Texas A & M University Agriculture & Economics Departmentagecon2.tamu.edu/people/faculty/nelson-gene/PFP... · Texas A & M University . Agriculture & Economics Department . Best Western

Financial Planning Workshop

Texas A & M University

Agriculture & Economics Department

Best Western Atrea at Old Town Center November 9, 2012

CARTER FINANCIAL MANAGEMENT Celebrating 36 Years of Great Service 1

By: Bill E Carter CFP®, CLU®, ChFC President, Carter Financial Management

An Independent Registered Investment Advisor

Securities offered through Raymond James Financial Services, Inc.

Member FINRA/SIPC

12222 Merit Drive, Suite 1800 Dallas, TX 75251

214-363-4200 www.cascfm.com


QUESTIONS ASKED BY BABY BOOMERS

How do I manage my retirement income?

How do I allocate my assets so I have a comfortable retirement income and my assets stay up with inflation?

Where do I put more money in light of historic low interest rates and a highly volatile equity market?


LEARNING OBJECTIVES

Greater insight to financial challenges faced by the “baby boomer” generation

Greater knowledge of the current financial status of the “baby boomers”

Specifics of how to structure a retirement portfolio during this time of low interest rates, poor stock market returns and extreme volatility in the world markets


LEARNING OBJECTIVES The effective use of non-traditional products in

retirement portfolios

The role of guaranteed products in retirement portfolios

Ideas on helping retirees establish an appropriate spending policy

Gain insight on the relationship between longevity and long term health care costs


LEARNING OBJECTIVES

Knowledge of what are generally considered safe and unsafe withdrawal rates from retirements portfolios

What are the tax consideration for withdrawals from retirement portfolios

The changing roles of financial advisors from accumulation advisors to retirement advisors


CREDITS

Retirement Income Redesigned – Master Plans for Distribution – edited by Harold Evensky,CFP®, AIF® & Deanna Katz, CFP®

Conserving Client Portfolios in Retirement – by William P. Bengen, CFP®

In the Presence of Taxes: Applications of After-Tax Asset Valuations – William Reichenstein, PhD, CFA®

The Kitces Report – by Michael Kitces, MSFS, MTAX, CFP®, CLU, RHU, REBC, CASL, www.kitces.com


http://www.kitces.com/

CREDITS

Boomer Shock – by Grady Cash, CFP® and Bruce J. Temkin

The New Retire – Mentality: Planning Your Life and Living Your Dreams…At Any Age You Want – by Mitch Anthony

Countdown – by Randall N. Smith and Gregory L. Reed

Thornburg – Jack Garner, CIMA and Andrew Rice, CIMA


CREDITS

Patrick O’Connor, CFA®, Senior VP of Raymond James Wealth Solutions Group

The Silver Tide: Are You Prepared and Structuring Distribution Strategies for Retirees In A Bear Market– by Jack Gardner, CIMA Thornburg

Asset Allocation: Balancing Financial Risk – by Roger C. Gibson, CFA, CFP®

Pew Research Center, 2010 and Projections The Big Five-Oh!, Bill Geist


CREDITS

Ed Davis PhD, President, Texas A&M Foundation 2011 Annual Report – Texas A&M Foundation 2011 Annual Report of the Harvard Management

Company – Harvard University Yale University website,

www.yale.edu/investments/yale_endowment “Fishing for Steady Income”, Barron’s Magazine,

Nov 2011 Economic Outlook Presentation, Dallas Chamber

of Commerce, Dr. Ted Jones, Jan 6, 2012


http://www.yale.edu/investments/yale_endowment

NUMBER OF PEOPLE TURNING 65

10,000 people turning 65 everyday for the next 19 years

One person every 7 seconds turns 65 By 2020, more than 115 million people will

be over the age of 65

CARTER FINANCIAL MANAGEMENT Celebrating 36 Years of Great Service

Source: Pew Research Center, 2012 “the Big 5-oh”, Bill Geist Pew Research Center Projections

11

LONGEVITY

Year Life Expectancy 400 B.C. 22 years 1776 35 years 1800s 45 years 1935 61.4 years 2025 78.4 years


