Presentation on theme: "Asset Allocation Strategies for a Well Balanced Investor"— Presentation transcript:
1 Asset Allocation Strategies for a Well Balanced Investor Before you can implement an investment strategy, or a college-savings strategy, or a retirement-planning strategy—you’ll need some money to work with.So, let’s talk budgeting. Here’s the priceless question you must answer before you can lay out any financial strategy—where does the money go?Presenter NameRegistered RepresentativeDateC (05/09)
7 Important Information (continued) Variable annuities, group annuities or funding agreements are long-term investments designed for retirement purposes. If withdrawals are taken prior to age 59 1/2, an IRA 10% premature distribution penalty tax may apply. Money taken from the annuity will be taxed as ordinary income in the year the money is distributed. An annuity does not provide any additional tax deferral benefit, as tax deferral is provided by the plan. Annuities may be subject to additional fees and expenses to which other tax-qualified funding vehicles may not be subject. However, an annuity does provide other features and benefits, such as lifetime income payments and death benefits, which may be valuable to you.Variable investments, of any kind, are not guaranteed and are subject to investment risk including the possible loss of principal. The investment return and principal value of the security will fluctuate so that when redeemed, it may be worth more of less than the original investment. In addition, there is no guarantee that any variable investment option will meet its stated objective.For 403(b)(1) annuities, the Internal Revenue Code (IRC) generally prohibits withdrawals of 403(b) salary reduction contributions and earnings on such contributions prior to death, disability and age 50 ½, severance of employment, or financial hardship. Amounts held in a 403(b)(1) annuity as of 12/31/1988 are “grandfathered” and are not subject to these restrictions. For 403(b)(7) custodial accounts, the IRC generally prohibits withdrawals of any contributions and attributable earnings prior to death, disability, age 59 ½, severance of employment, or financial hardship. For both 403(b)(1) annuities and 403(b)(7) custodial accounts, the amount available for hardship is limited to the lesser of the amount necessary to relieve the hardship, or the account value as of 12/31/1988, plus the amount of any salary reduction contributions made after 12/31/1988 (exclusive of any earnings).You should consider the investment objectives, risk, and charges and expenses of the investment options carefully before investing. Fund prospectuses contain this and other information and can be obtained by contacting your local ING representative. Please read carefully before investing.IMPORTANT: THIS SLIDE TO BE USED FOR HEG MARKET, TSA MARKET AND 401(k) MARKET.
8 Important Information (continued) Variable annuities, group annuities or funding agreements are long-term investments designed for retirement purposes. If withdrawals are taken prior to age 59 1/2, an IRA 10% premature distribution penalty tax may apply. Money taken from the annuity will be taxed as ordinary income in the year the money is distributed. An annuity does not provide any additional tax deferral benefit, as tax deferral is provided by the plan. Annuities may be subject to additional fees and expenses to which other tax-qualified funding vehicles may not be subject. However, an annuity does provide other features and benefits, such as lifetime income payments and death benefits, which may be valuable to you.Variable investments, of any kind, are not guaranteed and are subject to investment risk including the possible loss of principal. The investment return and principal value of the security will fluctuate so that when redeemed, it may be worth more of less than the original investment. In addition, there is no guarantee that any variable investment option will meet its stated objective.For 403(b)(1) annuities, the Internal Revenue Code (IRC) generally prohibits withdrawals of 403(b) salary reduction contributions and earnings on such contributions prior to death, disability and age 50 ½, severance of employment, or financial hardship. Amounts held in a 403(b)(1) annuity as of 12/31/1988 are “grandfathered” and are not subject to these restrictions. For 403(b)(7) custodial accounts, the IRC generally prohibits withdrawals of any contributions and attributable earnings prior to death, disability, age 59 ½, severance of employment, or financial hardship. For both 403(b)(1) annuities and 403(b)(7) custodial accounts, the amount available for hardship is limited to the lesser of the amount necessary to relieve the hardship, or the account value as of 12/31/1988, plus the amount of any salary reduction contributions made after 12/31/1988 (exclusive of any earnings).All Guarantees are based on the financial strength and claims-paying ability of the issuing insurance company, who is solely responsible for all obligations under its policies.You should consider the investment objectives, risk, and charges and expenses of the investment options carefully before investing. Fund prospectuses contain this and other information and can be obtained by contacting your local ING representative. Please read carefully before investing.IMPORTANT: THIS SLIDE TO BE USED FOR RETAIL VA.
