Transcript Document

Basics of
Retirement Investing
Date February 2009
Presented by:
Vernon Stockton – ICMARC
AC: 0506-758
Today’s Discussion
• Setting Goals
• Basic Concepts
5
Why is Investment Education Important?
• Reaching retirement goals is a two-step process

Step #1: Participate in your employer-sponsored
retirement savings programs
• Put enough money away for the future
• Most experts say you will need between
70% to 80% of your salary when you retire
 May differ based on your situation and
retirement plans
6
Why is Investment Education Important?
• Reaching retirement goals is a two-step process

Step #2: Invest contributions wisely
• Compounding: Earn money on the principle plus all
previous earnings
 Over time, retirement assets may grow more
through earnings than amount initially contributed
 Must develop investment strategy and actively
manage investments
7
You don’t have to be an Expert
• What you do need is a basic understanding of:


Common investment concepts
Types of investment vehicles
• Resources available to you through ICMA-RC
1 See

Personal Assistance

Your ICMA-RC Investment Options1
disclosure at the end of this presentation.
8
Investment Concepts
• Risk
• Managing risk through diversification
• Focus on the long term
• Steady investing
9
Risk
• How confident can you be in expected returns?


More volatile and unpredictable, more risky
the investment
Every investment carries some level of risk
• Risk/return trade off

Match your financial goals with the level of risk you’re
willing to accept
• More risk = More reward over time
• Less risk = Less reward over time
10
Managing Risk Through Diversification
• Spread risk by investing in different funds and
types of investments

Diversification protects against down-side risks and
maximizes potential for returns
• Helps smooth out ups and downs of market

Takes advantage of market swings
• Investments react differently to market conditions
 Bonds usually up when stocks are down
• Inflation and interest rate change
11
Mutual Funds are Diversified Funds
• Funds that are invested in a variety of industries/
companies/locations


Money of many investors is “pooled”
Large blocks of securities purchased
• Professionally managed by investments experts


Research and assess market trends
Make buy/sell decisions
• Types





Stock Funds
Bond Funds
Balanced/Asset Allocation Funds
Index Funds
Specialty Funds
12
Investment Options
Stock Funds
• Stocks (equities) are ownership interest in a company

“Share price” of the stocks in the fund and reinvestment
of any dividends
• Stock funds


Different funds concentrate on specific factors
• Growth stock funds: strong earnings growth
• Equity income funds: strong dividend history
• International funds: overseas companies
Actively managed
• Buy and sell decisions about which securities
are in the funds
13
Investment Options
Bond Funds2
• Bonds are “loans” to corporations and the federal
government (treasury securities)
• Bond funds


Not federally guaranteed
Professional management is essential
• Not traded on the Stock exchange
• Selected from different issuers, maturities, types of bonds
• Less risky then stock funds

2
Value up when interest rates are lower
See disclosure at the end of this presentation.
14
Investment Options
Balanced/Asset Allocation Funds
• Balanced funds


Balance volatility and return with a mix of stocks,
bonds, cash
Mix consistent; actual funds may be actively traded
• Asset allocation funds

Managers shift money among stocks, bonds and
short-term cash investments
15
Investment Options
Index Funds and Specialty Funds
• Index funds


Hold same securities in the same proportion of specific
market index like S&P 500
Not actively managed
• Specialty funds3



3
One specific segment of the market (financial, technology)
Small area of concentration
More risk
See disclosure at the end of this presentation.
16
Investment Options
Stable Value Funds
• Stable value contract

Specific rate of return promised by financial entity like an
insurance company
• Stable value funds by contracts