Source: Boomer Shock , written by Grady Cash and Bruce J. Tempkin

12

The Accumulation

Advisor

The Retirement Advisor


Asset Allocat

Investm Produc

Reti IRA

Relationsh Manageme

Asset Allocation

Insurance Products

Social Security

Healthcare Issues

Cash Management

Client Services

Source: Raymond James

Investment Products

Client Services

Relationship Management

13

QUOTE BY GRADY CASH

“More than six out of ten boomers have insufficient funds to retire….and that is before we consider increasing longevity and health care costs. Actually the figure could be as high as eight out of ten”

Source: Boomer Shock , written by Grady Cash and Bruce J. Tempkin CARTER FINANCIAL MANAGEMENT Celebrating 36 Years of Great Service 14

15


QUOTE – TOWERS WATSON HEALTHCARE COST SURVEY 2010

“In addition to basic expenses, the cost of

healthcare is one of the biggest financial issues facing Americans today. Medical and prescription costs, health insurance premiums and deductibles rose an alarming 149% between 2000 and 2009.”


QUOTE – CENTER FOR RETIREMENT RESEARCH AT BOSTON COLLEGE 2010 STUDY

“It is estimated that an average, healthy, 65

year old couple will need $260,000 to pay for healthcare and nursing home costs for the remainder of their lives.”


CHRISTINE HORSTMAN: FOUR GENERATIONS, ONE TOUGH JUGGLING ACT

CARTER FINANCIAL MANAGEMENT Celebrating 36 Years of Great Service Source: Dallas Morning News 19

UNCERTAINTY

Will Europe solve its sovereign debt problem?

Will our economy grow? If so, by how much? Or will Europe screw things up and drag us back into recession?

Will China’s economy continue to grow at eight plus percent? Will their experiment with individual freedom and a friendlier open market continue to work or someday implode with catastrophic results for the rest of the world’s economy?


UNCERTAINTY

As congress works to decrease our deficit spending, what impact will that fiscal drag have on our economy?

What long term impact will technology have on unemployment?

What result will Obama Care really have on your client’s long term health care costs?


UNCERTAINTY

What if the leaders in Washington make a policy

mistake resulting in unintended results that wreck our economy?

What if a meteorite hits the Earth?


% of pre-retirees that think a detailed retirement plan is important

Source: Fidelity Retirement Redefined, June 2011

% that work with advisors who have one



HOW MUCH MONEY DO YOU NEED IN

RETIREMENT?

24

PUTTING IT ALL TOGETHER AND IDENTIFY NEEDS GAP

CARTER FINANCIAL MANAGEMENT Celebrating 36 Years of Great Service Source: Raymond James 25

FILLING THE GAP AND DEVELOPING YOUR APPROACH – THE RETIREMENT INCOME FRAMEWORK



ENDOWMENT SPENDING POLICY

A spending policy is defined as the process by which a retiree will calculate how much to spend annually from a retirement portfolio. Factors affecting this calculation can be prior year’s spending amounts, inflation and portfolio performance.

Source: Thornburg Investment Management CARTER FINANCIAL MANAGEMENT Celebrating 36 Years of Great Service 27

REVISITING BILL BENGEN’S STUDY

William P. Bengen, CFP®

Analyzed 50, 30-year

retirements for period of 1926-2004

4.15% SAFEMAX

Ibbotson SBBI data utilized

Deterministic vs. Monte Carlo

No strategy can guarantee better performance, eliminate the risk of loss, or guarantee success of reaching your investment objective. Source: William P. Bengen – Conserving Client Portfolios During Retirement


REVISITING BILL BENGEN’S STUDY

Portfolio Longevity at 6% Initial Withdrawal Rate

10

15

20

25

3019

26

1931

1936

1941

1946

1951

1956

1961

1966

1971

Year that Withdrawals Begin

No. o

f Yea

rs P

ortfo

lio

Last

s

Assume: rebalanced annually, 63% Large Cap Stock* “LCS” & 37% Intermediate-term Government Bonds** “ITGB”

Past performance does not guarantee future results. Source: William P. Bengen – Conserving Client Portfolios During Retirement.

Individuals cannot invest directly in an index.