9 Important Information (continued) You should consider the investment objectives, risk, and charges and expenses of the investment options carefully before investing. Fund prospectuses contain this and other information and can be obtained by contacting your local ING representative. Please read carefully before investing.IMPORTANT: THIS SLIDE TO BE USED FOR ING FINANCIAL ADVISERS AND OTHER BROKER-DEALERS SELLING NON-INSURANCE PRODUCTS. ALSO TO BE USED FOR IIPS.
10 Important Information (continued) This presentation/seminar contains information regarding insurance products for sale.IMPORTANT: THIS SLIDE TO BE USED FOR ALL BUSINESS LINES.
11 The ING difference… to life planning about financial realities First, a little about ING…We’re a different kind of financial services company…with a fresh approach to planning your financial life.We don’t just focus on your finances, we start with your goals…what you want to get out of life. Then, we add a bit of reality and common sense to help you see what might be blocking your ability to reach your goals.From there we’ll talk possible solutions…with the understanding that everyone’s unique…and other factors may need to be taken into account…so you may make decisions that fit with your overall financial picture.Don’t worry. We’re not going to overwhelm you. We hope you’ll find our approach to be honest, refreshing and maybe even a little fun. Which basically summarizes ING’s whole approach to financial education.[Speaker note…Introduce yourself.]Before we get started, some introductions are in order. Let me tell you a bit about me.that take the whole picture into account
12 Three Steps to Stay on Target Diversify: Invest across asset classes.Risk:Manage performance.Review: Reassess your plan every year.First…Diversify. This means allocate your assets…across the three major asset classes of stocks, bonds, and cash…and within each of those classes.Next, practice asset allocation because it may have the greatest effect…by far…of anything you can do to manage risk and take good financial care of yourself. Look at it this way. It’s like NOT putting all your eggs into one basket.Next, make sure your mix of assets…how much you put where…is right for you. Your decisions should feel comfortable, and be in keeping with your goals, your time horizon, how much risk you can tolerate, and how much money you have to work with.Finally, don’t get too comfortable. At least once a year, review your allocations and make adjustments with a professional advisor…to make sure your assets are still allocated as you intended…and you’re still on target.Using diversification/asset allocation as part of your investment strategy neither assures nor guarantees better performance and cannot protect against a loss in declining markets
13 Review your asset allocation plan over time. Now, regardless of what stage of life you’re at, asset allocation is vitally important. In fact, it’s essential for any sound financial plan—whether you’re in your 20s, 40s or 60s.Let’s take a holistic view of all of the life stages…and then we can also focus on a couple stages in greater detail…and see how asset allocation fits in.20s30s-40s40s-50s60s+
14 In Your 20s Key Concerns: Questions to Ask: Investment Tips: • Paying college loans• Meeting living expenses• Starting an investment plan• What are my goals?• How much risk can I take with my money?• Establish an emergency savings accountContribute maximum amount to tax-deferred retirement plan• Set up mutual fund, broker- age or savings accountNow if you’re twentysomething, you may be working at your first “real” job and starting off your career. You may be trying to pay off college loans, and beginning to pay ordinary living expenses, like food, rent and transportation costs…just to give you an idea.You should begin to start investing for the future, so you can someday own a home, travel or fulfill some other lifelong dream you have. Ask yourself: What are my goals? And how much risk can I take with my money?It’s never too early to start thinking about how to allocate your assets. So keep in mind a few strategies to get you on the right track:• Contribute to voluntary tax-deferred retirement plan, say like a 401(k) plan that’s offered by an employer. It’s a great way to set money aside from your paycheck…and it can be done on a pre-tax basis, so you’re lowering your current taxable income along with gaining tax-deferred growth potential on your investments.• When you contribute, put away the maximum amount, at least up to the employer match, so you’re taking full advantage of this benefit.• You may also want to set up a brokerage or mutual fund account to help you invest.
