1. Fidelity Retirement Funds Making the Right Investments Dr. Eskandar Tooma

2. Outline Introduction and Objective of Lecture Fidelity Retirement Plan Investor lifecycle Risk Tolerance :Questionnaire Risk-return relationship Table of returns How to choose funds? Benchmarking-investment funds Using the software

3. Selection of the new Fidelity Funds A range of fund options covering all asset classes, e.g. equities, bonds and cash A range of fund options covering the entire risk reward spectrum, low risk and high risk alternatives ‘Self select’ fund options ‘Lifestyle’ options

4. Objective of Lecture Assist Faculty and Staff in allocating their funds among 10 Fidelity Investment Funds

5. Things to look for before investing in funds Investor Lifecycle: Where am i? Risk Tolerance: How risky can I get? Portfolio Mix: How much in each asset class?

6. Investor Life-Cycle: Where am I?

7. Investor Life-Cycle Accumulation phase Long-term: Retirement Children College Needs Short-term: House Car Consolidation phase Long-term: Retirement Short-term: Vacations Children College Needs Spending phase Gifting phase Long-term: Estate planning Short-term: Lifestyle needs gifts Networth Age

8. Risk Tolerance: How risky can I get?

9. Risk Tolerance The degree of uncertainty that an investor can handle in regards to a negative change in the value of their portfolio. An investor's risk tolerance varies according to age, income requirements, financial goals, etc.  For example, a 70-year-old retired widow would generally have a lower risk tolerance than a single 30- year-old executive.

10. Risk Tolerance Questionnaire

11. Risk Preferences for Investors

12. Risk and Return Fundamentals We don’t know how much a stock will be worth in the future. It is difficult to make such predictions with any degree of certainty. As a result, investors often use history as a basis for predicting the future.

13. Risk Defined Risk is variability of returns associated with a given asset Assets (real or financial) which have a greater chance of loss are considered more risky than those with a lower chance of loss.

15. Return Defined Return represents the total gain or loss on an investment. The most basic way to calculate return is as follows: k t = P t - P t-1 + C t P t-1 k t is the actual, required or expected return during period t, P t is the current price, P t-1 is the price during the previous time period, C t is any cash flow accruing from the investment

16. Return Defined

17. Risk-Reward Concept Most Investors are risk averse In theory the higher the risk, the more you should receive for holding the investment, and the lower the risk, the less you should receive For investment securities, we can create a chart with the different types of securities and their associated risk/reward profile.

18. Investment Risk Pyramid

19. Portfolio Construction: Fidelity Retirement Funds

20. A Guide To Portfolio Construction Step 1: Determining the Appropriate Asset Allocation for You Step 2: Achieving the Portfolio Designed in Step 1 you simply need to divide your capital between the appropriate asset classes. Step 3: Re-assessing Portfolio Weightings Step 4: Rebalancing Strategically Always remember the importance of diversification

21. Aggressive Growth Portfolio Conservative Portfolio Growth Portfolio Balanced Portfolio pick your mix

22. model find the Aggressive Growth Portfolio Conservative Portfolio Balanced Portfolio Growth Portfolio Average Annual Return (1951–2002) Best Annual Return Worst Annual Return # of Up Years # of Down Years 7.38 % 22.04 % -1.15 % 49 3 9.49 % 25.52 % -10.92 % 42 10 10.81 % 35.80 % -17.35 % 40 12 11.85 % 44.08 % -22.02 % 39 13 30% 50% 85%70% 20% 25% 10%5% 40% 15% 50% Source: Ibbotson Associates 12/1951-12/2002

23. Choosing your investment funds – Self-Select Options Fidelity Fund Name RiskObjective Defensive FundLowGrowth Euro Stoxx 50MediumGrowth AmericaMediumGrowth European GrowthMedium/HighGrowth PacificHighGrowth Global GrowthMediumGrowth Emerging MarketsVery HighGrowth International BondLow/MediumProtection US$ BondLowProtection US$ CashVery LowProtection

24. INFLATION RISK INVESTMENT RISK High V High Medium-HighMedium Low-MediumLow Very Low Fidelity Funds – risk reward spectrum US Dollar Cash US Dollar Bond FPS Defensive Internatio nal Bond America FPS Global Growth Euros Stoxx 50 Pacific Emergi ng Market s European Growth

25. Understanding Funds Terminology Benchmark Index Funds Growth % Fund annualized growth Index annualized growth

26. Choosing your investment funds – Self-Select Options Fidelity Fund Name RiskFunds Growth Since Launch Index Growth since Launch Defensive FundLow4.4%4.8% Euro Stoxx 50Medium3.8%4.5% AmericaMedium10.9%11.7% European GrowthMedium/High13.2%10.7% PacificHigh4.6%2.5% Global GrowthMedium6.6%5.3% Emerging MarketsVery High2.9%6.3% International BondLow/Medium5.8%8% US$ BondLow6.3%7.7% US$ CashVery Low3.5%N/A