* As represented by the S&P 500 Index: The S&P 500 Index is an unmanaged broad measure of the U.S. stock market.

**As represented by Barclay's Intermediate Government Bond Index is an unmanaged index based on all publicly issued intermediate government debt securities. Average maturity is four (4) years. This index represents asset types which are subject to risk, including loss of principal.


RULES FOR ADJUSTING SAFE WITHDRAWAL RATES - KITCES

P/E10 Safe withdrawal rate impact

Above 20.0 “overvalued” Utilize base safe withdrawal rate of 4.5%

Between 12.0 and 20.0 “fairly valued” Increase safe withdrawal rate by 0.5% to 5.0%

Below 12.0 “undervalued” Increase safe withdrawal rate by 1.0% to 5.5%

CARTER FINANCIAL MANAGEMENT Celebrating 36 Years of Great Service Source: Michael Kitces Report 05/08 30

U.S. YEARLY INFLATION SINCE 1900


31

LOSS OF PURCHASING POWER OVER TIME (3.5% Annual Inflation)

$0

$2,000

$4,000

$6,000

$8,000

$10,000

Current 10 Years 20 Years 30 Years

$10,000

$7,000

$4,900

$3,400

CARTER FINANCIAL MANAGEMENT Celebrating 36 Years of Great Service Source: Grady Cash and Bruce J. Temkin 32

LUMP SUM NEEDED TO PROVIDE $10,000 (Of Inflation Adjusted Income in Retirement)


Gross Rate of Return

Less Inflation Rate

Real Rate of Return

Number of Years in Retirement

15 20 25 30 35

8% 3% 5% $110,000 $132,000 $145,000 $156,000 $175,000

7% 3% 4% $116,000 $143,000 $164,000 $182,000 $197,000

6% 3% 3% $124,000 $154,000 $181,000 $204,000 224,000

5% 3% 2% $132,000 $168,000 $200,000 $230,000 $257,000

4% 3% 1% $140,000 $183,000 $223,000 $261,000 $298,000

Source: Grady Cash and Bruce J. Temkin 33

ENDOWMENT SPENDING POLICY – A BLENDED APPROACH

A blended approach to a spending policy that combines prior year’s spending levels with the performance of the current portfolio.

90% is determined by prior year’s spending and 10% from the current portfolio value (90/10 smoothing rule).


Source: Thornburg Investment Management

34

ENDOWMENT SPENDING POLICY – A BLENDED APPROACH

Ties portion of spending to current portfolio value.

Requires “belt tightening” during major bear markets.

Works especially well during periods of high inflation.


SPENDING AND WITHDRAWALS = “RUNNING OUT OF MONEY”

CARTER FINANCIAL MANAGEMENT Celebrating 36 Years of Great Service Source: Created by Raymond James using Ibbotson Materials 2011 Morningstar. All Rights Reserved 03/1/2011

36

SPENDING RATES


Assumes a $1 million investment. Per Bengen’s model; 63% S&P 500, 37% Barclay’s ITGB, Actual Inflation (CPI)

For January 1, 1973 Retiree, Comparing Impact on Account Values by Decreasing Spending Rates from 6% to 5 % Lifestyle

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997

January 1, of Each Year

Portf

olio

Val

ue

5% Life 6% Life

For illustration purposes only. Does not represent any particular investment.

Past performance does not guarantee future results.

Hyp

othe

tical


LONGEVITY = “LIVING LONGER”


0

25

50

75

100%

65 Years Old

70 75 80 85 90 95 100 105

• Male • Female • At Least One Spouse

78 86

85 91

91 96

81

88

93

Source: Created by Raymond James using Ibbotson Materials 2011 Morningstar. All Rights Reserved 03/1/2011

38

EMERGENCY FUND


WHAT’S DIFFERENT FOR TODAY’S RETIREMENT PLANNING?