15 In Your 30s & 40s Key Concerns: Questions to Ask: Investment Tips: • Buying a home• Supporting family needs• Saving for a vacation or kids’ college education• What are my goals?• How much risk can I take with my money?• Split savings into long- and short-term goals• Think equities for long-term; more liquid options for short-termOf course, things can start to get a little complicated once you reach your 30s & 40s. You may be juggling income to support your family, or trying to buy a home or furthering your education. If you have children, you may also be starting to think about how to pay for their college education…as well as a dream vacation for you and your spouse.During this stage of life, you definitely want to ask yourself: “What’s my goal?” and “What’s my tolerance for risk?” Once you’ve answered these questions, you’ll want to keep these strategies in mind for how you might finance your goals.• Consider splitting the amount you invest between long- and short-term goals.• Experts agree that long-term investment should still be in stocks or stock mutual funds, but short investments should be more liquid.
16 In Your 40s & 50s Key Concerns: Questions to Ask: Investment Tips: • Paying child’s college costs• Meeting living expenses• Funding retirement plan• What are my goals?• How much risk can I take with my money?• When do I plan to retire?• Save more money for long-term through: - employer qualified planmutual fundsbrokerage accountsCDs and bondsIn your 40s or 50s you may find that there are many demands on your finances. Like juggling income, paying for your child’s college education, and perhaps buying a bigger home. Not to mention continuing your investment plan.So you’ll want to ask yourself 1) What’s my goal? 2) What’s my risk tolerance? And 3) When do I plan to retire?As part of an asset allocation strategy, you may want to consider putting more into your long-term savings through a number of different accounts you may have already established, such as: employer’s qualified plan, mutual funds, brokerage accounts, CDs, and bonds. You’ll want to pay particular attention to how much more you could allocate to stocks, since over time they have proven to offer the most growth potential. A conservative rule of thumb: Add a percent sign to your age; then put no more than the percentage of your money into fixed income investments like bonds or CDs. The rest can go into stocks.When you turn 50 years old, you may get an incentive to save even more in certain retirement plans or IRA through “catch-up” provisions. What this means is that if you have contributed the maximum amount the IRS generally permits and you are at least age 50, the IRS allows you to increase your contribution by a specific dollar amount for that year.
17 In Your 60s & Beyond Key Concerns: Questions to Ask: Investment Tips: Your financial securityAdequate health careLegacy to your heirsWhat are my goals?How much risk can I take with my money?When do I plan to retire?Am I financially prepared to retire?Shift portfolio to produce more income with less riskRollover retirement payouts to preserve tax-deferralIn your 60s, you’re likely to be primarily concerned about your future financial security once you stop working, making sure you have adequate health care coverage, and perhaps even ensuring a legacy for your heirs.At this stage, you’ll want to ask yourself: 1) What’s my goal? 2) What’s my risk tolerance? 3) When do I plan to retire? And 4) Am I financially prepared for retirement?As part of your asset allocation strategy, you may want to consider these steps:• Shifting a portion of your growth-oriented investments (e.g. stocks, or stock mutual funds), to more income-producing vehicles, like bonds and fixed income, that are less risky, but seek to produce a more regular income—with less risk.• Rollovers of distributions from retirement plans, to the extent permitted under the IRS tax laws, preserve their tax-deferred status. For example, you may get a distribution from an employer’s retirement plan if you decide to switch jobs or retire …or if the plan is terminated for some reason. Rolling over these assets to a new employer’s retirement plan, or to a traditional IRA will allow you to preserve the tax-deferred status of your account and let your total assets continue to have the opportunity grow tax-free.