No price fluctuation, no market risk

More conservative investment with lower rate of return
17
Annual Returns for Market Indexes
Hi g h e st
Re t u r n
1987 to 2005
1987
1988
1989
1990
MSCI EAFE
MSCI EAFE
Wilshire Large
Growth
LB Agg
24.93%
28.59%
35.21%
8.95%
3-month T Bill
Wilshire Large
Value
S&P 500
3-month T Bill
6.73%
22.79%
31.49%
8.42%
S&P 500
5.23%
22.39%
25.14%
t o
Re t u r n
L o we st
20.54%
23.94%
0.34%
S&P 500
-3.17%
Wilshire Large Wilshire Small Wilshire Small
Wilshire 4500
Value
Growth
Growth
3.59%
19.30%
LB Agg
S&P 500
2.75%
16.81%
Wilshire Small Wilshire Large
Growth
Growth
18.72%
1993
Wilshire Small Wilshire Small
MSCI EAFE
Growth
Value
56.80%
29.23%
32.94%
1994
MSCI EAFE
8.06%
49.00%
14.39%
17.98%
4.19%
46.62%
13.20%
14.57%
Wilshire Small
Wilshire 4500 Wilshire 4500
Value
43.45%
11.87%
14.12%
S&P 500
S&P 500
30.55%
7.67%
13.45%
LB Agg
S&P 500
2.97%
S&P 500
1.31%
1996
1997
1999
Wilshire Large Wilshire Large Wilshire Large Wilshire Large Wilshire Large
Value
Growth
Growth
Growth
Growth
43.47%
37.88%
S&P 500
37.43%
33.48%
2001
2002
2003
LB Agg
Wilshire Small
Value
LB Agg
Wilshire 4500
43.80%
33.69%
42.21%
35.53%
11.63%
20.15%
10.27%
S&P 500
S&P 500
S&P 500
Wilshire 4500
Wilshire Small
Value
LB Agg
3-month T Bill
23.07%
33.36%
28.58%
35.49%
11.11%
8.42%
1.80%
Wilshire Large Wilshire Small
MSCI EAFE
Value
Value
19.08%
32.44%
20.33%
Wilshire Small
Wilshire Large Wilshire Large
Wilshire 4500
Growth
Value
Value
35.18%
2000
26.93%
17.18%
31.38%
Wilshire Large Wilshire Small
Wilshire Small
Wilshire 4500
Wilshire 4500
Value
Growth
Value
0.54%
1998
15.43%
25.69%
11.25%
LB Agg
8.67%
MSCI EAFE
27.30%
S&P 500
21.04%
9.99%
4.42%
-13.30%
Wilshire Large
3-month T Bill
MSCI EAFE
Value
6.18%
-0.65%
-15.66%
16.57%
Wilshire Small Wilshire Small Wilshire Small Wilshire Small
Wilshire 4500 3-month T Bill
Value
Value
Growth
Growth
-1.33%
S&P 500
-2.20%
-17.53%
Wilshire 4500 Wilshire 4500
25.64%
7.40%
9.99%
-1.96%
29.75%
14.05%
15.85%
8.63%
4.85%
-9.11%
-9.30%
-17.80%
LB Agg
Wilshire Small
Growth
LB Agg
Wilshire Large
Growth
LB Agg
Wilshire 4500
LB Agg
MSCI EAFE
LB Agg
3-month T Bill
LB Agg
MSCI EAFE
S&P 500
S&P 500
-19.02%
16.00%
5.93%
9.75%
-2.66%
18.48%
6.36%
9.68%
5.23%
-0.83%
-13.96%
-11.88%
-22.10%
LB Agg
MSCI EAFE
-2.92%
11.55%
Wilshire 4500
LB Agg
MSCI EAFE
-3.51%
7.89%
10.80%
Wilshire Small
3-month T Bill 3-month T Bill
Value
8.99%
Wilshire Small
MSCI EAFE
Value
3-month T Bill 3-month T Bill
-19.39%
12.49%
3.93%
MSCI EAFE
3-month T Bill
MSCI EAFE
-23.19%
6.38%
-11.85%
Source: Ibbotson Associates
See key on the following slide.
3.19%
Wilshire Large Wilshire Large
3-month T Bill
Growth
Value
-0.54%
-4.34%
6.03%
3-month T Bill 3-month T Bill
5.30%
5.33%
LB Agg
MSCI EAFE
3.61%
2.06%
18
Wilshire Small Wilshire Large
Wilshire Large Wilshire Large
Wilshire 4500
Growth
Value
Growth
Growth
-2.46%
-7.11%
-15.77%
-16.39%
Wilshire Small Wilshire Small Wilshire Large
MSCI EAFE
Value
Value
Growth
-4.87%
40.90%
39.20%
2005
Wilshire Small
MSCI EAFE
Value
29.83%
14.01%
Wilshire Large
Value
20.70%
12.48%
Wilshire 4500
Wilshire Small
Value
18.57%
11.15%
Wilshire Small Wilshire Small
Wilshire 4500
Growth
Growth
38.60%
17.97%
10.27%
Wilshire Small Wilshire Small Wilshire Small Wilshire Large Wilshire Large Wilshire Large Wilshire Small
Growth
Growth
Growth
Value
Value
Value
Growth
-7.59%
14.53%
2004