TRADITIONAL PORTFOLIO

% Sector % Total Portfolio

FIXED INCOME 40% Intermediate Bond EQUITIES 60% Large Cap Growth Large Cap Value Mid Cap Mid Cap Value Small Cap Growth Small Cap Value International ** Emergency fund of 4-6 months of living expenses


41

NEW NORMAL PORTFOLIO

% Total Portfolio % Sector

Guaranteed Income CDs Life Insurance Annuities FIXED INCOME Core Strategic International EQUITIES Large Cap Growth Large Cap Value Mid Cap Growth Mid Cap Value Small Cap Growth Small Cap Value International


NEW NORMAL PORTFOLIO (CON’T)


% Total Portfolio % Sector ALTERNATIVE INVESTMENTS Hedge Funds Managed Futures REITS Master Limited Partnerships Private Equities TOTAL ALLOCATION ** Need one year in reserve of living expenses

Please keep in mind that this is a hypothetical portfolio for illustration only. Individual results will vary based on the investors unique situation. There is no assurance any strategy will ultimately be successful or protect against a loss. Guarantees are based on the claims paying ability of the issuing company.

43

FIFTEEN EQUITY PORTFOLIOS 1972 - 2010


9

10

11

12

12 14 16 18 20 22 24 26 28 Standard Deviation

Com

poun

d An

nual

Ret

urn

Source: Raymond James 44


9

10

11

12

12 14 16 18 20 22 24 26 28 Standard Deviation

Com

poun

d An

nual

Ret

urn

1 Asset Class Portfolio




C (Real Estate Securities)

A (U.S. Stocks) B (Non-U.S. Stocks)

D (Commodities)

CD

BD

AD

AC

BC

AB

ABC ABD

BCD

ACD ABCD

Single-Asset-Class Portfolios Three-Asset-Class Portfolios: Equally Allocated, Annually Rebalanced A ---- U.S. Stocks (S&P 500 Index) ABC ---- U.S. Stocks, Non-U.S. Stocks, Real Estate Securities B ---- Non-U.S. Stocks (MSCI EAFE Index) ABD ---- U.S. Stocks, Non-U.S. Stocks, Commodity-Linked Securities C ---- Real Estate Securities (FTSE NAREIT Equity REITs Index) ACD ---- U.S. Stocks, Real Estate Securities, Commodity-Linked Securities D ---- Commodity-Linked Securities (S&P GSCI Index) BCD ---- Non-U.S. Stocks, Real Estate Securities, Commodity-Linked Securities Two-Asset-Class Portfolios: Equally Allocated, Annually Rebalanced Four-Asset-Class Portfolio: Equally Allocated, Annually Rebalanced AB --- U.S. Stocks, Non-U.S. Stocks ABCD --- U.S. Stocks, Non-U.S. Stocks, Real Estate Securities, Commodity-Linked Securities AC --- U.S. Stocks, Real Estate Securities AD --- U.S. Stocks, Commodity-Linked Securities BC --- Non-U.S. Stocks, Real Estate Securities BD --- Non-U.S. Stocks, Commodity-Linked Securities CD --- Real Estate Securities, Commodity-Linked Securities


THE FIVE WORST YEARS 1972 -- 2011


Portfolio Structures

A U.S. Stocks

B Non-U.S. Stocks

C Real-Estate Securities

D Commodity-Linked

Securities

ABCD Equal Allocation

Year Return Year Return Year Return Year Return Year Return

2008 -36.99 2008 -43.06 2008 -37.74 2008 -46.49 2008 -41.07

1974 -26.45 1990 -23.20 1974 -21.42 1998 -35.75 2001 -12.77

2002 -22.12 1974 -22.15 1998 -17.51 2001 -31.94 1974 - 7.62

1973 -14.67 2001 -21.21 2007 -15.70 1981 -23.01 1981 - 5.73

2001 -11.88 2002 -15.66 1973 -15.52 1975 -17.22 1990 - 3.16


SOURCES OF RETURN AND DIVERSIFICATION

CARTER FINANCIAL MANAGEMENT Celebrating 36 Years of Great Service Source: Raymond James

Asset Classes Traditional Diversification

Alternative Diversification 47

HARVARD ENDOWMENT ASSET ALLOCATION

1980 1984 1988 1995 1999 2002 2010/2011 2012

Domestic Equity

66% 47% 46% 38% 24% 15% 11% 12%

Foreign Equity

0% 0% 0% 20% 24% 15% 22% 24%

Private Equity

0% 7% 12% 12% 12% 13% 13% 12%

Real Assets 0% 3% 5% 15% 17% 29% 23% 25%

Fixed Income

34% 43% 37% 17% 17% 16% 15% 11%

Alternative 0% 0% 0% 0% 6% 12% 16% 16%

Total 100% 100% 100% 100% 100% 100% 100% 100%


This is included for illustrative purposes only. Individual results will vary. There is no assurance any strategy will ultimately be profitable or protects against a loss.