18 Let’s look at three key asset classes. Cash equivalentsFixed income securitiesNow, let’s dig a little deeper into the strategies of asset allocation.Earlier, I mentioned the three major asset classes. They are cash…fixed income securities, and equities.Equities
19 Cash Equivalentslow level of interest paid in return for short-term loan to a financial institution, corporation or governmentminimal fluctuation of principalrelatively short maturities, high liquidityHere’s our first asset class…cash equivalents. This includes cash, of course, and other financial vehicles such as short-term loans to financial institutions, corporations, or the government.Can anyone give me an example of one of these short-term loans? [DISCUSS EXAMPLES]Assets in this class generally have these characteristics: [REVIEW BULLETS]Because you’re emphasizing protection of cash…and a low fluctuation of principal…the tradeoff is returns. In exchange for high liquidity and lower risk, investors generally accept a lower rate of interest on these types of investments.suitable for protecting assets, not growing them
20 Fixed Income Securities / Bonds involve loaning money to an entity on intermediate- or long-term basisusually greater interest paid, given length of loanpotential fluctuation of principal if sold before maturitylower volatility than equities, example: bondsif held to maturity, offer a fixed rate of return and fixed principal valueIn the investment business, we sometimes say that you can either loan it or own it. “Loan-it” is the case with fixed-income securities. They’re mid- to long-term loans to an entity.Who has an example of a fixed-income security? [DISCUSS EXAMPLES]Fixed-income securities generally have these characteristics: [DISCUSS BULLET POINTS]In general, this class of assets is somewhat riskier than cash equivalents. But, in return for modest risk of fluctuation of principal, investors have the opportunity to earn somewhat more.Principal value of a bond will vary inversely to the rise and decline of interest rates.
21 Equities / Stocks involve owning part or all of an asset or company no promise to repay original investmentshare of distributed profit, if anypotential gain or loss of asset value example: stocksOn the flip side of the “loan-it” assets we just discussed, there are equity investments, or “own-it” assets. These involve an ownership share in part or all of an asset of company.Who can give me an example of an equity investment? [DISCUSS EXAMPLES]Equity investments have these characteristics: [REVIEW BULLET POINTS]More so than the other two assets classes, equity investments have a higher potential for return…and for loss. In exchange for the possibility of growth, you must be willing to take a risk.suitable for growing assets
22 Conservative Portfolio Aggressive Growth Portfolio Sample Portfolio Allocations20% Stocks50% Bonds30% Cash EquivalentsConservative Portfolio50% Stocks40% Bonds10% Cash EquivalentsBalanced Portfolio70% Stocks25% Bonds5% Cash EquivalentsGrowth Portfolio85% Stocks15% BondsAggressive Growth PortfolioLet’s look at some sample allocations using our key asset classes, and how they differ in risk.[Note to presenter: Ask audience: How do they match your investment profile? DISCUSS EACH PIE CHART WITH GROUP.]The main point I want to stress is that to invest wisely, you need to balance your desire for growth with your stomach for risk. Each of our three basic types of investments…stocks/stock funds, bonds/bond funds/ and short-term or guaranteed investments…involves a different tradeoff.The challenge is to decide which balance of risk/return is right for you. It may be helpful to enlist the help of a Financial Professional.For illustrative purposes only. This example may not reflect your actual situation. May not be taken as investment advice.
