary can be very important and it's something I'm completing my certification
or sitting for the exam this year.
You'll see that term especially within those that are CFP board approved financial advisors.
The term official, that is where the advisor is acting in their own best interest or within
the advisor's best interest.
You'll see all advisors can be officials, I guess.
It gets a little tricky in this term because there could be a situation where someone who
is working in an advisory position and charging a particular percentage, maybe if they're
charging a percentage and they're all in cash, is that really acting in the client's best
interest by charging them this percentage fee when they're sitting on cash or they have
a higher concentrated position.
It's difficult the term you're searching for is are you operating as a fiduciary.
I would encourage anyone to ask that question too when you're talking to a financial planner
or advisor to make sure they're looking out for your best interests and what kinds of
products they're offering or selling because it's possible they might have a high commission
tagged to that particular vehicle and [ Silence.
Conversation based.
Typically when I sit down with an initial prospect and potential clients, I just gain
an understanding for their life and where they are.
Ask about their family.
Do they have children?
Where are the parents currently right now?
There are so many different factors, where are they in their career right now?
What are the upcoming purchases?
Do you have any potential upcoming purchases right now?
With a does your current retirement vision look like?
There's a variety of questions I'll end up asking to kind of just gain an understanding.
But I think keeping it conversational and having a discussion with a prospect is so
critically important because there isn't a one size fits all.
Determining what those goals are and what your priorities might be before doing that
strategy or portfolio solution just engaging in a complete discussion and setting yourself
up with plenty of time to do so.
You don't want to be rushed in determining what your priorities and goals are.
You kind of want to think it out.
A lot of that beforehand I will encourage people before sitting with me, is start thinking
about those things.
Some of those questions you brought up, might ask those before we sit down face to face
so they've formulated some of their ideas and thought of their vision and current goals.
>> CINDY SOBIERAJ: Okay.
And question on market stability.
It's been pretty up and down dramatically in the last weeks, months.
We presume that you're advising clients to sort of ride the wave, ride the storm, but
how are you talking to your clients about what's been happening in the markets these
days?
>> STEVE KAMPSCHMIDT: Sure.
This is definitely one of those where I mentioned I can't give a concrete answer here.
I know it sounds like a copout and I would love to answer this question on an individual
basis.
I'm happy to do so in that capacity, but it's totally dependent.
Just speaking again, taking a step back and try to speak in generalities, if you have
a longer time horizon, you have a more aggressive risk tolerance, then in those situations,
yes, I am most likely going to tell a person to ride the wave.
You have a longer time horizon, long term investors, people who stick with it who don't
get bothered by sways in the market are going to perform better.
But there are also those who have nearer term goals.
If you're nearing retirement or perhaps you're getting you're interested in purchasing a
home this year because interest rates are still relatively low but might be on the up,
it's highly dependent upon your personal situation.
And you may want to take tactical or make tactical shifts in the type of assets and
whether or not they're held in qualified and unqualified accounts.
So there are an unlimited amount of factors to look at here.
I hope some of that general guidance with understanding or assuming certain risk tolerance
of time horizon, yes, I think having a longer time horizon and understanding that the markets
go up and down.
Over the long term they go up for longer periods of time and then on shorter periods of time
they go down.
If you look at a chart historically that's kind of how it works with the stock market
as a whole.
I hope that kind of helps as much as I could there.
>> CINDY SOBIERAJ: Thanks.
One last question is a follow up question Mike had asked previously about Roth IRAs,
pretax and tax, et cetera.
The latest question is, so if retiring, say, in 2030, should I have only some savings in
a 2030 retirement fund and part maybe in a 2040 fund and maybe some in a 2050 fund since
retirement can last 20 plus years so not to get too conservative with all the money as
2030 approaches, any recommended percentage breakdown for this type of strategy?
>> STEVE KAMPSCHMIDT: That one definitely because I feel like if I answer that, I don't
want anyone I have to know the entire situation.
There's not a safe way for me to answer that particular question.
I'm going to have to unfortunately say, hey, if you want me to answer that one, reach out
to me.
I would love to have a discussion with anyone who has that particular of a question because
it sounds like you might also be looking at your retirement plan or your employer retirement
plan and there's something called selling away within our industry where I would I can't
really answer that question because that's something that could be swayed or considered
selling away within my industry.
Reach out to me if you'd like.
I would be happy to attempt answering that question if I'm able to on an individual capacity.
It's unfortunate but I don't want to delve into that.
>> CINDY SOBIERAJ: Understood.
Is what Mike described an example of this bucketing strategy you talked about earlier
or no?
He's asking that.
>> STEVE KAMPSCHMIDT: Kind of.
The bucket strategy that is more for once you're actually in retirement or very close
to retirement, that's when I'll typically use that bucketing strategy if you're within
a few years of retirement.
If you're ten plus year horizon, then you're still you still have a relatively longer horizon
there.
But if you're less than five years or within the coming to two to three years that's where
the bucketing strategy especially once you're in retirement, it's increasingly important
because you have to ensure that you don't have an income anymore, once you don't have
an income anymore or a reduced income if you're in partial retirement, you're having to create
that additional stream of income somehow.
And you're using that bucketing strategy where you have your longer term bucket that flows
into the middle term bucket and then into your shorter term bucket.
That's where that bucketing strategy is so important.
It's more so for those very close or actually within retirement.
But it's not to say you can't use a type of bucketing strategy even if you have a longer
time horizon.
>> CINDY SOBIERAJ: Great.
We are out of time.
Steve, thank you very much for your presentation today.
We appreciate it.
Audience, thanks to you for joining us.
If you have additional questions, you can email them to ritalum@rit.edu or tweet to
RIT_alumni with the hashtag #meRITwebinars.
We will forward them over to Steve.
As a reminder, participants will receive an email with today's recordings plus the PowerPoint
presentation that Steve has graciously made available.
Again, thanks to Steve for joining us today.
Thanks to all of you for being here.
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