Source: 2011 Annual Report of the Harvard Management Company

48

YALE ENDOWMENT ASSET ALLOCATION

2011 2010 2009 2008 2007 2006 Absolute Return

17.5% 21% 24.3% 25.1% 23.3% 23.3%

Domestic Equity

6.7% 7% 7.5% 10.1% 11% 11.6%

Fixed Income

3.9% 4% 4% 4% 4% 3.8%

Foreign Equity

9% 9.9% 9.8% 15.2% 14.1% 14.6%

Private Equity

35.1% 30.3% 24.3% 20.2% 18.7% 16.4%

Real Assets 28.9% 27.5% 32% 29.3% 27.1% 27.8% Cash -1.1% .4% -1.9% -3.9% 1.9% 2.5%


Source: http://www.yale.edu/investments/Endowment_Update.pdf


49

TEXAS A&M FOUNDATION ASSET ALLOCATION

As of June 30, 2011

International Equity 22.4% Domestic Equity 18.8% Energy & Other Real Assets 16.5% Domestic Fixed Income 12.4% Private Equity 11.7% Alternative Marketable Equity 9.4% Cash & Equivalents 5.2% International Fixed Income 3.6%



Source: http://giving.tamu.edu/about-us/financials/investments.aspx

50

ALLOCATING IN A DIFFICULT ENVIRONMENT

Achieving an 8% Return… Endowment target portfolio returns 7-10% To achieve 8%, equities must return +11% This assumes… 60%/40% equity/bond allocation 3% fixed income total return


8% Return

Objective

Requires equity return 11.3%

Requires 3% bonds (total

return) Equity

Fixed Income


RECOGNIZING THE IMPACT OF VOLATILITY


52

10 BEST MONTHS FOR THE S&P 500 TR SINCE HFRI INCEPTION – JAN 1990 – DEC 2012


4.0%

2.6%

0.9%

3.1% 3.6% 3.5%

0.6%

1.7%

2.6%

1.2%

11.4% 10.9%

9.8% 9.8% 9.6% 8.9% 8.8% 8.8%

8.2% 8.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Dec-91 Oct-11 Mar-00 May-90 Apr-09 Sep-10 Oct-02 Mar-09 Apr-03 Oct-98

HFRI Fund Weighted Composite S&P 500 TR


53

10 WORST MONTHS FOR THE S&P 500 TR SINCE HFRI INCEPTION JAN 1990 – DEC 2012


-2.8%

-1.3%

-0.1%

-6.1%

-3.5%

-2.2%

-1.2% -1.5%

-8.1% -8.4% -8.4%

-8.9% -9.0% -9.1%

-10.7% -10.9%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

Sep-01 Jun-08 Jan-09 Sep-08 Aug-90 Feb-01 Feb-09 Sep-02

HFRI Fund Weighted Composite S&P 500 TR


54

HEDGE FUNDS and S&P 500 TR HISTRORICAL PERFORMANCE


-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

HFRI FoF Composite HFRI Fund Weighted Composite S&P 500 TR

Hedge Funds and S&P 500 TR - Historical Performance from 1990 - 2011

Annualized Statistics - 1990-2011Compound RoR Standard Deviation Correlation to S&P 500 TR

HFRI FoF Composite 7.4% 10.8% 0.57HFRI Fund Weighted Composite 11.3% 12.5% 0.74S&P 500 TR 8.2% 18.9% 1.00

Past performance is not indicative of future results. It is not possible to invest directly in an index. There are inherent limitations to indices that are designed to track the alternative investments universe. Index data is shown for illustrative purposes only and not designed to represent any specific investment. Specific investment statistics could differ materially from those shown above. Data source: PerTrac Financial Solutions, LLC SOURCE RAYMOND JAMES

Not for client use.

