We “Watch-ovia” Your Money

By:Frank BrunoMatthew CohenKevin ConnellyMatthew DiCroce

Family Background

Family of four– Father works for Wachovia as bank executive– Mother works as professor at Law School– Two children, ages 12 & 10– 401(K) plans with 5 & 8% matching– Wachovia stock options– Minimal Savings– $2,000 mortgage payment

Financial Overview

Maximize 401(K) savings– Lowers taxable income and provides additional

savings through company matching program

529 Plan for both children Various Moderate Risk Mutual and

Retirement Funds Pay down mortgage

Second Home

Due to minimal savings and high first mortgage rate.

Invest in Tax beneficial plans– 401(K)

To buy house, you would need approximately 20% down payment.

Household Income

Household pre-tax earnings = $200,000

Less ($28,000) 401K contributions = $172,000

Mortgage Interest Deductions

Interest payment components of mortgages are tax deductible.

To find the interest portion, we set up an amortization table and find the interest components for this year, then deduct them from our pre-tax income.

Mortgage Interest Deductions

Starting Pre-tax income = $172,000

Less ($22,108) Interest = $149,892

Taxes

28% Federal Tax Bracket, 3% State, Plus local and property taxes. All rounded to 35%.

Pre-Tax Income $149,892 Less Income Tax Expense ($56,462.50) NET INCOME = $97,430

Mortgage Payment

Payments contributing to principle are NOT tax deductible.

Net Income = $97,480 Less Mortgage Payment (non interest) ($1893)

INCOME LEFT = $95,537

Other Expenses

Health Insurance = $1,200 Car Payments = $9,600 Car Insurance = $4,000 Gas = $3,600 Food = $10,000 Clothes = $6,000 Utilities = $6,000 INCOME LEFT = $55,137

Misc. Expenses

We estimated that the family will spend around $20,000 in other everyday costs. (Holidays, Birthdays, Vacations, Medicines, Summer Camps, Kid Expenses, Etc.)

INCOME LEFT = $35,137

College Plan

Family will invest in a 529 College Plan to cover 60% of 2 college educations.

Cost: $15,360 / yr

INCOME LEFT: $19,777

Savings

Of the left over income, we will allocate about 30% for savings.

Funds Available for Investment: $13,777

Allocation

Mutual Funds: $6,300

Stocks: $3,000

Bonds: $4,477

Mutual Fund Investment

$6,300 Dollar Allotment for Mutual Funds Vanguard as Fund Manager

– Reliable– Proven Performer– Quality Customer Service

Types of Funds

No-Load Index Funds– Minimal maintenance fees– Provide broad market exposure for low income investors– Reduce risk– $3,000 Minimal Investment

2 funds per year

Indexes Covered– Large Cap Stocks, Emerging Markets, Growth Stocks, Real

Estate, Bond Markets

First Year

Vanguard Large Cap Index Fund – $20.44 share– 5.06% after tax return since inception in 2004– Holdings: Exxon Mobil and J&J

Vanguard Long Term Treasury Fund– $11.67 share– 5.88% annual return last 10 years– Holdings: 10-30 year bonds

Second Year

Vanguard Small Cap Index Fund – $24.91– Holdings: Reliant Energy and DeVita Inc.– 9.13% after tax annual return past 10 years

Vanguard Emerging Market Index Fund– $14.67– Holdings: China Mobil and Samsung– 5.28% annual after tax return

17.44% most recent year

Third Year

Vanguard Money Market Fund– $1.00 fixed cost– Holdings: short term money market products– 3.74% 10 year annual return

REIT Index Fund– $17.88– Holdings: Real estate and capital growth stocks– 14.97% after tax annual returns

Bond Investments

After other expenses and investments– $4,477 for bond investments

What bonds to invest?– Low risk– Long-term return– Treasury bonds– Municipal bonds

Bond Investments

Bond PriceCoupon

Rate YTM % Rating

T-Bond option 1 $1,108.10 13.875% 11.35% AAA

T-Bond option 2 $1,254.80 12.000% 7.772% AAA

Montgomery County G.O. BDS muni-bond $1,098.10 5.375% 3.595% AAA

PA State muni-bond $987.70 4.250% 4.346% AAA

Equity Investments

After other expenses and investments– $3,000 for equity investments

Stock options at Wachovia– Can exercise 1,000 shares at $60– Currently valued at $50.26 as of 4/26/05

What to Invest in?

Minimal Savings Need to save for college and retirement Type of Equities to consider

– Low to Moderate Risk– Different Sectors– Strong earnings

Consider This

Market Cap Beta P/E Ratio Dividend payout or stock split

Careful Consideration

Stock Name Stock Symbol Beta P/E Ratio Market Cap Dividend Paid

General Electric Co. GE 0.895 22.14 385.84B 0.88

ING Group NV ADS ING 1.592 7.52 60.65B 0.99

Apple Computer Inc AAPL 1.857 39.94 29.59B 0

Microsoft Corp MSFT 1.434 27.25 271.90B 0.32

Stocks

Stock Name Stock Symbol Shares Stock Price Beta Portfolio Weight Portfolio Beta

General Electric Co. GE 20 $36.18 0.895 0.20619 0.18454

ING Group NV ADS ING 26 $27.95 1.592 0.26804 0.42672

Apple Computer Inc AAPL 25 $36.19 1.857 0.25773 0.47861

Microsoft Corp MSFT 26 $24.76 1.434 0.26804 0.38437

    97     1.00000 1.47424

Family Equity Portfolio

Overall Beta of Portfolio– 1.474

Diversification- 4 Sectors– Technology – Conglomerate – Life Insurance – Computer Software