basics of retirement investing date february 2009 presented by: vernon stockton – icmarc ac:...

Basics of Retirement Investing

Date February 2009

Presented by:Vernon Stockton – ICMARC

AC: 0506-758

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Today’s Discussion

• Setting Goals

• Basic Concepts

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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

4

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

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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 Personal Assistance Your ICMA-RC Investment Options1

1 See disclosure at the end of this presentation.

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Investment Concepts

• Risk

• Managing risk through diversification

• Focus on the long term

• Steady investing

7

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

8

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

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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

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Investment Options

• 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

Stock Funds

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Investment Options

• 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 Value up when interest rates are lower

Bond Funds2


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Investment Options

• 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

Balanced/Asset Allocation Funds

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Investment Options

• Index funds Hold same securities in the same proportion of specific

market index like S&P 500 Not actively managed

• Specialty funds3

One specific segment of the market (financial, technology) Small area of concentration More risk

Index Funds and Specialty Funds


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Investment Options

• 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

Stable Value Funds

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Annual Returns for Market Indexes 1987 to 2005

Source: Ibbotson AssociatesSee key on the following slide.

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

MSCI EAFE MSCI EAFE Wilshire Large

GrowthLB Agg

Wilshire Small Growth

Wilshire Small Value

MSCI EAFE MSCI EAFE Wilshire Large

ValueWilshire Large

GrowthWilshire Large



GrowthLB Agg


LB Agg Wilshire 4500Wilshire Small

ValueMSCI EAFE

24.93% 28.59% 35.21% 8.95% 56.80% 29.23% 32.94% 8.06% 43.47% 26.93% 33.69% 42.21% 35.53% 11.63% 20.15% 10.27% 43.80% 29.83% 14.01%

3-month T BillWilshire Large

ValueS&P 500 3-month T Bil l


Wilshire Large Value


3-month T Bil lWilshire Large

GrowthS&P 500 S&P 500 S&P 500 Wilshire 4500


LB Agg 3-month T Bil lWilshire Small

ValueMSCI EAFE


6.73% 22.79% 31.49% 8.42% 49.00% 14.39% 17.98% 4.19% 37.88% 23.07% 33.36% 28.58% 35.49% 11.11% 8.42% 1.80% 40.90% 20.70% 12.48%

S&P 500Wilshire Small

ValueWilshire Large

ValueWilshire Large


GrowthWilshire Small

GrowthWilshire 4500

Wilshire Large Growth

S&P 500Wilshire Large

ValueWilshire Small

ValueMSCI EAFE MSCI EAFE


3-month T Bil lWilshire Small

ValueMSCI EAFE Wilshire 4500


5.23% 22.39% 25.14% 0.34% 46.62% 13.20% 14.57% 2.97% 37.43% 19.08% 32.44% 20.33% 27.30% 9.99% 4.42% -13.30% 39.20% 18.57% 11.15%


Wilshire 4500 Wilshire 4500 S&P 500 Wilshire 4500 Wilshire 4500Wilshire Small

ValueS&P 500


Wilshire 4500Wilshire Large

ValueWilshire Large

ValueS&P 500 3-month T Bil l


MSCI EAFE Wilshire Small


GrowthWilshire 4500

4.74% 20.54% 23.94% -3.17% 43.45% 11.87% 14.12% 1.31% 35.18% 17.18% 31.38% 11.25% 21.04% 6.18% -0.65% -15.66% 38.60% 17.97% 10.27%




Wilshire 4500 S&P 500 S&P 500Wilshire Large

ValueWilshire Small

GrowthWilshire 4500


Wilshire 4500 LB AggWilshire Small




ValueWilshire Large

ValueWilshire Large

ValueWilshire Small

Growth

3.59% 19.30% 18.72% -13.56% 30.55% 7.67% 13.45% 0.54% 33.48% 15.43% 25.69% 8.67% 16.57% -1.33% -2.20% -17.53% 32.40% 16.17% 9.39%