55

TRADITIONAL VERSUS ALTERNATIVE CLASSES (JAN 1997 – DEC 2011)


56


NEW NORMAL PORTFOLIO

% Total Portfolio % SectorGuaranteed Income

CDsLife InsuranceAnnuities FIXED INCOME

CoreStrategicInternational

EQUITIESLarge Cap Growth

Large Cap ValueMid Cap GrowthMid Cap ValueSmall Cap GrowthSmall Cap ValueInternational

CARTER FINANCIAL MANAGEMENT Celebrating 36 Years of Great Service57


NEW NORMAL PORTFOLIO (CON’T)


% Total Portfolio % SectorALTERNATIVE INVESTMENTS

Hedge FundsManaged FuturesREITSMaster Limited PartnershipsPrivate Equities

TOTAL ALLOCATION

** Need one year in reserve of living expenses

58

S&P 500 INDEX DIVIDEND GROWTH

Dividends Per Share

Yield On Cost

1970 3.14 3.41%

1971 3.07 3.33%

1972 3.15 3.42%

1973 3.38 3.67%

1974 3.60 3.91%

1975 3.68 4.00%

1976 4.05 4.40%

1977 4.67 5.07%

1978 5.07 5.51%

1979 5.65 6.14%

1980 6.16 6.69%

1981 6.63 7.20%

1982 6.87 7.46%

1983 7.09 7.70%

Dividends Per Share

Yield On Cost

1984 7.53 8.18%

1985 7.90 8.58%

1986 8.28 8.99%

1987 8.81 9.43%

1988 9.73 10.41%

1989 11.05 12.00%

1990 11.44 12.43%

1991 11.94 12.97%

1992 12.37 13.44%

1993 12.63 13.72%

1994 13.17 14.31%

1995 13.82 15.01%

1996 14.91 16.20%

1997 15.52 16.86%

Past performance does not guarantee future results. Source: Bloomberg and FactSet.

Dividends Per Share

Yield On Cost

1998 16.19 17.59%

1999 16.69 18.13%

2000 16.28 17.35%

2001 15.74 17.10%

2002 16.07 17.46%

2003 17.38 18.84%

2004 22.52 24.44%

2005 22.10 24.11%

2006 24.87 27.03%

2007 27.72 30.11%

2008 28.39 30.84%

2009 22.41 24.34%

2010 22.73 24.69%

2011 26.43 28.71%

DIVIDENDS HAVE HISTORICALLY BEEN IMPORTANT TO TOTAL RETURN

CARTER FINANCIAL MANAGEMENT Celebrating 36 Years of Great Service Source: Thornburg Investment Management

60

VALUE OF DIVIDENDS IN RETIREMENT

Dividend S&P 500 PERIOD Aristocrats Index Index 1990 – 1994 11.13% 8.37% 1995 – 1999 19.48% 28.54% 2000 – 2004 9.74% -2.29% 2005 – 2009 3.32% 0.41% 2010 19.35% 15.05% 2011 8.33% 2.11% 1990 – 2011 11.03% 8.22%

CARTER FINANCIAL MANAGEMENT Celebrating 36 Years of Great Service Source: Thornburg Investment Management

61



4.13%

2.81%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

Equity Yields

Bond Yields

Bond Yields Versus Equity Yields


62



$47,632

$151,819

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Barclays U.S. Bond Aggregate Dividend Growers Index

63

Master Limited Partnership Disclosure

Please keep in mind that MLPs are not suitable for all investors and have associated risks such as illiquidity, minimum investment thresholds, and risk of the loss of principle


ENERGY INFRASTRUCTURE MLPs What are MLPs? Structured as a limited partnership, not a

corporation Own, maintain and operate the energy

infrastructure of North America Trade on public exchanges Generate cash flow paid out quarterly to

investors Possess the potential for growth


Source: CUSHING MLP ASSET MANAGEMENT A subdivision of Swank Capital

65

ENERGY INFRASTRUCTURE MLPs Why are they called MLPs? Energy infrastructure companies have the

advantage of using the Master Limited Partnership structure instead of a corporate structure, so they pay no corporate level taxes. Since the majority of energy infrastructure

companies are structured as MLPs, the asset class is now referred to as the MLP sector.