Wilshire Small
MSCI EAFE
Value
Wilshire Large
Wilshire Small
3-month T Bill
MSCI EAFE
Value
Value
18.12%
15.20%
6.93%
-13.56%
1995
Wilshire Small Wilshire Large Wilshire Small
Wilshire Large
3-month T Bill
Value
Value
Growth
Growth
Wilshire Small Wilshire Large Wilshire Large
Value
Value
Value
-3.08%
-8.64%
1992
Wilshire Small Wilshire Large Wilshire Large Wilshire Large Wilshire Small
Wilshire Large
Wilshire 4500
Value
Value
Growth
Growth
Growth
Growth
Wilshire Large
Wilshire 4500 Wilshire 4500
Growth
4.74%
1991
-12.32%
-17.19%
-21.20%
-24.97%
32.40%
16.17%
9.39%
S&P 500
S&P 500
S&P 500
28.70%
10.87%
4.91%
Wilshire Large Wilshire Large
3-month T Bill
Growth
Growth
25.20%
7.77%
3.06%
LB Agg
LB Agg
LB Agg
4.10%
4.34%
2.43%
Wilshire Small
Wilshire Large
3-month T Bill 3-month T Bill
Growth
Growth
-29.05%
1.15%
1.33%
2.07%
Glossary
S&P 500 Index measures the performance of large capitalization U.S. stocks. The S&P 500 is a market-value-weighted index of 500 stocks that are
traded on the NYSE, AMEX and NASDAQ. The weightings make each company's influence in the Index performance directly proportional to that
company's market value.
Wilshire 4500 Index measures the performance of all small- and mid-cap stocks and is constructed using the Wilshire 5000 Index with the securities
of the S&P 500 Index removed.
Wilshire Large Cap Growth and
Wilshire Large Cap Value indices measure performance of the growth and value styles of investing in large-cap U.S. stocks. Widely regarded as
one of the standards for measuring large-cap U.S. stock market performance, the index includes a representative sample of leading companies in
leading industries. Large companies in the Wilshire 5000 are made of the top 750 stocks of the overall index and are split into two indices: the
Value Index based on price/earnings ratio, price-to-book ratio and yield, and the Growth Index which groups companies with at least five years of
history based on sales, growth rate, return on equity, and dividend payout.
Wilshire Small Company Growth and
Wilshire Small Company Value measure the performance of growth and value styles of investing in small-cap U.S. stocks. The same variables as
above are used to characterize the stocks as value or growth.
MSCI EAFE is a Morgan Stanley Capital International index that is designed to measure the performance of the developed stock markets of Europe,
Asia, and the Far East.
LB Agg is the Lehman Brothers Aggregate Bond index. This index includes U.S. government, corporate and mortgage-backed securities with
maturities up to 30 years.
*You cannot invest directly in these indices therefore; their performance does not reflect the expenses associated with the management of a
portfolio of open-ended investment company shares. This information is being provided for educational purposes only and is not intended to be
construed as or relied upon as investment advice. This information is not intended to be construed as a solicitation for particular product or security.
Performance reflected above represents past performance. Investment returns and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is not indicative of future returns.
Individuals are advised to consider any new investment strategies carefully prior to implementing.
19
What is Your Time Horizon?
• Retiring in less than 10 years?

