University of Northern BC Investment Presentation

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Presentation transcript:

University of Northern BC Investment Presentation

Agenda Defined Benefit vs Defined Contribution Plan Mutual funds vs Segregated funds What is risk? Relationship between risk & return Investment management styles Choosing your funds Investment tools Sun Life Financial services

DB vs. DC- What’s the difference? Defined Contribution Pension Plan (DCPP): One of the more popular pension plans in Canada The contributions are “Defined” known today – we know how much you contribute to the plan The sum of money you will have in retirement will depend on much is contributed and how you choose to invest the money Defined Benefit Pension Plan (DBPP): The benefit you receive at retirement is based on a formula so the benefit at retirement is “Defined” The dollars to fund the retirement can vary based on how the money is invested The investments are managed by the sponsor of the plan

DB vs. DC- What’s the difference? Unpredictable; based on DC account value and interest or investment returns after retirement Pension Benefit Predictable; based on defined formula Company Contributions Variable Defined % of employee pensionable earnings Investment Decisions Made by company Made by employee Investment Risk Company assumes risk Employee assumes risk Termination Lump sum value of earned pension Value of retirement account

Mutual funds vs. Segregated funds Segregated Funds are typically investment options available through insurance companies Mutual funds and segregated funds combine money from a large number of investors and these assets are invested and controlled by a professional money manager The monies in the segregated funds offered in your plan are pooled together and invested in the underlying mutual fund Segregated funds are held in trust for you and are kept separate from the insurance company's assets

What is risk?

Determining your risk profile Risk tolerance is the degree to which you are comfortable with: Volatility of annual returns Likelihood and size of negative returns In the long term: Higher returns typically come from taking more risk, but Need to be able to sleep comfortably at night? The risk required to achieve your goals: What is my investment time horizon? What are my retirement income expectations? What is the value of additional sources of potential retirement income?

Two different risks need to be managed Volatility of short term performance Assess your “risk tolerance” Diversify your portfolio to address market risk and 2. Longevity Risk Risk of failing to accumulate sufficient assets to build desired pension Not having sufficient assets to pay your desired pension for life

When to re-evaluate your risk tolerance Major life events such as: Marriage or divorce, Children are born, go to university, leave home, (return home?) Debt levels change or net worth changes considerably Inheritances Death of a spouse As your investment time horizon to retirement shortens If your tolerance for risk changes for any other reason

65 91 95 Longevity risk Retirement 50% chance one spouse will live to age 91 95 25% chance one spouse will live to age 95 Source: Canadian Institute of Actuaries – 1994 Uninsured Pensioner Mortality Table Projected to 2020.

Investments – Risk vs. Return Canadian, US, & Foreign Equities Guaranteed Guaranteed interest during fixed term Less long-term growth potential High Money Market Government treasury bills (T-Bills) Less long-term growth potential “Balanced Funds” Bonds (Fixed Income) Promise to repay debt Pays a rate of interest Government and corporate Return Equities (Stocks) Share in company profits Canadian, U.S. or Foreign Greater long-term growth potential Bonds Money Market Balanced Funds “One-stop” shopping Automatic diversification Low Guaranteed Funds Low High Risk 11

Growth of $10,000 (June 1995 – June 2010) $ 34,583 $ 28,893 $ 17,120 $50,000 $40,000 $ 34,583 $ 28,893 $30,000 $20,000 $ 17,120 $ 13,291 $10,000 $0 Jun 95 Jun 96 Jun 97 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Consumer Price Index DEX 91 - Days T - Bill Index DEX Universe Bond Index S&P/TSX Composite Index

Investing in volatile markets Be patient and don’t panic Corrections are a normal part of the market. Markets eventually recapture losses, reaching and surpassing former levels. This can present opportunities for long-term investors Work with your Financial Advisor Working with an advisor who is focused on helping you achieve lifetime security. Consumers with well-balanced, disciplined investment plans, who have taken the risk of market volatility into account when creating their investment plans, should have minimal impact on long-term goals Diversify A diversified portfolio with a variety of investments, can carry less risk During market volatility, members with proper asset allocation and disciplined investment plans will be impacted less by short-term events

Diversify your investments Diversification: holding different types of investments in your portfolio Lower your overall risk by: not putting all of your eggs in one basket Asset Class Manager Style Sector Foreign Markets Ways you can diversify Diversification means: Lowering your overall investment risk by investing in a variety of: Asset classes (guaranteed funds and money market, bonds, equities) Management styles, or Countries or regions Choosing a variety of investments can reduce your risk of loss and increase your potential for higher investment returns. Diversifying your portfolio by different fund categories, referred to as an "asset allocation" strategy, is a key part of your investment decision. Allowed 100% foreign content

