PERSONALFINANCIAL

ANALYSIS
PREPAREDFOR:GENE&MARTHAPINKERTON

Preparedby:Trang(Lem)Pham
Lem.pham.2810@gmail.com

Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC
PhamCapitalManagement
1928KeystoneDr
Plano,TX75075

August1,2015

Gene&MarthaPinkerton
200WMainStreet
Frisco,TX75033

DearMr.andMs.Pinkerton:
Thankyoufortheopportunitytomeetwithyou.Wewelcometheopportunitytoworkwithyouas
yourfinancialplanner.Thisengagementletteroutlinesthespecifictermsofthefinancialplanning
engagementbetween:

PhamCapitalManagementandMr.&Ms.Pinkerton

Ifthescopeortermsofthefinancialplanningengagementchange,theyshouldbedocumentedin
writingandmutuallyagreeduponbyallpartiestotheengagement.

Pleasebeassuredthatallinformationthatyouprovidewillbekeptstrictlyconfidential.
Thisengagementwillincludeallservicesrequiredtodevelopapersonalfinancialplan.Theseservices
willspecificallyinclude:

Reviewingandprioritizingyourgoalsandobjectives.
Developingasummaryofyourcurrentfinancialsituation,includinganetworthstatement,cash
flowstatement,andinsuranceanalysis.
Reviewingyourcurrentinvestmentportfolioanddevelopinganassetmanagementstrategy.
Developingafinancialmanagementstrategy,includingfinancialprojectionsandanalysis.
Completingaretirementplanningassessment,includingfinancialprojectionsofassetsrequired
atestimatedretirementdate.
Assessingestatenetworthandliquidity.
Identifyingtaxplanningstrategiestooptimizefinancialposition.
Presentingawrittenfinancialplanthatwillbereviewedindetailwithyou.Itwillcontain
recommendationsdesignedtomeetyourstatedgoalsandobjectives,supportedbyrelevant
financialsummaries.
Developinganactionplantoimplementtheagreeduponrecommendations.
Determiningnecessitytoreviseyourfinancialplan.

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Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC
Thiswillbeanongoingprofessionalrelationship.Ataminimum,wewillmeetonanannualbasisto
ensuretheplanisstillappropriateforyou.Eitherpartymayterminatethisagreementbynotifyingthe
otherinwriting.Anyfeesincurredpriortodateofterminationwillbepayableinfull.Wereservethe
rig
Inordertoensurethatthefinancialplancontainssoundandappropriaterecommendations,itisyour
responsibilitytoprovidecompleteandaccurateinformationregardingpertinentaspectsofyour
personalandfinancialsituationincludingobjectives,needsandvalues,investmentstatements,tax
returns,copiesofwills,powersofattorney,insurancepolicies,employmentbenefits,retirement
benefits,andrelevantlegalagreements.Thislistisnotallinclusiveandanyotherrelevant
informationshouldbedisclosedinatimelymanner.Itisyourresponsibilitytoensurethatanymaterial
changestotheabovenotedcircumstancesaredisclosedtousasyourfinancialplannersonatimely
basissincetheycouldimpactthefinancialplanningrecommendations.

Wehavenoknownconflictsofinterestintheacceptanceofthisengagement.Wecommitthatwewill
adviseyouofanyconflictsofinterest,inwriting,iftheyshouldarise.

WeacknowledgeourresponsibilitytoadheretoCFPBoardsStandardsofProfessionalConduct,andall
applicablefederalandstaterulesandregulations.Atalltimesduringthisengagement,weshallplace
yourinterestsaheadofourownwhenprovidingprofessionalservices.Inaddition,sincethis
engagementincludesfinancialplanningservices,wearerequiredtoactasafiduciary,asdefinedby
CFPBoard.YoucanlearnmoreaboutCFPBoardsethicalrequirementsatwww.CFP.net.

Welookforwardtoworkingwithyouandhelpingyoureachyourfinancialgoals.

Sincerely,
PhamCapitalManagement

CFPProfessionals:

Client:

Weacceptthetermsofthisengagementletter.Iacceptthetermsofthisengagementletter.

_________________________________

________________________________

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PERSONALFINANCIALANALYSIS

Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC

CLARIFICATION
CertifiedFinancialPlanners(CFPs)haveafiduciaryresponsibilitytotheirclients,whichisimportantto
distinguish from a suitability responsibility. A fiduciary advisor must make recommendations and
decisionsthatareinthebestinterestoftheclient,evenifthoserecommendationsresultinlessincome
ormoreunfavorableoutcomesfortheplanner.Inaddition,therequirementstobecomingaCFPensure
clientsthattheiradvisoralreadyhasexperienceprovidingfinancialadviceandiseducatedinthefieldof
financial planning. First, you must meet the education requirements, which require that the advisor
holds a bachelor degree or higher and completes a financial plan development (capstone) course
registered with CFP Board. In addition, three years of fulltime relevant personal financial planning
experienceortwoyearsfulltimeof"ApprenticeshipExperience"arerequired.Finally,applicantsmust
passtheCFPexamandthencompleteanEthicsDeclarationandaresubjecttoabackgroundcheck.
OnceanadvisorhasbecomeaCFP,therearethreefeestructuresthataCertifiedFinancialPlannercan
charge:anhourlyfee,commissionbasedongainsintheinvestmentstheymanageonyourbehalf,and
acombinationoffeesandcommissions.Thecombinationoffeesandcommissionscouldmeanfees
maybeminimalorcontingentonportfolioperformance,oronthenumberandsizeoftransactionsyou
make.

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PERSONALFINANCIALANALYSIS

Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC

DISCLAIMER

PhamCapitalManagement,(hereinafter,theFirm)hasreliedontheinformationprovidedby
GeneandMarthaPinkerton(hereinafter,theClients)inpreparingthisfinancialplan.Itisagreedthat
thisplanhasbeencompletedinatimelymannerandhasbeenreviewedinitsentiretybytheClientsand
theFirm(hereinaftertheparties)toensurethatallassumptionsandrepresentationsarecorrectand
thattheFirmhasexplainedthisplantotheClients.Inaddition,thepartiesagreethatthefirmisinno
wayliableforanylossthatmayoccurduetomisrepresentationsoromissionsfromtheinformation
providedbytheClients.Furthermore,theClientagreesthatifanymaterialerrorsarediscoveredinthis
plan,theywillbeimmediatelybroughttotheFirmsattention.

AdvicehasbeengiventotheClientsbytheFirmtocontactotherfinancialandlegaladvisorsfor
theiradviceinadditiontotheFirmsontheinformationandrecommendationsprovidedinthisplan.The
partiesagreethatallactionbyClientsisbasedupontheirownjudgmentsintheeventtheyrelyonthe
recommendationsorinformationfoundinthisfinancialplan,includinganyrequestsbyClientsto
implementanypartofthisplan.Moreover,theFirmhasnotifiedClientsthattheFirmdoesnotprovide
legalortaxadviceandthatnothinginthisplanistobeconstruedaslegalortaxadvice.Clientshave
beenadvisedtocontactanindependentadvisorfortheseservices.

ThepartiesagreethattheClientsinformationwillbeheldconfidential,butcanbereleasedto
anythirdpartyneededifthepartiesaretoimplementthefinancialplan.TheClientmaychoosetolimit
thisrighttoreleaseinformationtothirdpartiesiftheywish,butanylimitationsmustbeinwritingand
handdeliveredtotheFirm(orsentbycertifiedmail)withinfivedaysafterreceivingthisdisclosure.
Thesethirdpartiesmayincludebutarenotlimitedtoinvestmentmanagers,insurancecompanies,
governmentagencies,andfinancialregulatorybodies.Inaddition,thesethirdpartiesincludeany
governmentalbody,agencyorofficerthatislawfullyentitledtotheClientsfinancialinformation.

Thepartiesagreethatthefinancialmarketsperformancecannotbeguaranteedorpredictedby
theFirm,andthatallinvestmentsinvolvesomeamountofrisk.Thepastperformancesofthemarket
discussedinthisplanarenotaguaranteeoffutureresults.Investmentreturnsandprincipalvalues
fluctuate.