66

MLP’S OFFER ATTRIBUTES

Risk-adjusted total return potential Attractive yield among income-oriented vehicles Diversification instrument with low correlation to other

asset classes

MLPs have historically been an effective inflation hedge

Provide energy market exposure with less risk than E&P companies



67

MLP CURRENT YIELD COMPARISON



1)As of December 31, 2011. See Index Descriptions page for detail of indices used. 2)Cushing® 30 MLP Index (MLPX). 3)The Philadelphia Stock Exchange Utility Index 4)Bloomberg North America REITs Index 5)BofA Merrill Lynch US Corporate Index

MLPs continue to be a premier source of income for investors

68


ASSET CLASS PERFORMANCE JAN 1, 2000 - SEPT 30, 2011



Commodities MLPs Commodities Small Cap REIT Commodities REIT Commodities BarCap HG MLPs MLPs Utilities MLPs MLPs MLPs49.70% 43.70% 32.10% 47.30% 31.50% 25.60% 35.90% 32.70% -4.90% 76.40% 35.90% 7.00% 14.40% 13.20% 23.20%

MLPs REIT BarCap HG MLPs Utilities Non US Equity Non US Equity Utilities BarCap HY BarCap HY REIT BarCap HG REIT BarCap HY BarCap HY

45.70% 12.80% 10.10% 44.50% 21.30% 14.00% 26.90% 15.30% -26.20% 58.20% 28.50% 6.10% 9.10% 7.10% 13.80%

Utilities BarCap HG REIT Non US Equity Non US Equity Utilities MLPs MLPs Utilities Non US Equity Small Cap BarCap HY BarCap HY BarCap HG BarCap HG43.60% 10.30% 3.60% 39.20% 20.70% 14.00% 26.10% 12.70% -29.90% 32.50% 26.90% -1.40% 8.80% 6.70% 12.20%

REIT BarCap HY BarCap HY REIT Small Cap REIT Small Cap Non US Equity Small Cap REIT BarCap HY MLPs BarCap HG Small Cap Small Cap26.80% 5.30% -1.40% 36.70% 18.30% 12.10% 18.40% 11.60% -33.80% 28.60% 15.10% -2.10% 6.30% -0.30% 1.20%

BarCap HG Small Cap MLPs BarCap HY Commodities MLPs Utilities S&P 500 MLPs Small Cap S&P 500 REIT Small Cap REIT REIT9.10% 2.50% -3.40% 29.00% 17.30% 6.30% 15.80% 5.50% -36.90% 27.20% 15.10% -5.70% 6.10% -1.00% 0.40%

Small Cap S&P 500 Non US Equity S&P 500 MLPs S&P 500 S&P 500 BarCap HG S&P 500 S&P 500 Commodities S&P 500 Non US Equity Non US Equity S&P 500-3.00% -11.90% -15.70% 28.70% 16.70% 4.90% 15.80% 4.60% -37.00% 26.50% 9.00% -8.70% 5.50% -1.20% -0.40%

BarCap HY Utilities Small Cap Commodities BarCap HY Small Cap BarCap HY BarCap HY REIT BarCap HG BarCap HG Commodities Commodities S&P 500 Non US Equity-5.90% -16.10% -20.50% 20.70% 11.10% 4.60% 11.80% 1.90% -38.00% 18.70% 9.00% -9.30% 3.70% -2.60% -0.70%

S&P 500 Non US Equity Utilities Utilities S&P 500 BarCap HY BarCap HG Small Cap Non US Equity Commodities Non US Equity Non US Equity S&P 500 Utilities Utilities-9.10% -21.20% -21.90% 19.50% 10.90% 2.70% 4.30% -1.60% -43.10% 13.50% 8.20% -14.60% 3.50% -3.00% -1.70%

Non US Equity Commodities S&P 500 BarCap HG BarCap HG BarCap HG Commodities REIT Commodities Utilities Utilities Small Cap Utilities Commodities Commodities-14.00% -31.90% -22.10% 8.20% 5.40% 1.70% -15.10% -16.80% -46.50% 4.90% 0.90% -17.00% 2.80% -5.30% -15.90%

2005 2011 YTD2000 2001 2002 2003 20045-YearCAGR

3-YearCAGR2006 2007 2008 2009 2010

10-Year CAGR

69

CLOWN ACT


QUOTE – BOB VERES

“I worry that, when tens of thousands of RIAs are making interpretations about something as complex as economic statistics, it is virtually guaranteed that some clients are going to get disastrously bad investment advice.”



