highachievers – Page 10 – The Agnostic Investor

Happy Independence Day!

As we complete our third year in business, I would like to take this opportunity to thank our clients, family and friends. It has been a difficult road but as we continue to meet the challenges we face daily, the aureate beacon of CWM continues to brighten.

July 23rd marks the third anniversary of our Grand Opening Celebration. The first release of Pythia, our financial management tool will begin testing before months end. Pythia will offer automated investment management and financial planning, as well as an educational element or Temple.

Time Value of Money Primer

Time value of money (TVM) is represented by the difference in value of some dollar amount of money or cash flow(s) over a period of time, assuming one can earn some sort of return on the money available.

Simple interest is calculated on the principal only while compound interest is when one also earns “interest on interest.” Compounding may be used to describe moving a value or cash flow forward in time:

Future Value=FV

Present Value=PV

# of years=n

Cash Flow/Payment=PMT

nominal rate of interest=i

FV = PMT(1+i)^n

You have $50,000 to invest. If you think you can earn 7.5% annually, how much might you accumulate in 30 years?

Discounting is known as the process of moving a value or cash flow backward in time:

PV = PMT/(1+i)^n

If you’d like to have $50,000 in 5 years, how much might you have to invest today assuming a 5% rate of return?

Real returns are sometimes described as the rate of return one receives net of inflation but may be more accurately calculated:

Real rate of return=r

Inflation Premium=IP

r=[(1+i)/(1+IP)]-1

One should consider the effect of taxes on earnings as well.

Do you need a will?

An estate is all the rights, titles, or interests that a person (living or deceased) has in any property.

Estate transfer is the act of conveying title to property interests from one person to another. Selecting proper estate transfer alternatives is the key to efficient and effective estate planning.

At death, transfers occur either through probate—i.e., by will provision or according to state law—or outside probate through “will substitutes,” such as trusts, contracts, or the way title is held.

-College for Financial Planning

Estate planning should decrease the amount of property transferred by will upon death. The service of a trust and estate attorney may be necessary.