Insight Financial Strategists LLC
Chris Chen CFP® helps individuals and families plan difficult life transitions such as retirement and divorce.
As a CFP® professional, Chris works with your own legal and tax advisers to build cost-effective and tax-efficient strategies to help you achieve your long term financial goals with wealth preservation, retirement income planning, and legacy planning.His calming confidence and knowledgeable guidance through complex financial transitions such as retirement and divorce can help you gain a sense of security and reassurance for your financial future.
Chris’s career in financial services followed a rewarding career in strategic business management during which he lived, worked, and grew successful businesses in the US, Asia/ Pacific and Europe. Chris earned his Bachelor’s degree in Economics and his MBA in Finance. He is also a CERTIFIED FINANCIAL PLANNER® practitioner and a Certified Divorce Financial Analyst. Chris is a member of the Financial Planning Association, the Massachusetts Council on Family Mediation and he is the Treasurer of the Association of Divorce Financial Planners, a non profit organization.
Chris invites you to sign up to start your own financial plan for free at po.st/financialplan
It is all in the nomenclature:
Defined Benefit Plans define the benefit ahead of time. That benefit is usually a monthly payment in retirement, based on the tenure of the employee, his or her salary, and possibly other factors. Payments are usually defined to be for the lifetime of the employee. Employees are not usually expected to contribute to the plan, and as such they do not have individual accounts. The employee right is not to an account, it is to a stream of payments.
Defined Benefit Plans used to be common across large American companies. They are expensive to maintain as they require regular contributions from the employer to be funded. As a result, defined benefit pensions are often underfunded.
The funding expense usually accrues entirely to the company. Since the 1980's . companies have progressively reduced their defined benefit commitments, partially to reduce costs. Currently, most defined benefit plans are for government employees, union employees, with a smattering of legacy plans in corporate America.
In Defined Contribution Plans, the benefit is not known, but the contribution is. The contribution usually comes primarily from the employee, although many employers also have a company match. The advent of the defined contribution plan has allowed corporate America to disengage from defined benefit plans and to push the responsibility for retirement planning on the employee.
As opposed to defined benefit plans, employees have accounts in defined contribution plans. Subject to the vesting of the employee match, the money in the account is the employee's. Unlike defined benefit plans, the employee's retirement money is portable, ie it can be withdrawn or transferred to another account, within the limits of the rules. Some of the common defined contribution plans include 401(k), 403(b), 457, IRA, Roth IRA, SIMPLE IRA, and SEP IRA.
Employees in Defined Contribution companies have a choice for investments in their account. Most plans have a choice of mutual funds that attempts to cover the universe of possibilities, including fixed income and equity funds. Given that everyone's investment result will differ, and are no inherently predictable, the benefit at retirement is an unknown, unlike defined benefit plans.
You cannot buy the DJIA index directly. However, you can buy the components of the DJIA to replicate the index
The DJIA reflects the average price of its 30 component stocks. Hence you can buy each of the 30 stocks to construct a mirror of the index.
You can also buy an ETF that mimics the DJIA index. For instance, DIA. This ETF is doing all the heavy lifting of buying the appropriate number of appropriate shares and replacing them as needed when the DJIA's composition changes.
Private Equity and Venture Capital are both investments in companies that are not publicly traded.
Typically Venture Capital firms invest in young companies, usually technology or biotech startups of some kind or another. The goal of the venture capital firm is to lead the investment to an "exit", that is an event where the firm can get a return on their investment. In an exit the startup can "go public", that is have their shares sold to the public and listed on a public exchange such as NASDAQ. Thereafter the former startup is merely a public company with shares traded on the open market. Examples of Venture Capital Investments that have had successful public exits includfe Facebook and Google.
Alternatively, a venture capital investment can exit by selling to another larger firm that pays either with cash or their own shares. Thereafter the former startup is part of the larger firm. This is the most common exit. Examples would include Instagram, a company that was bought by Facebook, or Android that was bought by Google (now Alphabet).
On the other hand, Private Equity firms invest in established companies across a range of industries. Typically the private equity firm believes that it can better manage the investment, and make it a stronger company. Private Equity firms may buy private companies, division of private or public companies, or even take an entire public company private. Goals of private equity firms vary. Some want to make their investments stronger and then resell them. Others keep them for the long term. An example of a company that is owned by a private equity firm is Keurig.
A mortgage backed security (MBS) is a security, typically a bond, that is backed by mortgages. In a typical MBS, such as those marketed by FNMA or GNMA, the security is collaterized by hundreds or thousands of individual mortgages owned by Americans all over the country. MBS are usually considered a safe investment because the interest payment is secured by the payment of thousands of mortgage payers.
A Collaterized Mortgage Obligation (CMO) is a type of MBS with specific features. Most germane is that the CMO is divided into mutiple tranches with different risk profiles. A CMO may have a tranche A which would be the most secure, because interest payments are prioritized to go to tranche A. A tranche B would be second in line to receive payments, and so on. The lower the tranche, the less secure it is because the likelihood increases that it may not get payment, for instance if some homeowners fail to make their payments.
The typical MBS will have factored in the probability of defaults of it thousands of investments and will have averaged it across all investors. Hence investors will all receive the same payment.
On the other hand the CMO will have unbundled the risk of its security so that the higher tranches have less risk, perhaps even less risk than a typical MBS, and thus, will get a lower but more secure interest payment. The lower tranches will carry a greater risk, maybe even a risk greater than the typical MBS, and thus, will get a higher but less secure interest payment.
Most mortgage investors want to get a secure interest payments. Thus they should avoid the lower tranches of CMOs
Congratulations on your ambition! You sound like you have requirement 1, passion!
At the risk of attracting an "unhelpful" rating, I need to let you know that equity analysis is not a growth job category. In the words of a headhunter whom I was asking about that this week, equity analysts are a "dying breed". That being said, I believe that she was being dramatic, there will always be a need for people who can analyze investments competently.
Requirement 2 is to have a stellar resume. It is important to demonstrate strong analytical and communication skills. It is sometimes counterintuitive, but writing courses are critical, they are where you learn and demonstrate your communications skills. It is not necessary to take a lot of finance and economics. You will "really" learn finance on the job, not in a classroom.
Requirement 3 is to have something to offer besides a standard resume. My current intern passed all three levels of the CFA (he is 24). A previous intern had superior analytical skills. Another had a pretty deep knowledge of an industry I was interested in. It is hard to say what that unique special sauce will be for you. My best recommendation is to pursue interests that you are passionate about, and pursue them in depth.