Allocate a larger portion of assets in
less risky investments
• Less short-term fluctuation
 Growth slower but more predictable
• Retirement more than 10 years away?


Generally the more time before retirement,
the more aggressive investments can be
More short-term ups and downs but over time,
volatility (risk) is reduced
20
Patience is Key
• Stock and bond markets are unpredictable


Timing the market difficult, even for seasoned
professionals
• When to get out? When to get back in?
Short-term changes are less important than
long-term trends
• Regardless of market fluctuations, consistently
invest the same amount of money on a regular
basis (Dollar Cost Averaging4)
4 See
disclosure at the end of this presentation.
21
Dollar Cost Averaging4
Investing $2,400 Over A Four Month Period
Dollar Cost Averaging buys 90 shares
Average Market Price buys only 84.2 shares
Amount
Invested
Price/
Share
# of
Shares
Jan
Feb
Mar
Apr
$600
$600
$600
$600
$20
$30
$24
$40
30
20
25
15
Total
$2400
Month
90
Example is for illustration purposes only and is
not intended to represent an actual account.
4 See
disclosure at the end of this presentation.
22
Average Share Price = $28.50
Average Cost Per Share Price = $26.67
Savings: $1.83 Per Share
Putting it All Together
Building Your Portfolio
• Start by participating in your employer sponsored
retirement savings plan

Contribute as much as you can afford
• Your most important decision is asset allocation

