1. Retirement Investing for Beginners 4 Steps 1. Understand the need to invest savings investing for retirement 2. Set your retirement goals 3. Choose your retirement investments 4. Put your investments in tax-sheltered retirement accounts

2. A large percentage of retirement income will need to come from personal savings What to expect in the future ________ rare ____________ _____________ inadequate Living into your nineties

3. Why do I need to ________ savings for long-term goals? ______________ Setting aside money in safe, liquid, interest- bearing cash vehicles, such as ____________ or CDs wise for _____________ goals, risky for long-term goals because of _____________ _______________ acquiring _________ that you hope will grow in value to provide you with future income or benefit taking reasonable _________ to potentially achieve higher returns risky for short-term goals, wise for _______ goals

4. With a partner, brainstorm at least two ways you know people save money and at least two ways you know people invest money. SavingInvesting 1.Stash money in your closet. 2. 3. 1.Buy a small business with a friend. 2. 3.

5. What assets can I invest in? _________ ___, liquid investments (CDs, money market funds) _____________ shares of ownership in a company $ made by increases in stock prices and dividends _____________ loans (IOUs) in return for interest payments

6. Understand the Risk-to-Return Ratio Cash Range of Annual Returns:+1% to +9% Avg. Annual Rate of Return:3 to 4% Level of Risk Potential Rate of Return Bonds/Fixed Income Range of Annual Returns: -5% to +15% Avg. Annual Rate of Return:6% (Corporate) Stocks/Equities Range of Annual Returns: -27% to +52% Avg. Annual Rate of Return:10% (Large companies) Source: Ibbotson Associates. Cited in Burton G. Malkiel,The Random Walk Guide to Investing, p. 28. Real Estate Risk and Return similar to stocks Risk and Returns for Different Asset Classes, 1926-2002 _______________________________ _________________________________________

7. ____________________________ Effect of Rates of Return on Savings Over Time $0 $100,000 $200,000 $300,000 $400,000 $500,000 16111621263136 Number of Years Amount Saved 4% - Cash 6% - Bonds10% - Stocks In this hypothetical example, three people make a one-time investment of $10,000 in either stocks, bonds, or a savings account, then contribute nothing more for 40 years. Effect of taxes, inflation, fees, etc. not included.

8. In the short-term, stocks also have the highest ________ Year% Decline Months in Decline 1966229 1968-19703718 1973-744821 1981-19822213 1987342 1990203 2000-024531 Average3314 The Size and Length of Bear Markets Major S & P 500 Declines, 1965 - 2002 Source: http://www.cartoonstock.com/lowres/jmo0754l.jpghttp://www.cartoonstock.com/lowres/jmo0754l.jpg

9. What strategies can I use to reduce the risk and maximize the returns of investing? Match riskiness of investments to your _______________ and _________ horizon ______________ between asset classes Stocks, bonds, cash Within asset classes, ______________ Select _____________mutual fund companies and funds

10. __________________ The chances of losing money in the stock market drop the ________________ you’re in it Odds of Losing Money in Stocks Source: T. Rowe Price, cited in Paul J. Lim, Investing Demystified (NewYork: McGraw Hill, 2005), p. 27.

11. Match riskiness of investments to savings goal & time horizon < 5 five years, low-risk investments only > 5 years, higher-risk investments Savings GoalWhat Investment Should Provide Possible asset classes Emergency Fund Short-term (1 - 2 years): Car purchase Medium-term (3 - 5 years): Home purchase Long-term (6 or more years) : e.g. Kids’ college fund, Retirement

12. ____________________________ Saving just 1% in costs can significantly improve returns Starting at age 30, Sherene plans to invest $200 per month for 35 years. Over 35 years, low- cost Fund A outperforms average cost Fund B by 28%. By saving 1% in costs, Sherene would retire with $73,000 more in her pocket.

13. Which mutual fund companies would you choose? Average Expense Ratios for Several Mutual Fund Families Mutual Fund FamilyAverage Expense Ratio % Domestic Stock Average Expense Ratio % International Stock Average Expense Ratio % Taxable Bond % of Assets with Loads Vanguard0.210.360.160.8 TIAA-CREF Mutual Funds0.0 Dodge & Cox0.520.700.440.0 Schwab Funds0.611.110.460.0 Fidelity Investments0.771.060.628.6 T. Rowe Price0.791.080.740.9 Domini0.840.770.950.3 ING Funds1.021.741.1956.4 JP Morgan1.041.120.6126.0 Van Kampen1.091.661.2193.7 Morgan Stanley1.101.160.7541.0 Goldman Sachs1.201.280.7956.9 John Hancock1.221.061.1619.3 Oppenheimer Funds1.231.361.1595.7 Legg Mason Partners1.271.441.0683.5 AIM Investments1.431.791.2178.4 Calvert1.451.771.2793.0 Pax World1.50--1.464.5 Source: Morningstar http://www.morningstar.comhttp://www.morningstar.com

14. Step 4: Put your investments in tax-sheltered retirement accounts

15. Make use of tax-advantaged retirement accounts Over 40 years, taxes can reduce returns by as much as 42%. In this hypothetical example, two people invest in the same mutual fund, but one invests through a Roth IRA (where returns grow tax-free), and the other uses a taxable account. Despite identical investment returns, the Roth IRA grows to $640,829 -- $270,000 more than accumulates in the taxable account.* This example assumes a annual contributions of $3,000, a 7 % annual return after expenses, and a combined federal and state income tax rate of 30% (for the taxable account) imposed on the total return each year. It includes the reinvestment of income dividends and capital gains distributions. * Most retirement plans are tax-deferred, not tax-free. Withdrawals of earnings from a tax-deferred account such as a 403(b) or traditional IRA would be subject to tax as ordinary income. The Long-Term Benefit of Investing in Tax-Advantaged Accounts $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 05101520253035 Number of Years Tax-Exempt Roth IRA Taxable Account $371,007 $640,829 40

16. Types of Retirement Accounts Retirement Accounts through an Employer _______________ private company _______________ government job Individual Retirement Accounts (IRA) ________________