23 The Tradeoff Between Risk and Return StocksBondsCash EquivalentsLow risk/ low potential returnModerate risk/ moderate potential returnHigh risk/ high potential returnRiskLowerHigherPotential returnLowerHigherStocksBondsCash equivalentsHere’s the concept of risk versus return shown another way. In general, the more risk you are willing and able to take, the greater the potential for return…but also the potential for corresponding loss.Cash equivalents are at the low end of the risk spectrum, and, as a tradeoff, they offer low potential for gains or losses.Bonds are in the middle of the continuum. In return for some risk, you have the potential for modest gains or losses.Stocks are at the far end. Yes, they’re riskier than the other two assets classes, because you could lose money…but you also have the potential to make good gains.Be smart about how much risk you take on. Do it for the right reason…for instance, you have 35 years until retirement. Taking excessive risk just for the thrill of it makes no sense.The best approach to asset allocation is to take the minimum amount of risk necessary for you to reach your investment objective.While specific investments may differ, this chart generally reflects the risk/return of types of investments.
25 The Challenge of Retirement Investing Staying in the Market: It’s Time, Not TimingPast performance is no guarantee of future results. Performance shown is historical and not indicative of any ING Funds’ fund performance and does not account for fees and expenses associated with investing in funds. Investors cannot invest directly in an index.Investor refers to the universe of all mutual fund investors whose actions and financial results are restated to represent a single investor.Source: Dalbar, Inc., Quantitative Analysis of Investor Behavior – 2009 Update for investors and Morningstar, Inc. for investments; S&P 500 Index and Barclay’s Capital Aggregate Bond Index.For Financial Professional and Sponsor Use Only
27 Which is better? Only time can tell. The S&P 500 ® Index is a readily available, carefully constructed, market-value-weighted benchmark of common stock performance. Market-value-weighted means that the weight of each stock in the index, for a given month, is proportionate to its market capitalization (price times the number of shares outstanding) at the beginning of that month. Currently, the S&P ® Composite includes 500 of the largest stocks (in terms of stock market value) in the United States; prior to March 1957 it consisted of 90 of the largest stocks.IA SBBI US LT Govt TR: The total returns from 1977-present are constructed with data from The Wall Street Journal. The data from are obtained from the Government Bond File at the Center for Research in Security Prices (CRSP) at the University of Chicago Graduate School of Business. To the greatest extent possible, a one bond portfolio with a term of approximately 20 years and a reasonably current coupon-whose returns did not reflect potential tax benefits, impaired negotiability, or special redemption or call privileges-was used each year. Where "flower" bonds (tenderable to the Treasury at par in payment of estate taxes) had to be used, the term of the bond was assumed to be a simple average of the maturity and the first call dates minus the current date. The bond was "held" for the calendar year and returns were computed.IA SBBI US Small Stock: 2001-present: The Small Company Stock return series is the total return achieved by the Dimensional Fund Advisors (DFA) Small Company 9/10 (for ninth and tenth deciles) Fund. The Fund invests in a broadly diversified cross section of small companies. DFA’s portfolio construction includes stock selection that is based on market capitalization and eligibility criteria. DFA’s proprietary database includes more than 9,000 securities. Data is analyzed from a variety of sources that include industry publications, research reports as well as a number of electronic data services. The U.S Small Company Strategy target universe includes those companies that have a market capitalization in the lowest 4 percent of the market universe. The market universe is defined as the aggregate of the NYSE, AMEX and NASDAQ NMS firms. As of 6/30/01, companies with a market capitalization of approximately $620 million or less are eligible for purchase in the strategy. Market capitalization is calculated as price times shares outstanding. In addition to market capitalization requirements, DFA’s Investment Committee has imposed additional criteria to enhance the value of the portfolio to shareholders. There are currently over 20 quality criteria that would eliminate a company from the portfolio. These criteria include eliminating:· ADRs or foreign stocks· REITS, Limited Partnerships, or closed end funds· Companies with qualified financial statements· Recent IPOs· Companies with less than 3 years of history· OTC companies with less than 4 market makers