Clientshavereviewed,understand,andconsenttothetermsasstatedinthisdisclaimer.
Clients:_______________________________
GenePinkertonDate:__________________
_______________________________
MarthaPinkertonDate:__________________

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PERSONALFINANCIALANALYSIS

Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC

TABLEOFCONTENTS

EngagementLetter
Clarification
Disclaimer
ClientProfile
Executivesummary
Assumptions
NetWorthStatement
CashFlowStatement
FinancialRatioAnalysis
EducationPlanning
RiskManagement
RiskAssessment
InvestmentAnalysis
InvestmentPolicyStatement
RetirementPlan
TaxPlanning
EstatePlanning
ActionPlan
AppendixA:EducationSinkingFundAnalysis
AppendixB:InvestmentPortfolioAnalysis

2
3
4
6
7
9
12
13
15
17
20
23
25
33
38
41
43
46
48
50

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PERSONALFINANCIALANALYSIS

Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC

CLIENTPROFILE

Client1

Client2

GenePinkerton

MarthaPinkerton

Male

Female

Dateofbirth

06/01/1956

08/01/1969

MaritalStatus

Married

Married

EmploymentStatus

Employed

BusinessOwner

EmploymentIncome

$200,000

$237,000

TX

TX

68(Year2024)

55(Year2024)

Name
Gender

State
DesiredRetirementAge

GOALSSUMMARY
Needs

10

RetirementLivingExpense $144,000peryearforlivingspendingafterretirement

10

Travel

$50,000peryearfortravelexpensesafterretirement

NewHome

$600,000fornewhomepurchasein2015

CountryClubMembership $10,000peryearforGenesmembershipafterretirement

Wants

DannysCollegeFunding

Fund100%Dannyscollegeexpenses

JacobsCollegeFunding

Fund50%Dannyscollegetuition

EmilysCollegeFunding

Fund50%Emilyscollegetuition

NewCars

$55,000topurchasenewcarsevery3yearsafterretirement

Gift/Donation

$50,000peryearforgift/donationsafterretirement

Wishes 3

BequesttoCharity

$250,000bequesttocharityattheendofplan

LeaveBequest

$500,000leavebequestattheendofplan

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PERSONALFINANCIALANALYSIS

Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC

EXECUTIVESUMMARY

Yourtotalassetsis$4,595,185,andyourtotalliabilitiesis$133,200.YoucurrentNetWorthis
$4,461,985.
Geneisgoingtoretireatage68,intheyear2024.Marthaisgoingtoretireatage55,intheyear
2024.
Ifyouimplementthefollowingsuggestions,thereisa90%likelihoodoffundingallofthe
FinancialGoalsinyourPlan.
SUMMARYOFRECOMMENDATIONS
CashManagement

Youareholdingtoomuchcash.Werecommendyoutoput34monthsofNonDiscretionary
Expenseinsavingsaccount,another34monthsofNonDiscretionaryExpenseinCDs.Therest
canbemovedtoyourbrokerageaccountsandinvestedtoearnahigherinterestrate.

RetirementPlanning

Marthashouldmaxout401(k)contribution.
Youshouldputmoresavingsintoinvestmentsaccountstobringthesavingsratioto15%.

EducationPlanning

TherequiredsavingsforDannys,JacobsandEmilyseducationwouldbe$10,382peryear,or
$849permonth.ThisamountshouldbeputintoaUtah529PrepaidPlanforEmilyandJacob,
andaUtahInvestmentBased529PlanforDanny.

RiskManagement

Youshouldconsiderpurchasingmorelifeinsurance,longtermcareinsurance,anddisability
insurance.Besidesyourcurrentlifeinsurancepolicy,youstillneed$3,112,389moreinyourlife
insurance.

InvestmentManagement

YourPortfolioshouldbereallocatedtobeabletohaveahigherreturnwithalowerlevelof
risks.Werecommendchangingyourportfolioto35%fixedincome,65%stocks.Thedetailed
proposedallocationisasfollow:

8/1/2015

PERSONALFINANCIALANALYSIS

Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC

PROJECTEDASSETALLOCATION
International
International
DevelopedStocks,
Cash&Cash
EmergingStocks,0%
6%
Equivalents,11%
ShortTermBonds,
IntermediateTerm
SmallCapStocks,4%
MidCapStocks,0%
Bonds,0%
0%
LongTermBonds,
8%

LargeCapGrowth
Stocks,28%

LargeCapValue
Stocks,44%

Youshouldusetaxdeferredassetslike401(k)and403(b)topurchasestocksfunds
YoushouldusetaxableaccountslikeBrokerageandSavingsaccountstopurchasefixed
incomeinvestments.
SinceyouarerequiredtotakeRequiredMinimumDistributionsontheInheritedIRA,
youshouldnotusethistopurchaseanystockfundswithexpectedhigherratesof
returns.
Thisway,youwillbeabletopaylesstaxoninvestmentearningsduringyourpeakyearsof
income,anddeferthetaxliabilityonstockfundsreturnuntilyouareinalowertaxbracket
atretirement.
TaxPlanning

Marthaisabletodeductyourselfemploymenttax,selfemployedqualifiedplans,andself
employedhealthinsurance.
MarthashouldloweryourW2amount.Thiswillhelptoputbothofyouinalowertaxbracket,
aswellasgetyourearnedincomebelowthephaseoutlimitofpersonalexemptions.
Bothofyoushouldkeeptrackofyourbusinessexpensestobedeductedonyourtaxreturn.We
highlyrecommendbothofyoutogetaseparatebankaccountandcreditcardforbusiness
relatedexpenses.

EstatePlanning

Werecommendyoutoprepareabypasstrustinsteadofawill,inordertoavoidcourt
probationandprotectyourfamilysprivacy.
Wealsorecommendyoutomakehealthcaredirectivesandfinancialpowerofattorney.

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PERSONALFINANCIALANALYSIS

Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC

ASSUMPTIONS
ThefollowingassumptionsareusedtogeneratethisComprehensiveFinancialPlan.Thisinformationis
basedondatathatiscurrentasofJune14,2015.
ECONOMICDATA
GeneralInflation

3.5%

SocialSecurityInflation

2%

MedicalInflation

4%

TuitionInflation

5%

BeforeRetirementBeforeTaxInvestmentROR

8.5%

BeforeRetirementAfterTaxInvestmentROR

5.7%

AfterRetirementBeforeTaxInvestmentROR

3%

AfterRetirementAfterTaxInvestmentROR

2.5%

MarginalTaxRate

33%

RETIREMENTPLANNING

Client1

Client2

Age

59

46

RetirementAge

68

55

$200,000

$237,000

SocialSecurityStart

66

66

Lifeexpectancy

99

99

$20,000

$14,220

0%

50%,upto6%

$1,200,000

$500,000

Salary

RetirementPlanContributions
EmployerMatchPercentage
CurrentTotalEmployee/EmployerContributions

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PERSONALFINANCIALANALYSIS

Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC
EDUCATIONPLANNING
TexasA&MTuition(2015)

$10,000.001

TexasA&MRoom&Board(2015)

$10,338.002

TexasA&MBooks&Supplies(2015)

$222.003

UniversityofTexasTuition(2015)

$10,400.004

EscalationRate

5%

Danny'sCollegeStart

2027

Jacob'sCollegeStart

2019

Emily'sCollegeStart

2024

CollegeStay

InvestmentRate

8%

https://financialaid.tamu.edu/Undergraduate/CostofAttendance#0CostofAttendanceDetail
http://www.utexas.edu/tuition/attach/2015_16_Undergraduate_Traditional_Tuition.pdf

2,3,4

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PERSONALFINANCIALANALYSIS

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Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC

NETWORTHSTATEMENT

(seenextpage)

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PERSONALFINANCIALANALYSIS

11

NetWorthStatement
GENEANDMARTHAPINKERTON
BalanceSheetasof12/31/2014

ASSETS
CurrentAssets
TaxableChecking
TaxableSavingsAccount
TotalCurrentAssets
InvestmentAssets
TaxableBrokerageAccount
BusinessRealEstate
Business(Martha)
InheritedIRA(Gene)
TraditionalIRA(Gene)
401(k)Account(Martha)
TRSAccount(Gene)
403(b)Account(Gene)
TotalInvestedAssets
PersonalUseAssets
PrimaryHome
PersonalProperty
Truck(Gene)
TotalPersonalUseAssets
TotalAssets

LIABILITIESANDNETWORTH

75,000
200,000

CurrentLiabilities
CreditCard
TotalCurrentLiabilities

15,000

LongTermLiabilities
PrimaryMortgage
TotalLongTermLiabilities

118,200

$15,000

$275,000

250,000
500,000
1,000,000 [i]
300,000
800,000
500,000
140,185
400,000
$3,350,000

$118,200

TotalLiabilities

$ 133,200

TotalNetWorth

$ 3,903,800

TotalLiabilitiesandNetWorth

$ 4,037,000

300,000
100,000
12,000
$412,000
$ 4,037,000

[i]Tobeconservativeinouranalysis,wedecidetoevaluateyourbusinessat$1Mintoday'smoney,giventhatyouexpectittoworthatleast$1.5Minthenext12
years.

Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC

CASHFLOWSTATEMENT

CASHINFLOWS
Gene'sSalary
Martha'sSalary
RentalRealEstate
InterestEarned
Dividends
RMDsfromInheritedIRA
TotalCashInflows

CASHOUTFLOWS
Savings
Martha's401(k)contributions
Gene's403(b)contributions
Gene'sTRScontributions

DebtPayments
MortgagePayment

LivingExpenses
Electricity
Gas/Oil
TrashPickup
Water/Sewer
Groceries
Charity
Cable
Internet
Cellphone
HealthCareDental
HealthCareMedical
PersonalCare
PetCare
Entertainment
DiningOut
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CashFlowStatement
GENEANDMARTHAPINKERTON
For2014

Monthly

Yearly

16,667
200,000
19,750
237,000
4,800
57,600
42
500
500
6,000
958
11,494 [ii]

$512,594

14,220 [iii]

23,000 [iv]

14,400

TotalSavings
$51,620

716
8,593

TotalDebtPayments
$8,593

250
3,000
200
2,400
50
600
100
1,200
500
6,000
4,167
50,000
180
2,160
50
600
200
2,400
50
600
250
3,000
300
3,600
200
2,400
1,667
20,000
2,000
24,000
PERSONALFINANCIALANALYSIS

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Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC
Vacation/Travel
3,333
40,000
ClubDues
833
10,000
Maintenance
200
2,400

TotalLivingExpenses
$174,360
InsurancePayments

AutoInsurance
150
1,800
LTDisability(Gene)
100
1,200
STDisability(Gene)
50
600
Disability(Martha)
83
1,000
LifeInsurance(Gene)
57
680
TermLife(Martha)
200
2,400
UniversalLife(Martha)
50
600
Homeowner'sInsurance
125
1,500

TotalInsurancePayments
$9,780
Taxes

RealEstateTax
500
6,000
IncomeTax
8,314
99,767
NetInvestmentTax&MedicareTax 299
3,592
SalesTax
417
5,000
PersonalPropertyTax
12
140

TotalTaxesPayments
$114,499

TotalSavings,Expenses,andTaxes

$358,852

NETDISCRETIONARYCASHFLOW

$153,742

[ii]CalculationbasedonTable1IRS

[iii]Marthaiscurrentlysaving6%ofherpretaxearnedincomeforher401(k)

[iv]Fortheyear2014,maximumpretaxcontributionfor403(b)planis$17,500.BecauseGeneisover50,hecan
maximizehis403(b)contributionby$5,500in2015.

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Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC

FINANCIALRATIOANALYSIS
Emergencyratio
=LiquidAssets/
MonthlyNon
DiscretionaryExpense

LiquidAssets/Total
MonthlyExpenses
AnnualSavings/
AnnualGrossIncome

LiquidAssets/
CurrentDebt
Payments
NetWorth/Total
Assets
TotalDebt/Total
Assets
TotalDebt/Annual
GrossIncome
AnnualHousingCost
(PITI)/AnnualGross
Income
InvestmentAssets/
AnnualGrossIncome

19.29 Themonthlynondiscretionaryexpenseiscalculatedusingthecurrent
spendinglevel,withexceptionofdiscretionaryexpensessuchas
retirementcontributions,charity,cable,vacation,diningout,and
entertainment.
Aliquidityratioof19.29isconsideredsafeandhigherthanthe
benchmarkof6months,representingasecuredfinancialsituation.
However,havingtoomuchmoneyinyourcheckingandsavingaccounts
wouldcostyouthehigherinterestratesthatyoucanearnbyputting
moneysomewhereelse.
Werecommendyoutoput34monthsofNonDiscretionaryExpensein
savingsaccount,another34monthsofNonDiscretionaryExpenseinCDs.
Therestcanbemovedtoyourbrokerageaccountsandinvestedtoearna
higherinterestrate.
0.77
10.07% Thisratioisbarelyoverthebenchmarkof1015%.Giventhatyouare
only12yearsawayfromretirement,increasingsavingratesisessential.
SinceMartha'scontributiontoher401(k)planisbelowthelimit(Martha
contributed$14K,andthelimitfor2015is$18K),youshouldconsider
increasingthepretaxcontributionto401(k)todefertaxliability.After
Marthareaches50,shecancontribute$5Kmoreeachyearto401(k),using
the401(k)Age50catchups.
Aftermaximizethecontributionstoretirementplans,moresavings
shouldbeputininvestmentaccountsand/orsavingsaccountstobringthe
savingsratioto15%.

Thisratioshowsthatyourcurrentsituationisfineandinanexcellent
18.33
position.Youareabletopayoffyourcurrentliabilityimmediately.
96.70% Thisratioshowsthatyourcurrentsituationisfineandinanexcellent
position.
3.30% Thisratioshowsthatyourcurrentsituationisfineandinanexcellent
position.
25.99% Thisratioshowsthatyourcurrentsituationisfineandinanexcellent
position.Youareabletopayoffallyourdebtwithnoproblem.
2.00% Ahousingratio1of2%iswellbelowtherecommendedmaxof28%.Based
onhousingcosts(PITI)andGrossIncomealone,youarewellwithinthe
recommendedboundaries.
653.54%

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Preparedfor:Mr.&Ms.PinkertonPhamCapitalManagement,LLC
ThisgraphshowstheannualcostsforyourFinancialGoals,asyouhavespecified.Becausethesecosts
willbeusedtocreateyourPlan,itisimportantthattheyareaccurateandcomplete.Allamountsarein
aftertax,futuredollars.

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EDUCATIONPLANNING
Asyoumentionedintheinitialinterviewandquestionnaires,youwouldliketofundforDannys,
Jacobs,andEmilyscollegeeducation.Planningforeducationneedsisessential,sincetuitionrateswill
typicallyincreaseatabouttwicethegeneralinflationrate.
COLLEGESAVINGSANALYSIS
Inthelast10years,tuitionhasincreasedabout5%peryearonaverage5.WeassumethatDanny,
Jacob,andEmilywillstarttheircollegeeducationat18,andwillattendthedesiredschoolfor4full
years.Ifanyofthemdecidestotakeagapyearafterhighschool,orspendthefirst2yearsata
communitycollegeinstead,itwouldonlyaddtotheprobabilityofsuccessforthisplan.
Accordingtoyourresponses,weusetuitionatTexasA&MasthebenchmarktoanalyzeDannysand
Jacobseducationneeds,andtuitionatUTAustinasthebenchmarkforEmilysneedsanalysis.Our
assumptionsforthisanalysisareasfollow.
TexasA&MTuition(2015)

$10,000.006

TexasA&MRoom&Board(2015)

$10,338.007

TexasA&MBooks&Supplies(2015)

$222.008

UniversityofTexasTuition(2015)

$10,400.009

EscalationRate

5%

Danny'sCollegeStart

2027

Jacob'sCollegeStart

2019

Emily'sCollegeStart

2024

CollegeStay

InvestmentRate

8%

Basedonouranalysis,inordertheadequatelyfund100%ofDannyscollegecost(includingtuition,
roomsandboards,booksandsupplies),and50%ofEmilysandJacobstuitiononly,therequiredsaving
wouldbe$10,382peryear,or$849permonth.PleaserefertoourfullanalysisintheAppendix.Ifyou
areabletomaketherequiredcontributioneveryyear,theendofyearbalanceofthecollegefundwill
beasfollows:

http://www.savingforcollege.com/tutorial101/the_real_cost_of_higher_education.php
https://financialaid.tamu.edu/Undergraduate/CostofAttendance#0CostofAttendanceDetail
3,4,5
http://www.utexas.edu/tuition/attach/2015_16_Undergraduate_Traditional_Tuition.pdf

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SINKINGFUNDANNUALENDINGBALANCE
$120,000.00

$105,415.71
$96,228.45
$87,329.59
$78,716.44
$77,970.45

$100,000.00

ENDINGBALANCE

$80,000.00
$63,271.94
$55,485.84
$47,966.27
$40,708.27
$33,706.54

$60,000.00
$40,000.00

$55,821.88

$29,962.98

$21,596.11
$20,000.00 $10,382.74
$(0.00)
$
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
$(20,000.00)

CALENDARYEAR

EDUCATIONFUNDINGVEHICLES
Therearemanyvehiclesareavailableforyoutofundyourbeneficiarieseducation.However,inorder
tomaximizetaxbenefits,andatthesametimesustainagoodratesofreturns,wehighlyrecommend
youtoutilizethequalifiedtuitionprogram,asalsoknownasSection529Plan,foryoureducation
needs.Section529Plansoffermanyadvantages,sincetheyaredesignedtofundthebeneficiaries
education:
Controlof
Assets

Danny,Jacob,andEmilyarebeneficiariesandyouaretheaccountholder.You
arealwaysincontrolofyourassets,andbeneficiariescanbechangedanytime
toanyfamilymembers,andevenyourself.