The cycle of market emotions financial opportunity Point of maximum financial risk Euphoria Thrill Anxiety Denial Excitement Fear Optimism Desperation Optimism Investors naturally react differently with different market cycles. When you begin investing for your retirement it’s usually with a sense of optimism and excitement. You’ve taken the time to assess your own personal tolerance to investment risk and carefully selected your investment funds that you believe are going to help you reach your retirement goal. When markets perform strongly and investment returns are positive there’s a sense of thrill and euphoria amongst investors. Some investors will react by buying into the markets during peak times which goes against the philosophy of buying low and could cause the investor to be exposed to investment risk as markets decline. During market turmoil it‘s natural for investors to have a sense of fear or concern when they begin to see negative returns on their investments. This feeling can leave some investors scared, prompting them to move to more conservative investments at the wrong time. Which means they sell when their unit values are low so they experience investment loss. Weathering the storm and staying the course is imperative in order to achieve the long term gains that most investors are looking for when they entered the market. Let’s take a look at the market returns during some troubling times and see how they react over the long term…. Panic Relief Capitulation Hope Despondency Depression Point of maximum financial opportunity Source: Westcore Funds / Denver Investment Advisers LLC

Investment Styles

Investment Manager approaches Active Objective is to outperform a market index based on research of current market conditions and company prospects (actively buys and sells securities in individual funds) Passive/Index Simply buys and sells assets to match characteristics of an index, fund performance should be similar to the index, i.e. S&P TSX Fund Manager applies an investment “style” to their approach Fund Management Fees tend to be lower than an Active Fund Manager

Investment styles Value Growth Focuses on stocks that a fund manager thinks are currently undervalued in price and will eventually have their worth recognized by the market Growth Believes that the single most important thing driving stock prices is rapidly rising corporate earnings -- and that's what they look for If the manager is right, the stock will increase in price as others in the market recognize the true value of the stock If the manager is right, the company’s stock will increase in price as the company achieves business and earnings growth

not allow any one style overweight the other Investment styles GARP Growth at a reasonable price - looks for stocks of growth companies that they can buy for a reasonable price Core Fund manager includes both growth and value styles – objective is to not allow any one style overweight the other This is a combination of value and growth investing By not allowing one style to overweight they maintain a neutral position

Choosing your funds

my money- Investment Risk Profiler Assess your personal risk tolerance by completing the investment risk profiler: online paper-based version

Investment Risk Profiler Example: A score of 36 to 85 points = Moderate 15% International Equity 10% Money Market 15% U.S. Equity 40% Fixed Income 20% Canadian Equity Once you have completed all 8 questions, you will be directed into the appropriated asset allocation model based on your risk tolerance. Think of it as a quiz that matches your personality with your money. You’ll have a better understanding of how much risk you’re willing to take when it comes to investing. You’ll know the percentage of assets that should be invested in each investment category – and by using the fund information for your plan through Morningstar Canada, found under investment reports, you can pick the individual funds you want to invest in.

Your investment fund choices * Fund Management Fees as at August 31, 2010. FMF for this plan are expressed as an annualized percentage, and exclude applicable sales tax as of July 1, 2010 Asset Class Fund Name Risk Management Style FMF* Guaranteed/ Money Market Sun Life Financial Money Market Sun Life Assurance 1,3,5 Year Guaranteed Low Core N/A 0.39% N/A Bonds BlackRock Bond Index PH&N Bond Low – Moderate Universe 0.44% 0.66% Balanced Bonavista Balanced Beutel Goodman Balanced McLean Budden Balanced Growth Moderate Value Growth 1.55% 0.73% 0.64% Canadian Equity BlackRock S&P/TSX Composite Index Beutel Goodman Canadian Equity McLean Budden Canadian Equity Growth McLean Budden Canadian Equity Beutel Goodman Small Cap Moderate – High High Core-GARP Value Growth 0.45% 0.73% 0.64% 0.65% 0.74% U.S. Equity BlackRock U.S. Equity Index CI American Value McLean Budden U.S. Equity Moderate – High Core-GARP Value 0.45% 1.25% 0.71% Foreign Equity McLean Budden Global Equity Moderate – High Core-GARP 0.67%

Rebalance to match your risk tolerance Back to target asset mix Current Asset Mix Back to target asset mix 40% 25% 20% 30% 15% 25% 20% 30% 20% 25% Sell Bonds Buy Equities Rebalancing strategy 24

Investment Tools

Getting information about your funds (Morningstar®) Morningstar can be accessed by selecting Investment Performance from the Accounts menu Morningstar is a leading provider in investment news and information. The investment reports you can access through Morningstar provides you with top-rated online investment information and analyses. Tracking the performance of your plan’s investment funds have never been so easy and comprehensive.