28 Which is better? Only time can tell. Disclosure continued:Satisfying market capitalization requirements is the first step in determining security selection. DFA generally holds capitalization-weighted positions of all eligible securities. Sector/industry diversification occurs as a residual of the security selection process. Portfolios are fully invested; Dimensional keeps cash levels below 5%, and generally under 2%. On a quarterly basis, DFA examines the market capitalization ranking of eligible stocks to determine which issues are eligible for purchase or sale. Size ranges are based upon the aggregate capitalization of the market universe- NYSE, AMEX and NASDAQ NMS firms. A hold or buffer range is created for issues that migrate above the buy range. Issues that migrate above the hold range are sold and proceeds invested into the portfolio. On a regular basis, DFA reviews the portfolio's holdings to determine which issues are sell candidates. Sell candidates are determined based on market capitalization. Stocks become eligible for sale when they migrate above the 5th percentile of the market universe, which is $778 million as of 6/30/01. Portfolio turnover averages 20-25% annually.: The Small Company Stock return series is the total return achieved by the Dimensional Fund Advisors (DFA) Small Company 9/10 (for ninth and tenth deciles) Fund. The fund is a market-value weighted index of the ninth and tenth deciles of the NYSE, plus stocks listed on the AMEX and OTC with the same or less capitalization as the upper bound of the NYSE ninth decile. Stocks are not purchased if their market capitalization is smaller than $10 million (although they are held if they fall below that level). A company's stock is not purchased if it is in bankruptcy; however, a stock already held is retained if the company becomes bankrupt. Stocks remain in the portfolio if they rise into the eighth NYSE decile, but they are sold when they rise into the seventh decile or higher. The returns for the Fund represent after-transactions-cost returns. For 1981, Dimensional Fund Advisors, Inc. updated the returns using Professor Banz' methods. The data for 1981 are significant to only three decimal places (in decimal form).: The equities of smaller companies from are represented by the historical series developed by Professor Rolf W. Banz. This is composed of stocks making up the fifth quintile (i.e. the ninth and tenth deciles) of the NYSE. The portfolio was first ranked and formed as of December 31, This portfolio was "held" for five years, with value-weighted portfolio returns calculated monthly. Every five years the portfolio was rebalanced (i.e. all of the stocks on the NYSE were re-ranked, and a new portfolio of those falling in the ninth and tenth deciles was formed) as of December 31, 1930 and every five years thereafter through December 31, This method avoided survivorship bias by including the return after the delisting or failure of a stock in constructing the portfolio returns.IA SBBI US 30 Day TBill: Monthly Bureau of the Public Debt, Department of the Treasury. Data obtained from the following: Aug 1974-present: Monthly Statement of the Public Debt of the United States. Market values are equal to the amount outstanding of marketable, interest-bearing public debt. Index values are expressed in billions of dollars. May 1961-July 1974: Treasury Bulletin.IA SBBI US Inflation: The Consumer Price Index for All Urban Consumers (CPI-U), not seasonally adjusted, is used to measure inflation, which is the rate of change of consumer goods prices. Unfortunately, the inflation rate as derived by the CPI is not measured over the same period as the other asset returns. All of the security returns are measured from one month-end to the next month-end. CPI commodity prices are collected during the month. Thus, measured inflation rates lag the other series by about one-half month. Prior to January 1978, the CPI (as compared with CPI-U), not seasonally adjusted, was used. For the period 1978 through 1987, the index uses the year 1967 in determining the items comprising the basket of goods. Following 1987, a three-year period, 1982 through 1984, was used to determine the items making up the basket of goods.