LB Agg S&P 500Wilshire Small

ValueWilshire Large

ValueWilshire Large

ValueLB Agg S&P 500





Wilshire 4500 3-month T Bil l S&P 500 Wilshire 4500 Wilshire 4500 S&P 500 S&P 500 S&P 500

2.75% 16.81% 18.12% -7.59% 25.64% 7.40% 9.99% -1.96% 29.75% 14.05% 15.85% 8.63% 4.85% -9.11% -9.30% -17.80% 28.70% 10.87% 4.91%



LB AggWilshire Small

GrowthLB Agg


LB Agg Wilshire 4500 LB Agg MSCI EAFE LB Agg 3-month T Bil l LB Agg MSCI EAFE S&P 500 S&P 500Wilshire Large


Growth3-month T Bil l

-3.08% 15.20% 14.53% -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% 25.20% 7.77% 3.06%

Wilshire 4500 LB Agg MSCI EAFE Wilshire Small

ValueMSCI EAFE 3-month T Bil l 3-month T Bil l LB Agg MSCI EAFE 3-month T Bil l 3-month T Bil l



Wilshire 4500Wilshire Large


GrowthLB Agg LB Agg LB Agg

-3.51% 7.89% 10.80% -19.39% 12.49% 3.93% 3.19% -2.92% 11.55% 5.30% 5.33% -2.46% -7.11% -15.77% -16.39% -24.97% 4.10% 4.34% 2.43%


3-month T Bil l 3-month T Bil l MSCI EAFE 3-month T Bil l MSCI EAFE Wilshire Large


Value3-month T Bil l LB Agg MSCI EAFE




MSCI EAFE Wilshire Small

Growth3-month T Bil l 3-month T Bil l


-8.64% 6.93% 8.99% -23.19% 6.38% -11.85% -0.54% -4.34% 6.03% 3.61% 2.06% -4.87% -12.32% -17.19% -21.20% -29.05% 1.15% 1.33% 2.07%

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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.

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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

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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)


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Amount Price/ # ofMonth Invested Share Shares

Jan $600 $20 30

Feb $600 $30 20

Mar $600 $24 25

Apr $600 $40 15

Total $2400 90

Average Share Price = $28.50

Average Cost Per Share Price = $26.67

Savings: $1.83 Per Share

Example is for illustration purposes only and is not intended to represent an actual account.

Dollar Cost Averaging4

Investing $2,400 Over A Four Month Period

Dollar Cost Averaging buys 90 sharesAverage Market Price buys only 84.2 shares


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Putting it All Together

• 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?

Building Your Portfolio

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Investment Solutions

I will need my assets in the year… – Milestone Funds

I want to look at risk… – Model Portfolio Funds

I want to build a custom line-up…

Three different investors

Three different solutions.

Single FundSolutions

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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 5 years

Fixed Equity

Years to Planned Retirement Date

Target Retirement

Date

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I want to manage risk…Option Two – Model Portfolios Funds1, 5

SavingsOriented6

ConservativeGrowth

TraditionalGrowth

All-EquityGrowth

Long-termGrowth

Conservative Risk High Risk

1, 5-6 See disclosure at the end of this presentation.

Ideal for people that understand their risk profile and want to annually monitor their account

Fixed Equity

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Option Three – Customized Investing1, 7

1, 7 See disclosure at the end of this presentation.

Large Cap: > $10.5 B

Mid Cap: $1.7 B - $10.5 B

Small Cap: < $1.7 B

Value Blend Growth

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Your ICMA-RC Investment Options1, 7

VANTAGEPOINT MODEL PORTFOLIO FUNDS5

Savings Oriented7

Conservative GrowthTraditional GrowthLong-Term GrowthAll-Equity Growth

Milestone Retirement FundMilestone 2010 FundMilestone 2015 FundMilestone 2020 FundMilestone 2025 FundMilestone 2030 FundMilestone 2035 FundMilestone 2040 Fund

VANTAGEPOINT MILESTONE FUNDS

Customized InvestingSingle Fund Solutions

I will need my assets in the year…


I want to manage risk…

1-3, 5-14 See disclosure at the end of this presentation.