Getting information about your funds (Morningstar®) Investment Information Capital market performance Individual fund performance Investment style, fund and manager updates Portfolio X-Ray Analyze different combinations of funds as a single portfolio; including the effect of asset allocation changes to the portfolio Fund Compare Compare and analyze funds in your plan with the full list of available funds Performance Reports Generate investment performance reports for your plan’s funds On the plan member website, you have access to Morningstar, where you can view capital market performance, individual fund performance, investment style factors, fund and manager updates and much more under investment information. Through the Portfolio X-ray you can analyze different combinations of funds as a single portfolio, including the effect of asset allocation and fund changes to your portfolio. Get to know Morningstar. You can link directly to Morningstar by selecting the Investment Reports links from the Quick Links section of my info café, or by going to the Accounts drop-down menu and selecting Investment Reports. Select the Morningstar link or logo to access the investment information.

Investment Information On the plan member website, you have access to Morningstar, where you can view capital market performance, individual fund performance, investment style factors, fund and manager updates and much more under investment information. Through the Portfolio X-ray you can analyze different combinations of funds as a single portfolio, including the effect of asset allocation and fund changes to your portfolio. Get to know Morningstar. You can link directly to Morningstar by selecting the Investment Reports links from the Quick Links section of my info café, or by going to the Accounts drop-down menu and selecting Investment Reports. Select the Morningstar link or logo to access the investment information.

Morningstar Portfolio X-Ray On the plan member website, you have access to Morningstar, where you can view capital market performance, individual fund performance, investment style factors, fund and manager updates and much more under investment information. Through the Portfolio X-ray you can analyze different combinations of funds as a single portfolio, including the effect of asset allocation and fund changes to your portfolio. Get to know Morningstar. You can link directly to Morningstar by selecting the Investment Reports links from the Quick Links section of my info café, or by going to the Accounts drop-down menu and selecting Investment Reports. Select the Morningstar link or logo to access the investment information.

Morningstar Fund Compare On the plan member website, you have access to Morningstar, where you can view capital market performance, individual fund performance, investment style factors, fund and manager updates and much more under investment information. Through the Portfolio X-ray you can analyze different combinations of funds as a single portfolio, including the effect of asset allocation and fund changes to your portfolio. Get to know Morningstar. You can link directly to Morningstar by selecting the Investment Reports links from the Quick Links section of my info café, or by going to the Accounts drop-down menu and selecting Investment Reports. Select the Morningstar link or logo to access the investment information.

Performance Reports

Sun Life Financial Tools & Services

my money Retirement Planner If you’re not sure how much money you need to set aside for your desired lifestyle in retirement, the my money Retirement Planner can help The planner lets you determine how much you need to save now to provide you with your desired income level in retirement. You can adjust a number of variables as they change over time by updating your calculations in the retirement planner. Statements are mailed to your home address, but remember that they are also available on the Sun Life Financial Plan Member Services web site. **The Retirement Planner is one of many tools that you can use, in planning for your retirement, it does not take the place of a real financial planner/advisor**

Additional on-line tools to help Planning Tools Withdrawal Calculator Capital Gains vs. RRSP Calculator Mortgage vs. RRSP Calculator RRSP Loan Calculator Non Resident Tax Calculator Retirement Tools Annuity Premium Calculator Old Age Security Calculator Registered Retirement Income Fund (RRIF) Calculator

Keeping you involved Internet Customer Care Centre www.mysunlife.ca 1-866-733-8612 Internet www.mysunlife.ca 24 hour automated phone account access Representatives available every business day (8 am to 8 pm ET) Account updates 150 languages supported Receive up-to-date account balances View transaction history Make investment changes Link directly to investment reports View online member statements

Keeping you involved Quarterly Mailed to your home Available online Read your personal statements Quarterly Mailed to your home Available online Easy to read Personal rates of return Summary of all plans Transaction history

Your action plan Use the Investment Risk Profiler to determine your recommended portfolio allocation Determine your investment approach Use the Retirement Planner to determine your required savings level to meet your retirement goals Make your investment decisions Monitor your savings and investments Talk to a Financial Advisor

Thank-you!