Financial planning
• Client X has $ 1 million cash
• 55 years old, married, 2 children both grown up and financially independent
• Decided to retire next month
• Would need at least $5,000 a month to cover rent, medical insurance, spending money etc.
• Create a suitable diversified “all weather portfolio” of dividend paying stocks and bonds (ETFs) and if necessary, commodities.
• Assume a 15% income tax rate
• Actionable plan (ETFs, stocks, bonds,… but not non traded indices)
• Diversification. Treasury bonds balanced with equity (diversified ETFs)
• For bonds, remember coupon <> yield when price <> $100
Annual income= coupon*par value (non $ invested)
Or=yield*amount invested
• Tax consideration or tax empty municipal bond
• Past return is no guaranteed for future return
-Not completely useless; quantify volatility but be careful of regime change
-Stock volatility need to be calculated differently when it is part of a portfolio
Filter Criteria
• A long history of continuous dividend payments
• A dividend yield of at least 3%
• Greater earnings per share than dividends per share (EPS>DPS)
• A dividend payout ratio of less than 80%
• A worldwide market presence, as a hedge against inflation
Criteria
• Bond
-At least 10 years to maturity
-Only chose Fitch rating is AAA
-Coupon rate is above 5% and yield is above 4%
• Equity
-The dividend received in 2015 is -15 – +15% in range of average dividend in past five years
-It is a profitable company, EPS>20
-P/E ratio is under 20
-Stock price is not in the peak stage comparing to historical price
-The risk grade of chosen company is lower than S&P 500