Percentage of assets invested in type of fund
• Factors to consider



What is your timeline?
Is your portfolio diversified?
Do you understand the risks of your investments?
• Too safe? Too aggressive?
23
Investment Solutions
Three different investors
I will need my assets in the year… – Milestone Funds
Single Fund
Solutions
I want to look at risk… – Model Portfolio Funds
I want to build a custom line-up…
Three different solutions.
24
I will need my assets in the year…
Option One – Milestone
Funds1
Ideal for people that want to make one
simple fund selection for the long-term
35 years
30 years
25 years
20 years
15 years
10 years
Years to Planned Retirement Date
Fixed
1 See
disclosure at the end of this presentation.
Equity
25
5 years
Target
Retirement
Date
I want to manage risk…
Option Two –
Model Portfolios Funds1, 5
Ideal for people that understand their risk profile
and want to annually monitor their account
Savings
Oriented6
Conservative
Growth
Traditional
Growth
Long-term
Growth
Conservative Risk
High Risk
Fixed
1, 5-6
All-Equity
Growth
See disclosure at the end of this presentation.
Equity
26
I want to build a custom line-up…
Option Three –
Value
Blend
Customized Investing1, 7
Growth
Large Cap: > $10.5 B
Mid Cap: $1.7 B - $10.5 B
Small Cap: < $1.7 B
1, 7 See
disclosure at the end of this presentation.
27
Your ICMA-RC Investment Options1, 7
Single Fund Solutions
I will need my
assets in the year…
VANTAGEPOINT
MILESTONE FUNDS
Milestone Retirement Fund
Milestone 2010 Fund
Milestone 2015 Fund
Milestone 2020 Fund
Milestone 2025 Fund
Milestone 2030 Fund
Milestone 2035 Fund
Milestone 2040 Fund
I want to manage risk…
Customized
Investing
I want to build
a custom line-up…
VALUE
BLEND
Large Cap >$10.5 B
Vantagepoint Growth & Income
VT Fidelity Magellan9
Vantagepoint Broad Market Index
Vantagepoint 500 Index Stock
VT Legg Mason Value FI
10
Mid Cap $1.7 B - $10.5 B
Vantagepoint Mid/Small Co Index
VT Third Avenue Value
10
Small Cap < $1.7 B
VT T. Rowe Price® Small Cap Stock9
VT T. Rowe Price® Small Cap Value
VT Royce Premier
Vantagepoint Equity Income
VT Lord Abbett Large Co Value8
VT Hotchkis & Wiley Large Value
VT American Century® Value
VT Goldman Sachs Mid Cap Value
1-3, 5-14
Vantagepoint Growth
VT American Century Ultra®
VT T. Rowe Price® Growth
VT Fidelity Contrafund
Vantagepoint Aggressive Opportunities
VT Rainier Small/Mid Cap Equity
VT Fidelity Small Cap Retirement
BALANCED
FIXED INCOME
STABLE VALUE
VT Fidelity Puritan®
Vantagepoint US Gov’t Securities2
Vantagepoint Money Market11
VT PIMCO Total Return Bond2
VT PIMCO High Yield Bond2
Vantagepoint Core Bond Index2
VantageTrust PLUS Fund12
ASSET ALLOCATION
SPECIALTY3
INTERNATIONAL13
Vantagepoint Asset Allocation
VT Calvert Soc Inv Fund Eq Port
VT American Century Real Estate®
Vantagepoint International14
VT Fidelity Diversified International
VT Templeton Growth
Vantagepoint Overseas Eq Index14
VANTAGEPOINT MODEL
PORTFOLIO FUNDS5
Savings Oriented7
Conservative Growth
Traditional Growth
Long-Term Growth
All-Equity Growth
GROWTH
See disclosure at the end of this presentation.
28
Family of Funds1, 7
I will need my
assets in the year…
Vantagepoint Milestone Funds
Milestone
Retirement Income
I want to manage risk…
Vantagepoint Model Portfolio Funds5
Model Portfolio
Savings Oriented7
Milestone 2010
Milestone 2015
Model Portfolio
Conservative Growth
Milestone 2020
Model Portfolio
Traditional Growth
Milestone 2025
Milestone 2030
Model Portfolio
Long-Term Growth
Milestone 2035
Model Portfolio
All-Equity Growth
Milestone 2040
1-3, 5-14 See
I want to build a custom line-up…
disclosure at the end of this presentation.
Vantagepoint Funds and non-proprietary funds of the VantageTrust
Fixed Income & Stable Value
Vantagepoint Core Bond Index2
Vantagepoint US Govt. Securities2
Vantagepoint Money Market11
VantageTrust PLUS12
VT PIMCO Total Return2
VT PIMCO High Yield2
Balanced/Asset Allocation
Vantagepoint Asset Allocation
VT Fidelity Puritan
Value
Vantagepoint Equity Income
VT Hotchkis & Wiley Large Value
VT Lord Abbett Large Co Value8
VT American Century Value
Blend
Vantagepoint Growth & Income
Vantagepoint 500 Stock Index
VT Legg Mason Value FI
Vantagepoint Broad Market Index
VT Fidelity Magellan9
Growth
Vantagepoint Growth
VT Fidelity Contrafund
VT T. Rowe Price® Growth Stock
VT American Century Ultra
Specialty3
VT American Century Real Estate
VT Calvert Social Invest Eq Portfolio
International Equities13
Vantagepoint International14
Vantagepoint Overseas Equity Index14
VT Fidelity Diversified International
VT Templeton Growth
Aggressive Growth10
Vantagepoint Aggressive Opportunities
Vantagepoint Mid/Small Company Index
VT Goldman Sachs Mid Cap Value
VT Rainier Small/Mid-Cap Eq Portfolio
VT Third Avenue Value
29
VT T. Rowe Price® Small Cap Value
VT T. Rowe Price® Small Cap Stock9
VT Fidelity Small Cap Retirement
VT Royce Premier
How We Can Help
Local Representative
Phone
ICMA-RC Web site
• Series 7, 63 and 65
licensed
• Account inquiries
• www.icmarc.org
• Answer questions
• Check account balance
• Answer questions and help
fill out enrollment forms
• Resolve Issues
• Make transactions
• Retirement planning
worksheets and materials
• Transactions
• Fund information
• Address changes
• Additional helpful tools
and services
• Location visits on a regular
basis or contact me directly
• Ongoing presentations
focusing on the basics
of investing
Contact Info:
Vernon Stockton
800-669-7400
• Other customer servicerelated issues
Your Account Statement
• Mailed 10 business days
after quarter end
• Provides:
 Account summary
 Personalized
performance
 Account balance charts
 Fund information
• ICMA-RC Investor Services:
1-800-669-7400
 Automated
services
24 hours a day,
7 days a week
 Investor Services
representative Monday –
Friday between 8:30am
and 9:00pm ET
30
Top Investment Tips
• Payroll deduction makes investing automatic
• Invest a regular dollar amount
• Take advantage of tax-deferred investing
• Think about your risk tolerance
• Diversify
• Invest in what you understand
• Invest for the long haul
• The power of time – compounding
• Retirement assets are for retirement!
31
Next Steps
Building Your Portfolio
•
Take control today