Protection

Assetsunder529Planareprotectedunderbankruptcy.

Flexibility

Asmentionedabove,beneficiariesoftheplancanbechangedanytimetoany
familymembersandevenyourself.Otherfamilymemberscanalsocontribute
toyour529Plan.

EstatePlanning

Assetsunder529Planarecountedasthebeneficiariesestates,notthe
contributorsandowners.

TaxPlanning

TheInvestmentBased529Planoffergreattaxbenefits.Sinceyouareplanning
tocontributeonlyaround$10,000peryear,youshouldnotworryaboutgifttax
inthistransactionatall.

TherearetwotypesofSection529Plan:PrepaidPlan,andInvestmentBased529Plan.

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ThePrePaidPlanletsyouprepayforpartsorallofyourbeneficiariestuitionatthecurrent
tuitionrates,thusyoucanlockyourtuitionattodaysrates,evenwhenyourbeneficiariesdo
notattendcollegeuntilyearslater.Giventhattuitionisincreasingatabout56%annually,this
optionguaranteesaconsiderableratesofreturnandofferspeaceofmind,sincetheplansare
guaranteedbythefullfaithandcreditofthestate.However,oneofthedisadvantageofthis
typeof529Planisthatyoucannotuseittopayforroomsandboards.

SinceyouareplanningtopayforEmilysandJacobstuitiononly,wewouldhighlyrecommend
youtouse529PrepaidPlanfortheircollegefunding.

TheInvestmentBased529Plan,ontheotherside,letsyoupayfortuition,fees,rooms,boards,
books,andsupplies.Thisplanalsoofferstaxbenefits,becauseitworkssimilartoanIRA.When
youcontributetotheplan,theproceedsaretaxdeferredandpotentiallytaxfreeiftheyare
withdrawnforqualifiededucationcost.Oncethemoneyisintheplan,youcaninvestthis
amountinvariousinvestmentoptions,includingawiderangeofmutualfunds.Thisplanoffersa
possibilitytoearnahigherrateofreturn,comparingtotheincreasingratesoftuition.However,
alloftheinvestmentriskisonyou,whichmeansyoumayactuallylosemoney.
Inouropinion,sinceyouareplanningtopayforDannystuition,roomsandboards,booksand
supplies,utilizing529InvestmentBasedPlanisthebestoption.

529PrepaidPlan
529InvestmentBasedPlan

Pros:
Lockedincurrenttuitionrates
Guaranteedbythestates

Cons:
Tuitiononly(norooms&boards)
Potentiallylowerratesofreturn

Pros:
Taxbenefits
Potentiallyhigherratesofreturn
Payforallcostsofeducation(notonly
tuition)
Cons:
Morerisktotake.Noguarantees.

RecommendedtofundEmilysand
Jacobseducation

RecommendedtofundDannys
education

ForDannyseducationfunding,youcanchooseamongvarious529InvestmentBasedPlansofferedby
differentstates,sincemanyofthemdonothaveanystateresidencyrequirement.Wehighly
recommendedtheUtahEducationalSavingsPlan,sinceitoffersmanyinvestmentchoiceindifferent
mutualfunds,withagebasedinvestmentoptionsandlowexpensesratio.

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RISKMANAGEMENT

LIFEINSURANCENEEDSANALYSIS
Lifeinsurancecanbeanimportantsourceoffundsforyourfamilyintheeventofyourprematuredeath.
Inthissection,weanalyzewhethertherearesufficientinvestmentassetsandotherresourcesto
supportyourfamilyifyouweretodiethisyearand,ifthereisadeficit,whatadditionallifeinsurance
mayberequiredtoprovidetheincomeneededbyyoursurvivors.

DISABILITYINSURANCENEEDSANALYSIS
DisabilityInsurancecanprovideanimportantsourceoffundsduringthetimewhenyouareunableto
workduetoaprolongedillnessorinjury.Thissectioncomparesyourincomeneedstoyourincome
sourcesforvariousdisabilityperiods.IfthereisanIncomeShortfall,youmaywanttoconsiderthe
purchaseofaDisabilityInsurancePolicy.

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IfGeneisdisabled:

IfMarthaisdisabled

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LONGTERMCAREINSURANCENEEDSANALYSIS

Oneofthegreatestthreatstothefinancialwellbeingofmanypeopleover50isthepossibleneedfor
anextendedperiodofLongTermCare,eitherathome,inanAssistedLivingFacilityorinaNursing
Home.ThisSectiondemonstrateshowtheseexpensescouldadverselyaffectyourInvestmentPortfolio
andhowyoumightprotectitwithaLongTermCarepolicy.

ThisgraphshowswhatwouldhappentoyourportfolioifGeneentersaNursingHomeatage80for3
yearsatanannualcost,inCurrentDollars,of$65,700inflatingat4.50%.

ThisgraphshowswhatwouldhappentoyourportfolioifMarthaentersaNursingHomeatage80for3
yearsatanannualcost,inCurrentDollars,of$65,700inflatingat4.50%.

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RISKASSESSMENT

Gene,yourscoreis48.
Thisisaslightlylowerthanaveragescore,lowerthan56%ofallscores.
Youestimatedyourscorewouldbe40.Mostpeopleunderestimatetheirscorebyafewpoints.Yours
wasaslightlybiggerunderestimate.Whencomparedtoothersyouaresomewhatmorerisktolerant
thanyouthoughtyouwere.

Martha,yourscoreis66.
Thisisaveryhighscore,higherthan94%ofallscores.
Youestimatedyourscorewouldbe60.Mostpeopleunderestimatetheirscorebyafewpoints.Yours
wasaslightlybiggerunderestimate.Whencomparedtoothersyouaresomewhatmorerisktolerant
thanyouthoughtyouwere.Whenscoresaregraphedtheyformabellcurveasshowntotheright.To
makethescoresmoremeaningful,the0to100scalehasbeendividedintosevenRiskGroups.

YourRiskGroup
Gene,yourscoreplacesyouinRiskGroup4asshowntotheright.Pleaserefertothegraphbelow.
Martha,yourscoreplacesyouinRiskGroup6asshowntotheright.Pleaserefertothegraphbelow.

Gene(RiskGroup4)

Martha(RiskGroup6)

YourRiskProfile
YourRiskProfilehasbeenpreparedfrominformationprovidedbyyouandis,ofcourse,onlyrelevantto
you.
Ifyouareoneofacouplewhomakejointinvestmentdecisionsyourpartnershouldalsodoarisk
toleranceassessment.BothRiskProfilesthenneedtobeconsideredwhenjointdecisionsarebeing
made.

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WhiletheinformationprovidedbyyourRiskToleranceScoreisessentialtomakingappropriate
investmentdecisions,itisnotsufficientbyitself.Youshouldalsoconsiderthecost,timehorizonand
relativeprioritiesoftheFinancialGoalsyouneedyourinvestmentstohelpyoufund.Thiscanonlybe
accomplishedwhenyourRiskToleranceScoreisconsideredwithinthecontextofanoverallFinancial
GoalPlan.

Asahousehold,youareaHigherthanAverageRiskTaker.

TheRiskScoreforyourHouseholdis57.
TheBellCurveaboveshowsthenormaldistributionofriskscoresforyourgroup.Theaveragescoreis
50.
YourScorecorrespondstoaBalancedIIPortfoliowith54%stock.
YouknowthattheBalancedIIPortfolioyouselectedhada21%returnduringtheGreatRecessionand
arewillingtoaccepttheriskthatyoucouldexperienceasimilarorworseresult.
YourealizethatyoumaybeacceptinggreaterriskoflossasahouseholdthanGenemightpreferbased
uponhisindividualRiskScore.
YourScoreindicatesthatyouareaHigherthanAverageRiskTaker(scores5562)ascomparedtoother
Investorsofsimilarage.