VALUE BLEND GROWTH Large Cap >$10.5 B

Vantagepoint Equity Income VT Lord Abbett Large Co Value8 VT Hotchkis & Wiley Large Value

VT American Century® Value

Vantagepoint Growth & Income VT Fidelity Magellan9

Vantagepoint Broad Market Index Vantagepoint 500 Index Stock

VT Legg Mason Value FI

Vantagepoint Growth VT American Century Ultra® VT T. Rowe Price® Growth

VT Fidelity Contrafund

Mid Cap10 $1.7 B - $10.5 B VT Goldman Sachs Mid Cap Value Vantagepoint Mid/Small Co Index

VT Third Avenue Value Vantagepoint Aggressive Opportunities

VT Rainier Small/Mid Cap Equity Small Cap10 < $1.7 B VT T. Rowe Price® Small Cap Stock9

VT T. Rowe Price® Small Cap Value

VT Royce Premier

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

Family of Funds1, 7

I want to build a custom line-up…I want to manage risk…I will need my

assets in the year…Vantagepoint Model Portfolio Funds5

Model Portfolio Savings Oriented7

Model Portfolio Conservative Growth

Model Portfolio Traditional Growth

Model Portfolio Long-Term Growth

Model Portfolio All-Equity Growth

Vantagepoint Milestone Funds

Milestone Retirement Income

Milestone 2010

Milestone 2015

Milestone 2020

Milestone 2025

Milestone 2030

Milestone 2035

Milestone 2040

Vantagepoint Funds and non-proprietary funds of the VantageTrust

Fixed Income & Stable ValueVantagepoint Core Bond Index2

Vantagepoint US Govt. Securities2

Vantagepoint Money Market11

VantageTrust PLUS12

VT PIMCO Total Return2

VT PIMCO High Yield2

Balanced/Asset AllocationVantagepoint Asset Allocation VT Fidelity Puritan

ValueVantagepoint Equity IncomeVT Hotchkis & Wiley Large Value

VT Lord Abbett Large Co Value8

VT American Century Value

BlendVantagepoint Growth & IncomeVantagepoint 500 Stock IndexVT Legg Mason Value FI

Vantagepoint Broad Market IndexVT Fidelity Magellan9

GrowthVantagepoint GrowthVT Fidelity Contrafund

VT T. Rowe Price® Growth StockVT 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 InternationalVT Templeton Growth

Aggressive Growth10

Vantagepoint Aggressive OpportunitiesVantagepoint Mid/Small Company IndexVT Goldman Sachs Mid Cap ValueVT Rainier Small/Mid-Cap Eq PortfolioVT Third Avenue Value

VT T. Rowe Price® Small Cap ValueVT T. Rowe Price® Small Cap Stock9

VT Fidelity Small Cap RetirementVT Royce Premier

1-3, 5-14 See disclosure at the end of this presentation. 26

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How We Can Help

• Series 7, 63 and 65 licensed

• Answer questions and help fill out enrollment forms

• Retirement planning worksheets and materials

• Location visits on a regular basis or contact me directly

• Ongoing presentations focusing on the basics of investing

Local Representative

• Account inquiries

• Answer questions

• Resolve Issues

• Transactions

• Address changes

• Other customer service-related issues

• 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

Phone

• www.icmarc.org

• Check account balance

• Make transactions

• Fund information

• Additional helpful tools and services

ICMA-RC Web site

• Mailed 10 business days after quarter end

• Provides:

Account summary

Personalized performance

Account balance charts

Fund information

Your Account Statement

Contact Info:Vernon Stockton800-669-7400

28

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!

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Next Steps

• Take control today Start enrolling Review your current asset allocation Understand your investments and plan rules

• Set up an appointment

Building Your Portfolio

30

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 all-bond 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.

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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.

basics of retirement investing date february 2009 presented by: vernon stockton – icmarc ac:...

Documents

funds stock funds slide

diversified funds funds

risk index funds

investment options index

mutual funds

stock funds value

stable value funds slide

managed specialty funds