29 Follow the leader—if you can. 1999200020012002200320042005200620072008HIGHESTRETURNInt’lStocksLT Gov’tBondsSmallStocksInt’lStocksLT Gov’tBondsSmallStocks30 DayT-BillsInt’lStocksSmallStocksLT Gov’tBonds30 DayT-BillsLargeStocksSmallStocksInt’lStocksLargeStocksLT Gov’tBondsLargeStocksSmallStocks30 DayT-BillsLargeStocksSmallStocksLT Gov’tBondsLargeStocks30 DayT-BillsLargeStocksThis graphic illustrates the annual performance of various asset classes in relation to one another. In times when one asset class dominates all others, as was the case for large stocks in the late 1990s, it becomes easier to lose sight of the fact that historical data demonstrates that it is impossible to predict the winners for any given year.Investors betting on another stellar performance for large stocks in 1999 were certainly disappointed as large stocks fell to the middle of the pack and international stock rose to the top. These types of performance reversals are evident throughout this example. It simply goes to show that past performance is no guarantee of future results.A well-diversified portfolio may help investors mitigate some of the risks associated with investing. By investing a portion of a portfolio to a number of different asset classes portfolio volatility risk could be reduced. Remember that diversification alone neither assures nor guarantees better performance and cannot prevent against loss in declining markets. In other words, there are other factors to be taken into consideration when selecting investments.LT Gov’tBondsInt’lStocksLargeStocks30 DayT-BillsLT Gov’tBondsSmallStocksInt’lStocksLOWESTRETURNThese unmanaged indexes are not intended to represent specific mutual funds. Investors cannot invest directly in an index. Individual results may vary to management fees, transaction costs and taxes. Performance figures do not take into account the fees and expenses of investing in mutual funds or variable products. Past performance is no guarantee of future results.Source: Thomson Financial CompanyFor descriptions of these indices, see next page.
30 About Our Leaders and Laggards Barclays Capital U.S. Government Bond Index: The Barclays Capital U.S. Government Bond Index is an index of government and government agency bonds.Morgan Stanley Capital International: Europe, Australia and Far East (MSCI EAFE®) Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada. As of December 2003 the MSCI EAFE Index consisted of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. EAFE is a registered service mark of Morgan Stanley Dean Witter, Discover & CoRussell 2000® Index is an equity index representing 2,000 of the smallest companies within the larger Russell 3000® Index. Often looked at as one benchmark for small stock investors. Russell 2000 is a registered service mark of Frank Russell Company.Standard & Poor's 500® Index (S&P 500®) is comprised of 500 stocks representing major U.S. industrial sectors. Performance figures are inclusive of dividends reinvested. S&P 500 is a registered service mark of The McGraw-Hill Companies, Inc. "Standard & Poor's 500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by ING Life Insurance and Annuity Company. This product is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of purchasing this product. The S&P 500 Index does not reflect dividends paid on the underlying stock.Government bonds are presented by the 20-year U.S. government bond, Treasury bills by the 30-day U.S. Treasury bill.Past performance is no guarantee of future results. The indices’ past performance is historical and is provided to illustrate market trends. Such performance does not represent the performance of any specific fund. Indices are not actively managed and investors cannot invest directly in the indices. Index performance does not reflect any management fees or expenses associated with investing in mutual funds.
31 So, what’s a person to do?Factors that explain variation between portfolio performances4.6% Security selection91.5% Asset allocation1.8% Other factors2.1% Market timingSo, now what? Here’s some insight from the professionals…the people who spend all day investing other people’s money.As shown, a study of pension plan managers…who have millions of dollars to invest…analyzed which factors had the biggest effect on a portfolio’s overall performance.Was it security selection, like picking a hot stock? Nope. Was it market timing, like getting in on a good thing ahead of the crowd? Nope.By far…91 percent of the time to be exact…pension plan managers said asset allocation was what underwrote their success.What can we take away from this? That a well-balanced approach goes much further than luck. Of course asset allocation is not an air-tight guarantee, it’s just that common sense and discipline always serve you best.Brinson Study. “Determinants of Portfolio Performance.” Financial Analyst Journal May-June Past performance is no guarantee of future results. Using an asset allocation approach does not assure or guarantee better performance.