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INVESTMENTANAYSIS

COMMENTSONYOURCURRENTALLOCATION
BasedonyourresponsesontheRiskToleranceQuestionnaire,aswellasanalyzingyourcurrent
portfolioallocationandsituationsincurrentmarket,wehavethefollowingrecommendations:
1.INDIVIDUALSTOCKS:
CurrentlyyouareholdingtwoindividualstocksofCiscoSystemsInc.(CSCO)andQualcomInc.(QCOM)
asalargeportioninyourportfolio.Holdingindividualstocksdecreasesyourdiversificationand
increasesyourportfoliorisks.Thus,werecommendyoutoeithersellorreducetheweightofthetwo
individualstocksinyourportfolio.
2.GENERALALLOCATION:
Thecurrentallocationofyourportfolioisconsideredtooaggressivebasedonyourrisktolerance
questionnaireandyourage.Youcurrentlyhave81%ofstocks,8%ofbonds,and11%ofcashandcash
equivalentsinyourportfolio.Theriskyouaretakingisoveryourlevelofrisktolerance.Youshould
increasetheportionofbonds,anddecreasetheportionofstocksinyourportfolio.
3.SECTORANALYSIS:
Basedonthesectoranalysis,youareoverweighingtheTelecommunicationssector.Withabouthalfof
theportfoliointhissector,theportfolioisnotdiversifiedenoughtobeefficient.Youaretakingtoo
muchriskforyourcurrentlevelofreturn.Iwouldrecommendyoutoreconsideryoursectorselections
andfocusmoreondiversificationofyourportfolio.
4.EXPENSERATIO:
Mostofyourmutualfundshavelowtomediumexpenseratio,withthelowestexpenseratiois0.17%
fortheVanguard500,andthehighestis2.2%fortheWellsfargoAdvSmallCompanyGroupB.Any
mutualfundswithanexpenseratioofmorethan2%isconsideredtoohigh,soIwouldrecommend
youtoreconsiderinvestingintheWellsFargoAdvSmallCompanyGroupB(WFSBX)andtheAlger
CapitalAppFundB(ACAPX),sincethesetwomutualfundshaveahigherexpenseratio.Youshouldbe
abletofindotherfundswithsimilarallocationandratesofreturnatothercompanies,whichoffera
lowerexpenseratio.
5.LOADS:
Youarecurrentlyholdingmanyfundswithloadsand12b1fees.ThesefundsincludeACAPX,AFIBX,
AGRBX,AMFBX.AICBX,NCHAX,NEHBX,CHMBX,andWFSBX.Loadsand12b1feeswillincreasethe
fundsexpense,andthusdecreasesyourratesofreturn.Werecommendyoutoreconsiderthese
mutualfunds,sinceyoushouldbeabletobuymanynoloadsfundswillcomparableallocationand
ratesofreturn.Theloadsalsomakethemutualfundsunderperform,comparingtotheirbenchmarks,
suchastheS&P500,Russell2000,etc.
6.MANAGEMENTTENURE:
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Mostofthemutualfundsyoupurchasedhavemanagerstenureof9yearsandabove.However,the
FOSFXsandtheHILVXshasonly3yearsofexperiencewiththefund,eventhoughthefundshavebeen
establishedforover20years.Werecommendyoutowatchthesetwofundsperformancecloselythis
yeartoseeiftheyareabletomaintainthesameleveloffundsmanagement.
5.OVERLAP:SomemutualfundsyouareholdinghaveoverlapthatIwouldrecommendyouto
eliminate.TheAmericanFundsMutualFundBandtheAmericanFundsInvestorCompaniesofAmerica
Bhave45%ofstocksincommon,thusthisoverlaplowersthelevelofdiversificationinyourportfolio.
Youalsohavethefollowingconsiderableoverlapthatneedtobeeliminated:
Fund1

Fund2

Percentageof
stocks
overlapped

AmericanFundsFundamentalInvsB

AmericanFundsMutualFundB

30%

AmericanFundsInvestorCompanies
ofAmericaB

AmericanFundsFundamentalInvsB

29%

AmericanFundsGrFndofAmerB

AmericanFundsFundamentalInvsB

27%

AmericanFundsInvestorCompanies
ofAmericaB

AmericanFundsGrFndofAmerB

24%

AmericanFundsInvestorCompanies
ofAmericaB

AlgerCapitalAppFundB

22%

AlgerCapitalAppFundB

AmericanFundsFundamentalInvsB

21%

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OURPROPOSEDPORTFOLIO

Giventhatyouareonly12yearsawayfromretirementandyouhaveaccumulatedaconsiderable
amountofcashandinvestmentassets,amoderatelyaggressiveportfoliomixwouldbeappropriate.I
recommendaportfoliowith65%ofstocksand35%offixedassetsshouldhelpyouachieveyourgoal.
Pleasefindbelowthedetailedchartdisplayingourrecommendedallocation:

PROJECTEDASSETALLOCATION
International

International
EmergingStocks,
DevelopedStocks,5.00%
5.00%
SmallCapStocks,
12.50%

Cash&Cash
Equivalents,10.00%
ShortTermBonds,
5.00%
IntermediateTerm
Bonds,10.00%

MidCapStocks,
12.50%

LongTermBonds,
10.00%

LargeCapGrowth
Stocks,10.00%

LargeCapValue
Stocks,20.00%

Thisproposedportfoliowouldgiveyoua9.3%historicalannualreturn.
TheRiskBasedPortfoliowasselectedfromthislistofPortfolios,basedupontheriskassessment.The
TargetBandiscomprisedoftheportfolio(s)thatcouldbeappropriateforyou,basedupontheRisk
BasedPortfolioindicated.TheTargetPortfoliowasselectedbyyou.TheAverageRealReturnisequalto
theAverageTotalReturnminustheinflationrateof4.22%.RefertotheWorst1YearLossandStandard
DeviationcolumnsinthechartbelowtocomparetherelativerisksofyourCurrentPortfoliotothe
TargetPortfolio.

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EFFICIENTFRONTIERGRAPH
ThisgraphshowstherelationshipofreturnandriskforeachPortfoliointhechartabove.
Whendecidinghowtoinvestyourmoney,youmustdeterminetheamountofriskyouarewillingto
assumetopursueadesiredreturn.TheEfficientFrontierGraphreflectsasetofportfoliosthatassumea
lowrelativelevelofriskforeachlevelofreturn,orconverselyanoptimalreturnforthedegreeof
investmentrisktaken.ThegraphalsoshowsthepositionoftheCurrent,Target,RiskBased,andCustom
Portfolios,ifapplicable.Thepositioningoftheseportfoliosillustrateshowtheirrespectiverisksand
returnscomparetoeachotheraswellastheoptimizedlevelofriskandreturnrepresentedbythe
Portfolios.

Sinceyouareexpectedtohavethehighestincomeinthenextseveralyearsthenyourincomewilldrop
whenyouareretired,consideringtaxliability,werecommendyoutousetaxdeferredassetslike401(k)
and403(b)topurchasestocksfundsandtaxableaccountslikeBrokerageandSavingsaccountsto
purchasefixedincomeinvestments.Thisway,youwillbeabletopaylesstaxoninvestmentearnings
duringyourpeakyearsofincome,anddeferthetaxliabilityonstockfundsreturnuntilyouareina
lowertaxbracketatretirement.SinceyouarerequiredtotakeRequiredMinimumDistributionsonthe
InheritedIRA,youshouldnotusethistopurchaseanystockfundswithexpectedhigherratesof
returns.
Tominimizeexpenseratiosonyourportfolio,wedecidedtochooseVanguardindexmutualfundsfor
ourproposedportfolio.Vanguardisanonprofitinvestmentinstitution,andtheyofferawiderangeof
indexedmutualfundswiththelowestcostcomparingtootherinstitutions.Alloftheselectedfunds
belowarenoloadsandwithno12b1fee.

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Pleasefindthedetailsonourproposedportfolioallocationasfollow:
CheckingAccount:$75,000

$75,000

Cash

SavingsAccount:$200,000

Cash

$177,500

VBIRX

VanguardShortTermBondIndexFundAdmiralShares

$22,500

BrokerageAccount:$250,000

VBIRX

VanguardShortTermBondIndexFundAdmiralShares

$103,750

VBILX

VanguardIntermediateTermBondIndexFundAdmiralShares

$146,250

InheritedIRA:$300,000

VBILX

VanguardIntermediateTermBondIndexFundAdmiralShares

$106,250

VBLTX

VanguardLongTermBondIndexFund

$193,750

RolloverIRA:$800,000

VBLTX

VanguardLongTermBondIndexFund

$58,750

VSPVX

VanguardS&P500ValueIndexFundInstitutionalShares

$505,000

VSPGX

VanguardS&P500GrowthIndexFundInstitutionalShares

$236,250

Martha's401(k):$500,000

VSPGX

VanguardS&P500GrowthIndexFundInstitutionalShares

$16,250

VIMAX

VanguardMidCapIndexFundAdmiralShares

$315,625

VTMGX

VanguardDevelopedMarketsIndexFundAdmiral

$126,250

VMMSX

VanguardEmergingMarketsSelectStockFund

$41,875

Gene's403(b):$400,000

VRTIX

VanguardRussell2000IndexFundInstitutionalShares

$315,625

VMMSX

VanguardEmergingMarketsSelectStockFund

$84,375

TOTAL

$2,525,000

BelowisapictureofhowyourInvestmentPortfoliomayhypotheticallyperformoverthelifeofthis
Plan,usingaveragereturns.ThegraphshowstheeffectonthevalueofyourInvestmentPortfoliofor
eachyear.ThechartshowsthedetailedactivitiesthatincreaseanddecreaseyourInvestmentPortfolio

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valueeachyearincludingthefundsneededtopayforeachofyourGoals.Shortfallsthatoccurina
particularyeararedenotedwithan'X'undertheGoalcolumn.