•
Start enrolling
Review your current asset allocation
Understand your investments and plan rules
Set up an appointment
32
Disclosures
1.
Please consult both the current applicable prospectuses and MAKING SOUND INVESTMENT DECISIONS: A Retirement Investment Guide carefully
for a complete summary of all fees, expenses, charges, financial highlights, investment objectives, risks and performance information. Investors
should consider the Fund’s investment objectives, risks, charges and expenses before investing or sending money. The prospectus contains this and
other information about the investment company. Please read the prospectus carefully before investing. ICMA-RC’s proposed fund line-up is a
commitment to administer these funds for the plan, not advice to the plan sponsor on the composition of the plan’s fund line-up. ICMA-RC provides
plan sponsors fund information to assist them in meeting their fiduciary responsibility in managing the plan. The plan sponsor retains the obligation to
prudently select and monitor the investment funds it offers to plan participants. ICMA-RC may adjust fees commensurate with changes in revenue
from alternative funds selected by the plan sponsor from ICMA-RC’s mutual fund platform. Vantagepoint securities are distributed by ICMA-RC
Services LLC, a broker dealer affiliate of ICMA-RC, member NASD/SIPC. For a current prospectus, contact ICMA-RC Services LLC, 777 North
Capitol Street NE, Washington, DC 20002-4240. 1-800-669-7400.
2.
A rise/fall in the interest rates can have a significant impact on bond prices and the NAV (net asset value) of the fund.
Funds that invest in bonds can lose their value as interest rates rise and an investor can lose principal.
3.
Funds that concentrate investments in one industry may involve greater risks than more diversified funds, including greater potential for volatility.
4.
Dollar Cost Averaging Plans do not assure profit or protect against loss in a declining market. Since Plans involve continuous investment, regardless
of fluctuating prices, investor must consider financial ability to continue to invest during low price levels.
5.
The asset allocation of the Model Portfolios was rebalanced when the Income Preservation Fund was replaced by the Short-Term Bond Fund on
November 9, 2004.
6.
Because of its high allocation to fixed income, the Fund may be appropriate for investors with a low risk tolerance and shorter investment horizon.
However, because the Fund invests one quarter of its assets in stocks, the Fund may offer higher growth potential and inflation protection than an allbond portfolio.
7.
A redemption fee may be assessed when participants sell shares within proposed funds. Please refer to the fund prospectuses for guidance on
redemption fee and market timing terms.
8.
Invests solely in the Lord Abbett Affiliated Fund.
9.
Closed to new plan sponsors.
33
Disclosures
10.
Small/Mid Cap: Funds that invest in small and/or mid-sized company stocks typically involve greater risks, particular in the short-term than those investing
in large, more established companies.
11.
Investments in the Vantagepoint Money Market Fund are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the
Fund. Vantagepoint securities are distributed by ICMA-RC Services, LLC, a broker-dealer affiliate of ICMA-RC, member NASD/SIPC. 1-800-669-7400.
12.
Because there is no trading market for investment contracts, PLUS Fund returns consist of yield only. Returns are annualized for ease of comparison with
other stable value investments. Please consult the current MAKING SOUND INVESTMENT DECISIONS: A Retirement Investment Guide for additional
information on the VantageTrust PLUS Fund including trading and transfer restrictions. 1-800-669-7400.
13.
International: Foreign investments are subject to more risks not associated with domestic investments (I.e. currency, economy and political risks.)
14.
Investors who transfer assets out of these Funds must wait at least 91 days before transferring assets back into the same Funds.
The policy affects transfers only. It does not affect regular contributions or disbursements.
34