32 Diversify your assets. Consider different: Asset classes Industries Issuers and maturitiesHere are some examples of asset allocation. Of course, you’ll want to consider spreading your money by asset class…stocks, bonds, and cash equivalents.But, other ways you can diversify are…by industry, for example stocks in the high-tech, manufacturing, and service sectors…by issuers and maturity dates, (for example, bonds from the government and corporations), and for 10 years and for 30 years…by size of companies…and by parts of the world.Naturally, how you allocate your assets depends on what’s important to you. For instance, you may be quite conservative…and want to emphasize preserving your principal, while someone else may have strongly held environmental ideals and want to emphasize eco-friendly investments.The point is, allocate your assets. How you allocate is up to your personal preferences and risks…your years to retirement…your goals…and how much you already have in the way of income and savings.Sizes of companiesParts of the world
33 Attention: Contents can shift over time. Portfolio rebalancingOriginal allocationPortfolio growsReallocation back to originaland allocation shifts with timeWhatever the makeup of your portfolio allocation, it can change over the years, just like hairlines and waistlines. Fortunately…an out-of-shape portfolio is much easier to fix.Here’s what commonly happens. Let’s say the pie on the left is your original asset allocation made in 2000, with 50 percent…or the blue slice…devoted to stocks. The middle pie represents your portfolio around 2005 after several years of strong stock-market performance. All your stock gains now suddenly account for 75 percent of your portfolio…hardly in keeping with your original intentions. The larger implication is that…with three-quarters of your total assets devoted to stocks, you’re now exposed to much greater risk.That’s why it’s a good idea to periodically review your portfolio to make sure your asset allocation remains in balance. In this case, the investor chose to sell his stock winners…harvest his gains…and rebalance back to his original asset allocation.For illustrative purposes only. This example may not reflect your actual situation.
34 Take stock at each stage of your life. Ask yourself:What are my goals?What’s my tolerance for risk?When do I plan to retire?Will I be financially prepared for retirement?Just remember that it’s important to re-evaluate your plans at every stage of your life. Let’s face it, a lot happens between the time you turn 25 years old and the time you reach 55.As you reassess your plans, ask yourself the following questions:What are my goals?What’s my tolerance for risk?When do I plan to retire?Will I be financially prepared?
35 Be a well-balanced investor. Diversify: Invest across asset classes.Risk:Manageperformance.Review: Reassess your plan every year.As we started our discussion today, this is the bottom line for well-balanced investors:First…Diversify. As we’ve discussed today, that means allocate your assets…across the three major asset classes of stocks, bonds, and cash…and within each of those classes.Next, practice asset allocation because it has the greatest effect…by far…of anything you can do to manage risk and take good financial care of yourself. Remember: It’s NOT putting all your eggs into one basket.Next, make sure your mix of assets…how much you put where…is right for you. Your decisions should feel comfortable, and be in keeping with your goals, your time horizon, how much risk you can tolerate, and how much money you have to work with.Finally, don’t get too comfortable. At least once a year, review your allocations and make adjustments with a professional advisor…to make sure your assets are still allocated as you intended…and you’re still on target.
36 What’s next? Read up on the topic. See your benefits manager. Time to take action.Read up on the topic.See your benefits manager.Check the Internet.That’s it for my part of the program today. Now I’d like to hear from you.First, did you find this information useful?…And, as a result of this presentation, what will your next step be? [DISCUSS AUDIENCE INPUT.]I’d like to add a few thoughts of my own to the mix. For the readers in the audience, you may want to pick up some books on the topic at your local book store or library, or perhaps visit Amazon.com. [SPEAKER TO MENTION BOOKS HE/SHE FINDS USEFUL.]Something else that may prove valuable is to find out more about your company’s benefits. Talk to your benefits manager or go to your company’s Web site for more information.Or, get on the Internet. It’s a storehouse of information right at your fingertips. Just be sure you know who’s hosting the site and that they’re qualified to address the topic you’re interested in. For instance, the U.S. government has many Web sites, including ssa.gov that can be relied upon.Also, you may want to consider consulting a financial professional…including myself. Professionals can be a good source of expert and objective advice, especially if you’re just starting out. So, please feel free to stick around after we adjourn if you’d like input from me about your personal situation.Consult a professional.
37 Thanks a lot for taking the time to participate Thanks a lot for taking the time to participate. Can I answer any last questions?
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