COMPARISONBETWEEENCURRENT&PROPOSEDPORTFOLIO
CurrentPortfolio

RecommendedPortfolio

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InvestmentPolicyStatement
PreparedforGene&MarthaPinkerton
July2015

Trang(Lem)Pham
PhamCapitalManagement
WealthManager

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INVESTMENTPOLICYSTATEMENT
STATEMENTOFPURPOSEANDBACKGROUND
ThepurposeofthisInvestmentPolicyStatement(IPS)istoprovideguidelinesandaframeworkthatwill
beutilizedtoeffectivelyallocate,supervise,monitor,andevaluatetheinvestmentassetsinGene
PinkertonandMarthaPinkerton(youroryou)investmentaccountsandreplaceapreviousIPS.Your
financialsituationhaschangedduetoanexpectedinheritanceandasaconsequenceyourobjectivesfor
theaccountsmanagedbyTrangPhamhavechanged.
BACKGROUND
In2015youengagedtheindividualTrangPhamtoactasInvestmentAdvisorandtoengagein
establishingandmanaginganefficientinvestmentplan.InpreparationofthisnewIPS,Trang
Phamhasbaseditsconclusionsandrecommendationsoninformationregardingthegoalsand
objectivesofthisaccountprovidedbytheInvestmentAdvisor.ItisagreedthatthisInvestment
PolicyStatementistheonlysuchstatementcurrentlyinforceandsupersedesanypreviously
executed.
STATEMENTOFOBJECTIVES
TrangPhamintendstohelpyoudevelopaninvestmentportfoliothatwillprovidegrowthsufficientto
meetyourfinancialgoalsandprotectcurrentpurchasingpowerlevelsoftheassetsinyouraccounts
fromtheimpactofinflationovertime.
RISKPROFILEANDINVESTMENTCHARACTERISTICS
Youunderstandthatsomeinvestmentriskmustbeacceptedinordertoachievereturnsinexcessofthe
riskfreerateofreturnofinstrumentssuchasTreasuryBills.Investmentrisktakesmanyforms,suchas
interestraterisk,fixedincomeinstrumentdefaultriskandreductionsinthepricesofsecurities(market
risk).Inforeignmarkets,politicalandenvironmentalrisksmustalsobeconsidered.Securitiessuchas
smallcapandvaluestockshaveadditionalrisksthataredifficulttoquantify.Thevolatilityofyour
overallportfolioisgenerallyagoodindicatorofsomeoftherisksitcontains.Wehaveredesignedyour
Portfolioallocationandobjectivetoaccommodatethefollowingchanges:
INCOMENEEDS
Youhaveindicatedthattheportfolioisnotexpectedtobesubjecttoregularcashwithdrawalsand
yourincomeneedswillbemetfromothersourcesthantheaccountsmanagedbyTrangPham.
LIQUIDITY
Youwillcontinuetoincludeinyourportfolioonlyinvestmentsthatarepriceddailyandcanbe
soldwithoutlimitations.Therefore,accountholdingswillbeliquid,althoughtheymaynotbe
abletobesoldondemandwithoutloss.Yourportfoliocanbereadilyvaluedatanytimeevenat
interimdatesbetweenreports.

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HORIZON
Yourtimehorizontogrowanddrawfromtheseaccountshavebeenextendedduetoanexpected
inheritancethatwillbeusedtomeetfutureincomeneedsduringyourearlyretirementyears.
Thistimehorizonhasinfluencedyourdecisiontochangethetargetallocationintheseaccountsto
amoreaggressive,higherriskdesign.
ASSETALLOCATION[LONGTERMASSETCLASSMIX]
Youroriginalportfolioallocationwas80%equityand20%fixedincome.Afterreevaluatingyourfinancial
situationyouandTrangPhamhavedecidedtochangethisallocationto65%equityand35%fixed
income.Thistransitiontoalowerriskportfolioisbasedonyouranticipationofneedingtheassetsin
theaccountsmanagedbyTrangPhamtomeetincomeneedsintheforeseeablefuture.Thisnew
recommendedconsolidatedportfolioallocationispresentedbelow.

PROJECTEDASSETALLOCATION
Cash&Cash
Equivalents,11%
IntermediateTerm
ShortTermBonds,0%
Bonds,0%
LargeCapGrowth
Stocks,28%

LongTermBonds,8%

LargeCapValue
Stocks,44%

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Basedonhistoricalperformancedata,assetclasscorrelations,andstatisticalinference,theabove
portfoliocanbeexpectedtoprovideagrossreturnovertimeof9.3%.Itisimportanttonotethatthis
expectedreturnraterepresentsthelongtermaverageofactualreturnsthatthisassetallocationhas
produced.Thesedataarenotmeanttoimplythatthisisthereturnratelikelytoberealizedineach
investmentyear.
LIMITATIONSONINVESTMENTHOLDINGS
YoumayinstructyourInvestmentAdvisortoretainorpurchasespecificsecuritypositionsforyour
account(s).Furthermore,youcanspecificallyrequestthemtorefrainfrompurchasingorholdingspecific
securitiesinyourportfolio.Youhavenotmadeanyrestrictionsastoassetclassesorspecificholdingsat
thistime.
TRADINGPROCEDURES
INITIALINVESTMENTANDONGOINGCONTRIBUTIONS
AdherencetomodernportfolioconceptswouldtypicallypromptAdvisortoplaceportfolio
transactionsimmediatelyasfundsbecameavailableandwouldnotencourageattemptstotime
themarkets.However,duringperiodsofextremevolatility,youmayinstructyourAdvisorstoact
morequicklyortorefrainfromplacingtrades.

SALES,LIQUIDATIONS,ANDACCOUNTDISTRIBUTIONS
Inordertoefficientlyeffectunanticipatedorunscheduledselltradesforaccountliquidationsand/or
distributions,the
InvestmentAdvisorsshouldreceiveatleastfive(5)businessdaysnotice,withinstructions
documentedinwriting.Thistimeperiodisrequiredtocalculateselltrades,communicate
instructionstothecustodian,executethetradesandsubsequentsecuritysettlement,andfinally,
awaitdeliverytoyouoryourdesigneeviacheck,directdepositaccount,orelectronicbankwire
transfer.
REBALANCINGSTRATEGY
Theaccountwillbereviewedatleastannuallyforrebalancingthecurrentbalancedbacktotheoriginal
targetallocation.Ifmajorassetclassallocationratioshavedeviatedfromthetargetratiosby10%or
moreduetomarketgainsordeclineswewillalsoconsiderrebalancing.TheInvestmentAdvisormay
alsodeterminewhetheritisappropriatetorebalancetheportfolioatothertimes,particularlyifthere
aresignificantchangesinyourpersonalorfinancialcircumstancesorobjectives.
Advisorwillalwaysconsidercostsandtaxeffectsbeforerebalancing.Intaxableaccounts,Advisorare
instructedtodefershorttermcapitalgainswherepossible,eventhoughpredeterminedselltargetsare
reached,andtooffsetrealizedcapitalgainswiththerealizationofcapitallosseswithinthesametaxyear
whenpractical.

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CUSTODY,RECORDKEEPING,REPORTSANDTRADING
Variouscustodiansmaybeselectedtoholdyouraccountsdependingonrelationshipsheldbyyour
selectedInvestmentAdvisor.Custodiansshallhaveadequateaccountinsuranceinplaceatalltimes.
Theywillprovideyouwithmonthlystatementslistingaccountpositions,portfoliovalues,and
transactionactivitysincethepriorstatement.Advisorshallkeeperrorsandomissionsinsuranceinplace
throughoutthetermoftheirengagement.
InvestmentAdvisorshallprovidequarterlyandannualperformanceevaluationsandotherreportsthat
include: Changesinmarketvaluesofassets(includingincomereceivedandaccrued)

CurrentandhistoricaltimeweightedperformancestatisticsinaccordancewiththeGlobal
Investment
PerformanceStandards(GIPS)foreachportfolioandeachsecuritywithin