QUOTE BY DON PHILLIPS

“I’ve looked at mutual funds in so many different markets, and I can’t point to any mutual fund anywhere in the world that’s produced a superior long-term record using market timing as its main investment criteria,” says Don Phillips, managing director of Morningstar. Phillips says there have been scores of these types of funds, but many have fallen by the wayside.

Source: Registered Rep Magazine, December 2011 Issue CARTER FINANCIAL MANAGEMENT Celebrating 36 Years of Great Service72

QUOTE BY REGISTERED REP MAGAZINE

“Retail clients can be a tough bunch to satisfy. They want absolute returns in down markets as well as market-beating (relative) returns in good markets; only problem is, you can’t have both”.

Source: Registered Rep Magazine, December 2011 Issue


THREE INGREDIENTS FOR WORLD CLASS PERFORMANCE

Do we have a choice about change? Complexity Pace of Change Markets More Increasing Products More Increasing Competition More Increasing Technology More Increasing Regulation More Increasing Clients More Increasing


74

ZEN ADVISOR MINDSET

Complexity should be a perpetual theme – the trend is our friend…

“Eric Schmidt, the former CEO of Google estimates that every ___ days, earthlings produce as much information as was produced by all of mankind in the 20,000 years leading up to 2003.



Quote from Investment News March 5, 2012

We need to educate investors about

confronting the growing gap between needs and resources for retirement,” chief executive laurence D. Finak said in a speech at the Council on Foreign Relations last Wednesday. “That means getting investors beyond the now inadequate 60/40 portfolio mix of stocks and bonds.”


Quote from Investment News (cont)

Portfolios should incorporate more alternatives, and investors should look for income in unconventional places, such as high-dividend-paying stocks, convertibles, master limited partnerships and emerging markets debt, according to a statement from BlackRock.


DISCLOSURE

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we shall not guarantee that the material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Carter Financial Management and not necessarily those of RJFS or Raymond James. Investments mentioned may not be suitable for all investors. Past performance may not be indicative of future results. Raymond James Advisors don’t offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Please note that international investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economical volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing involves risk and investors may incur a profit or a loss. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income process fall and when interest rates fall, fixed income process generally rise. Dividends are not guaranteed and must be authorized by the company’s board of directors.


79

DISCLOSURE (cont) Alternative investments involve substantial risks that may be greater than those associated

with traditional investments and are not suitable for all investors. They may be offered only to clients who meet specific requirements, including minimum-net-worth tests. These risks include, but are not limited to, limited liquidity, tax considerations, incentive fee structures, potentially speculative investment strategies, and different regulatory and reporting requirements. Investors should only invest in hedge funds, managed futures, structured products, commodities, real estate or other similar strategies if they do not require a liquid investment and can bear the risk of substantial losses. There is no assurance that any investment will meet its investment objectives or that substantial losses will be avoided. Investors should carefully review any offering materials or prospectuses prior to investing.

The S&P 500 (an unmanaged index of 500 widely held stocks). Barclays Capital 10 Year Municipal Bond A component of the Barclays Capital Municipal Bond Index with municipal Bond Index with municipal bonds in the 5 year (4-6)maturity range. Index performance is shown for illustrative purposes only and does not reflect the deductions of fees, trading costs or other expenses, which will affect actual investment performance. Indexes are unmanaged and cannot accommodate direct investments..

Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk you may incur a profit or loss regardless of strategy selected. The forgoing is not a recommendation to buy or sell any individual security or any combination of securities.


Documents

Texas A & M University Agriculture & Economics Departmentagecon2.tamu.edu/people/faculty/nelson-gene/PFP... · Texas A & M University . Agriculture & Economics Department . Best Western