Comparisonsofportfolioperformancetorelevantbenchmarks

Scheduleofrealizedgainsandlossesforthetaxyeartodate

AUTHORITYDELEGATEDTOADVISOR
InvestmentmanagementauthorityisstrictlylimitedbytheguidelinesestablishedinthisIPS,andinthe
accountapplicationsandagreementsthatyouhavesigned.WhileAdvisorareallowedtoentertrades
foryouraccountonadiscretionarybasis,theycannotreceivefundsdirectlyorindirectly,exceptfor
investmentadvisoryfees,custodialortrusteefees.Custodiansmaychargebrokeragecommissionsfor
transactions.InvestmentAdvisorwillnotreceiveanyportionofbrokeragecommissionschargedto
executetransactions.
NOTIFICATIONOFCHANGESINYOURFINANCIALSITUATIONOROBJECTIVES
Weaskyoutoimmediatelynotifyusofanymaterialchangesinyourfinancialorfamilysituationsthat
couldaffectyourrisktolerance,timehorizon,liquidityneeds,incomeneeds,returnrequirements,tax
situation,orotheruniqueneedsandcircumstances.Sucheventsmayinclude,butarenotlimitedto,
significantchangeintaxableincome,relocation,significantchangeininvestmentstrategyforother
assetsnotsupervisedbyus,andfamilysituationsthatmayaffectyourfinancialrequirements.Toassure
thattheriskandreturncharacteristicsofyourinvestmentportfoliocontinuetomeetyourindividual
circumstances,werecommendthatyouscheduleareviewofyourportfolioandinvestmentpolicy
statementwithusnolessthanonetimeperyear.
PROCEDURESFORMODIFYINGTHISINVESTMENTPOLICY
Inordertobeeffective,changestothisIPSmustbeinwritingandsignedbybothyouandbyallAdvisors
providingadvisoryservices.Youmayterminatethisagreementatanytimebynotifyinginwritingthe
AdvisororCustodianofyourintent.
MATERIALCHANGESATMANAGEMENTCOMPANIES
InvestmentAdvisorarerequiredtonotifyyouinwritingregardinganymaterialchangesininvestment
strategy,portfoliostructure,managementpersonnel,orownershipoftheirrespectivefirms.

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AtanytimeyoumayrequestthemostrecentcopyofAdvisorsFormADVpartII.Thisisthedisclosure
documentrequiredbytheSecuritiesandExchangeCommission(SEC)thatdescribestheirinvestment
strategy,background,ownershipstructure,education,changeinprofessionalstaff,andotherregulatory
disclosures.

POLICIESANDGUIDELINES
Bysigningbelow:
InvestmentAdvisoracknowledgethisInvestmentPolicyStatement,andacceptthefiduciary
responsibilitytoactinyourbestinterestsasdescribedinthisIPS.
Youagreetotheinformationcontainedhereinandagreetokeepinvestmentadvisorsinformedofany
significantchangesthatmightaffectyourgoalsoryourfinancialcircumstances.

Signature_________________________________________Date_________
By:GenePinkerton

Signature_________________________________________Date_________
By:MarthaPinkerton

ForInvestmentAdvisor
Signature_________________________________________Date__________
By:TrangPham

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RETIREMENTPLANNING

SOCIALSECURITY

YourFullRetirementAge(FRA)istheagethatyouwouldreceive100%ofyourPrimaryInsurance
Amount(PIA).Dependingontheyearyouwereborn,yourFRAisbetween6567yearsold.Taking
benefitsbeforeorafteryourFRAwilldecreaseorincreasetheamountyoureceive,respectively.

Gene'sFRAis66and4monthsin2022.
Martha'sFRAis67and0monthsin2036.

YourPrimaryInsuranceAmount(PIA)isthebenefityouwouldreceiveifyoubeganbenefitsatyourFull
RetirementAge(FRA).ItiscalculatedfromtheearningsonwhichyoupaidSocialSecuritytaxes,
throughoutyourlife.

Gene'scalculatedannualPIAis$32,891
Martha'scalculatedannualPIAis$32,881

OtherRetirementIncome
IfyoubegintakingbenefitsbeforeyourFRA,anyearningsyoumakemayreduceyourbenefits.Foryears
beforeyourFRA,youlose$1ofbenefitsforevery$2abovetheearningslimit.Intheyearyouattain
FRA,anyearningsinthemonthsbeforeFRAwillreducebenefitsby$1forevery$3abovetheearnings
limit.EarningsafterFRAwillnotreduceyourbenefits.Genehasindicatedthathewillstarttaking
benefitsbeforeretirement.

StrategyInformation
Genefilesanormalapplicationat66Years,4Monthsin2022.
Marthafilesanormalapplicationat67in2036.
Usingthisstrategy,yourhousehold'stotallifetimebenefitswouldbe$2,203,492intoday'sdollars.

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MONTECARLOANALYSIS

Thegraphbelowshowstheresultsforall1000MonteCarloTrials.
TheProbabilityofSuccessmeterdisplaysthepercentageoftrialsthatweresuccessfulinfundingallof
yourgoals.
Forasecureplan,theProbabilityofSuccessshouldbebetween70%and90%,whichiscalledyour
ConfidenceZone.

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BEARMARKETTEST

SELLOFMARTHASBUSINESSTEST

Itisoftendifficulttopredictthevaluethatwillbereceivedfromthesaleofassetsinthefuture.This
createsahiddenrisktoyourplan.TheseresultsshowyourProbabilityofSuccessusingthethree
estimatesyouprovidedfortheamountofaftertaxcashyoumightreceivefromthesaleofeachSpecial
Assetshowninthetable.Foreachresultcalculated,allassetsareassumedtoreceivetheLow,Expected
orHighamount.Allotherassumptionsintheplanremainunchanged.
ThereisaRiskthatyouwillreceivetheLowvalues(orlessthantheLowvalues).Ifthiscausesyour
ProbabilityofSuccesstofallbelowyourConfidenceZone,youshouldconsiderwhatadjustmentsmight
benecessary.

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TAXPLANNING

REVIEWING2014PROJECTEDRETURNS:
1. SinceMarthaownsabusiness,youshouldbeabletodeductyourselfemploymenttax,self
employedqualifiedplans,andselfemployedhealthinsurance.
2. Basedonyourreportedincome,youarecurrentlyinthe35%marginaltaxrate.Thereare
severalstrategieswecanusetoreduceyourtaxliability:
Youcanreconsideryoursituationandseeifyoucanclaimanyofyourchildren,grandchildren,
orrelativesasyourdependents,soyoucanclaimtheexemptionamountonthem.
SinceMarthaownsabusiness,Marthacanreconsidertheamountofselfemployedsalaryshe
paysherselfeachmonth.CurrentlyMarthasannualsalaryis$237,000.Thisamountshouldbe
loweredtopossiblybringbothofyoutoalowertaxrates.
Martha:Youshouldkeeptrackofyourbusinessexpensetobedeductedonyourtaxbill.Some
populardeductiblebusinessexpensesare:travelexpenses,businessentertainmentandmeals,
officeexpenses,continuingeducationexpenses,etc.Pleaseseeourguidelinesfordeductible
businessexpensesattachedattheendofthisfinancialplan.
Gene:Youshouldkeeptrackofyourbusinessrelatedexpenses.Pleaseseeourguidelinesfor
deductiblebusinessexpensesattachedattheendofthisfinancialplan.
Wehighlyrecommendbothofyougetaseparatebankaccountandcreditcardforbusiness
relatedexpenses.Keepingtrackofyourbusinessexpenseswillbeveryhelpfulwhenweprepare
yourtaxreturn.Ifyoulike,wecandothebookforyourentity,reconcileyourbusinessbank
accountseverymonthtoseparatedeductibleexpensesandmakesurewecatchallofthe
possibledeductions.
CreatingentitiesandloweringyourW2incomewillpossiblyhelptogetyourearnedincome
belowthephaseoutlimitofpersonalexemptions,soyouwillbeabletodeductsomeorallof
yourexemptionamountonyourtaxreturn.

TAXINEDUCATIONPLANNINGANDINVESTMENTPLANNING

BasedonourrecommendationofutilizingSection529Planforyoureducationfundingplan:
Youreducationplanoffersgreattaxbenefits.Althoughcontributionsarenotdeductible,
earningsina529plangrowfederaltaxfreeandwillnotbetaxedwhenthemoneyis
takenouttopayforqualifiededucationneeds.
Assetsunder529Planarecountedasthebeneficiariesestates,notthecontributors
andowners.Youwillnothavetopayestatetaxbecauseoftheassetsyouputunder
529Plan.
Sinceyouareplanningtocontributeonlyaround$10,000peryear,youshouldnot
worryaboutgifttaxinthistransactionatall.
Basedonourrecommendationinyourinvestmentmanagement:
Youshouldusetaxdeferredassetslike401(k)and403(b)topurchasestocksfunds

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YoushouldusetaxableaccountslikeBrokerageandSavingsaccountstopurchasefixed
incomeinvestments.
SinceyouarerequiredtotakeRequiredMinimumDistributionsontheInheritedIRA,
youshouldnotusethistopurchaseanystockfundswithexpectedhigherratesof
returns.
Thisway,youwillbeabletopaylesstaxoninvestmentearningsduringyourpeakyearsof
income,anddeferthetaxliabilityonstockfundsreturnuntilyouareinalowertaxbracket
atretirement.

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ESTATEPLANNING

YouhavetoldusthefollowingaboutyourcurrentEstatesituation;
BothGeneandMarthahaveWills.
NeitherGenenorMarthahaveaMedicalDirective.
NeitherGenenorMarthahaveaPowerOfAttorney.

ThisEstateAnalysisassumesthatyoubothmaintainvalidwillsthatbequeathallassetstoeachother
(SimpleWill).ThisEstateAnalysismaynotaccuratelyreflectyourcurrentestatewhereoneorbothof
youdoesnothaveaSimpleWill.

ItisimportantthatbothofyouhaveaWillthatisvalidanduptodate.YourWillsshouldbeperiodically
reviewedbyyourlegaladvisor.YoushouldalsodiscusstheappropriatenessofaMedicalDirectiveand
PowerofAttorneywithyourlegaladvisor.

YouhaveindicatedthatyouhavenotmadeprovisionsforaBypassTrust.Whenthisanalysisillustrates
thepotentialbenefitofaBypassTrust,itassumesthatyourassetswillbeproperlytitledand
appropriatetofullyfundtheamountshown.

WerecommendyoutoprepareaTrusttocontrolwhatwillhappentoyourassetafteryouplan
endsandsavecosts.BothWillandTrustareveryhelpful,however,pleasefindbelowour
comparisonchart:

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Basedonthecomparisonabove,wehighlyrecommendyoutocreateatrusttomakesurethatyour
wisheswillbeexecutedcorrectly,avoidcostsandprotectyourfamilysprivacybynotinvolvingthe
court.

Werecommendyoutomakehealthcaredirectives:
Incaseyoubecomeunabletomakemedicaldecisionsforyourself,theHealthCareDirectiveswill
givesomeoneyouchoosethepowertomakedecisions.Youcanalsoincludeyourwishesabout
whichmedicaltreatmentsyouwouldliketouseandwhichyoudonotwanttouse.

Werecommendyoutomakeafinancialpowerofattorney:
Throughafinancialpowerofattorney,youcangiveapersonofyourwishtheauthoritytohandle
yourfinancesandpropertyifyoubecomeincapacitatedandunabletohandleyourownsituation.

Thecostforpreparingbasicestatedocumentswillnormallyinarangebetween$1,500and
$2,500.
NETWORTHBYOWNERSHIP

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ESTATEANALYSISFLOWCHART
IfGenepredeceasesMartha:

IfMarthapredeceasesGene:

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ACTIONPLAN

Section

Action

PartiesInvolved

Goalto
Complete

Date
Completed

Cash
Management

Move$150,000from
SavingsAccountto
Brokerageaccount

Gene&Martha:move
money

8/10/2015

TaxPlanning

LowerMarthasW2
amount

Martha

8/10/2015

Cash
Management

Use$50,000from
Checkingaccountto
buyCDs

Advisor:lookingatCDs
options
Gene&Martha:move
money

8/20/2015

Education

Fund529accounts
forDannys,Jacobs
andEmilyscollege
education

Advisor:prepare
paperwork&sendto
Martha,submitafter
Marthasigns
Gene&Martha:review
andsignthepaperwork

8/20/2015

Investment
Management

Reallocate
investmentportfolio

Advisor:prepare
paperwork&sendto
Martha,submitafter
Marthasigns.
Rebalancesemi
annually.
Gene&Martha:review
andsignthepaperwork

8/20/2015

TaxPlanning

Openbusinessbank
accountsandcredit
cards

Gene&Martha

8/20/2015

TaxPlanning

Keeptrack/
Categorizebusiness
expenses

Advisor:categorize
expensesviaQBOon
monthlybasis
Gene&Martha:give
Advisoraccessto
businessaccounts,
answeranyquestions

8/30/2015

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Advisormayhaveona
timelybasis
Retirement
Planning

MaxingoutMarthas
401(k)contribution

Advisor:prepare
paperwork&sendto
Martha,submitafter
Marthasigns
Martha:reviewandsign
thepaperwork

9/1/2015

Risk
Management

Purchase$3.1Mmore
inlifeinsurance

Advisor:obtainquotes,
preparepaperwork,
submitpaperwork
Gene&Martha:lookat
optionsanddecide,co
operateinapplication
process

9/15/2015

Risk
Management

Purchasemorelong
termcareinsurance
anddisability
insurance

Advisor:obtainquotes,
preparepaperwork,
submitpaperwork
Gene&Martha:lookat
optionsanddecide,co
operateinapplication
process

9/20/2015

Estate
Planning

Preparebypasstrust
insteadofawill,
healthcaredirectives,
andfinancialpower
ofattorney

Gene&Martha:work
withanestateattorney
topreparedocuments.

10/30/2015

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APPENDIXA:EDUCATIONSINKINGFUNDANALYSIS

TodayCost

TexasA&MTuition

$10,000.00

$10,338.00

$222.00

$10,400.00
5%
2027
2019
2024
4
8%

TexasA&MRoom&Board
TexasA&MBooks&
Supplies
UniversityofTexasTuition
EscalationRate
Danny'sCollegeStart
Jacob'sCollegeStart
Emily'sCollegeStart
CollegeStay
InvestmentRate

Calendar
Year

Years
from
Today

2019

$6,077.53

$6,077.53

$4,467.17

2020

$6,381.41

$6,381.41

$4,343.08

2021

$6,700.48

$6,700.48

$4,222.44

2022

$7,035.50

$7,035.50

$4,105.15

2023

$0.00

$0.00

2024

$8,066.91

$8,066.91

$4,035.46

2025

10

$8,470.25

$8,470.25

$3,923.37

2026

11

$8,893.76

$8,893.76

$3,814.38

2027

12

$9,338.45

$36,922.81

$46,261.26

$18,370.98

2028

13

$38,768.95

$38,768.95

$14,255.26

2029

14

$40,707.39

$40,707.39

$13,859.28

2030

15

$42,742.76

$42,742.76

$13,474.30

$26,194.92

$34,769.38 $159,141.91

$220,106.21

$88,870.87

Total

CollegeCost CollegeCost
Jacob
Emily(50%)
(50%)

CollegeCost
Danny

TotalAnnual
CollegeCost

Required
Current
Investment

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Calendar
Year

Years
Jacob's Emily's Danny'
from
Age
Age
sAge
Today

Beginning Contrib
Balance
ution

Invest
ment
Return

Distrib
ution

Ending
Balance

2016

15

10

10,383

10,383

2017

16

11

10,383

10,383

831

21,596

2018

17

12

21,596

10,383

1,728

33,707

2019

18

13

10

33,707

10,383

2,697

(6,078)

40,708

2020

19

14

11

40,708

10,383

3,257

(6,381)

47,966

2021

20

15

12

47,966

10,383

3,837

(6,700)

55,486

2022

21

16

13

55,486

10,383

4,439

(7,036)

63,272

2023

22

17

14

63,272

10,383

5,062

78,716

2024

23

18

15

78,716

10,383

6,297

(8,067)

87,330

2025

10

24

19

16

87,330

10,383

6,986

(8,470)

96,228

2026

11

25

20

17

96,228

10,383

7,698

(8,894)

105,416

2027

12

26

21

18

105,416

10,383

8,433

(46,261)

77,970

2028

13

27

22

19

77,970

10,383

6,238

(38,769)

55,822

2029

14

28

23

20

55,822

10,383

4,466

(40,707)

29,963

2030

15

29

24

21

29,963

10,383

2,397

(42,743)

(0)

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APPENDIXB:INVESTMENTPORTFOLIOANALYSIS

ROR
Historical

ROR
Projected

Current
Value

Current
Weight

Projected
Weight

Projected
Value

Cash&Cash
Equivalents

5.17%

3.00%

275,000

11%

10.00%

252,500

ShortTerm
Bonds

6.54%

3.50%

0%

5.00%

126,250

Intermediate
TermBonds

7.69%

3.70%

0%

10.00%

252,500

LongTerm
Bonds

8.72%

4.00%

195,000

8%

10.00%

252,500

LargeCap
ValueStocks

9.81%

8.00%

1,100,000

44%

20.00%

505,000

LargeCap
GrowthStocks

9.84%

7.00%

705,000

28%

10.00%

252,500

MidCap
Stocks

11.52%

7.50%

0%

12.50%

315,625

SmallCap
Stocks

12.93%

8.00%

100,000

4%

12.50%

315,625

International
Developed
Stocks

10.02%

7.50%

150,000

6%

5.00%

126,250

International
Emerging
Stocks

9.65%

9.00%

0%

5.00%

126,250

9.47%

2,525,000

100%

100%

2,525,000

TOTAL

9.36%

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