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Investing Fundamentals
Alight Financial Advisors LLC Alight Financial Solutions LLC, member FINRA/SIPC Alight Financial Advisors LLC (AFA) is a federally registered investment advisor and wholly owned subsidiary of Alight Solutions LLC
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Disclaimer
2
This information is provided by Alight Financial Advisors LLC (AFA)
for general informational purposes only and should not be considered
an individualized recommendation or personalized advice. The
strategies mentioned may not be suitable for everyone. Each investor
needs to pursue a particular investment strategy based on his or her
own particular situation. Data contained herein is obtained from what
are considered reliable sources; however, its accuracy,
completeness, or reliability cannot be guaranteed. The content of this
presentation is for informational purposes only. This information does
not constitute investment advice or an offer to invest or to provide
management services. The information in this document does not
constitute tax advice. Please see your tax advisor to determine how
this information may apply to your own situation.
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Learning Objectives
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Understand what the stock market is
Grasp the three basic asset classes
Learn what a fund is
Discover how asset allocation can help you
pursue your goals
View your investment options
Explore ways to get help with your account
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Investment Basics • What Is the Stock Market?
• Three Basic Asset Classes
• What Is a Stock?
• What Is a Bond?
• What Is a Short-Term Investment?
• Sub Asset Classes
• What Is a Fund?
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What Is the Stock Market?
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Company wants to expand
Money is raised in an IPO
Investors receive stock
in exchange for money
Those shares then trade on
the open market
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3
2
4
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Three Basic Asset Classes
Stocks Ownership in a company. Fluctuates in value daily. Highest risk of loss.
Bonds Represents a loan to a government or corporation. Legal obligation. Provides regular interest payments.
Short-Term Cash or other instruments with short-term maturities such as CDs and money markets.
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What Is a Stock?
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Main Features Part owner in the company Participate in company earnings Vote on important issues
Risks
Can lose significant value over short periods of time Market, industry, company- specific, currency, inflation
Rewards
Gain from increase in share price Income through dividends
Stocks
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What Is a Bond?
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Bonds
Main Features Loan to a government or company Receive interest payments, then principal when bond matures
Risks
Market, industry, company- specific, inflation, interest rate
Rewards
Consistent income1 Generally more stable than stocks Lower interest rates can increase current value of the bond
1Subject to the claims-paying ability of the issuer
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What Is a Short-Term Investment?
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Short-Term
Main Features Consists of money markets, CDs, T-bills, insurance contracts Short-term in nature, with maturities less than one year Considered liquid, or easy to get to in an emergency
Risks
Can lose purchasing power due to inflation
Rewards Consistent income through interest payments Stable value over time
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Sub-Asset Classes
Stocks
Bonds
Short-Term
Size Type Location
Large-cap
Mid-cap
Small-cap
Growth
Value
Domestic
International
Issuer Duration Interest
Government
Corporation
Long
Medium
Short
Fixed
Variable
Instrument
Cash
Notes
Certificates
Issuer
Government
Corporations
Banks
Insurance co.
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What Is a Fund?
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Imagine a shopping cart filled with groceries…
Owning Individual stocks and bonds is like owning individual food
items, while owning a fund is like owning the shopping cart that holds
them. 1. Professionally managed
2. Diversified
3. Lower cost than building diversified
portfolio from individual stocks
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Fund Location Is Important
Employer-Sponsored 401(k)
Retail
No transaction fees when switching investments
No sales load to buy into the fund
Low expense ratios from institutional pricing
May have limited number of choices
Transaction fees can apply when buying and selling
Sales loads can also apply when buying or selling
Higher ongoing expense ratios than in 401(k) plans
May have many more options than in a 401(k)
Note: Using the self-directed brokerage window within your 401(k) may
expose you to some additional fees.
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Asset Allocation • Diversification
• Historical Performance
• Asset Allocation In Practice
• Your Asset Allocation
• When to Change
• Rebalancing
• 401(k) Investment Options
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The Risk/Return Trade-Off
Risk
Return
Short-Term
Bonds
Historically, stocks have returned higher than bonds, but at a much greater
risk, just as bonds have produced a greater return than short-term
investments, but also at a higher risk.
For illustrative purposes only. Graphic does not represent actual historical data.
Stocks
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Diversification
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Risk
Return
Short-Term
Bonds
Stocks
Diversified
Portfolio
For illustrative purposes only. Graphic does not represent actual historical data.
A diversified portfolio combines multiple asset classes. The goal is to
maximize returns for a given amount of risk.
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Asset Class Historical Performance
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This table shows the range of returns for stocks, bonds, and cash for the 30-year period ending September 30, 2017. Source: ChartSource®, DST Systems, Inc. Based on 12-month periods for the 30 years ended September 30, 2017. Stocks are represented by Standard & Poor's Composite Index of 500 Stocks. Bonds are represented by the Barclays U.S. Aggregate Bond index. Cash equivalents are represented by a composite of the yields on 3-month Treasury bills, published by the Federal Reserve, and the Barclays 3-Month Treasury Bills index. It is not possible to invest directly in an index. Past performance is not a guarantee of future results. Copyright© 2017, DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.
–45% –35% –25% –15% –5% 5% 15% 25% 35% 45% 55%
Average: 6.5%
Average: 3.4%
Average: 11.6%
Annual Return
Range of Returns Over 30 Years
Stocks Bonds Short-Term
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Asset Allocation in Practice
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
Oct
-97
Jun-
98
Feb
-99
Oct
-99
Jun-
00
Feb
-01
Oct
-01
Jun-
02
Feb
-03
Oct
-03
Jun-
04
Feb
-05
Oct
-05
Jun-
06
Feb
-07
Oct
-07
Jun-
08
Feb
-09
Oct
-09
Jun-
10
Feb
-11
Oct
-11
Jun-
12
Feb
-13
Oct
-13
Jun-
14
Feb
-15
Oct
-15
Jun-
16
Feb
-17
$3.75
$2.33
$2.96
$1.53
80% Stock/20% Bond
40% Stock/40% Bond/20% Cash
25% Stock /25% Bond/50% Cash
Inflation
Growth of $1 since October, 1997
Source: ChartSource®, DST Systems, Inc. Inflation is represented by the change in the Consumer Price index. The "80/20" portfolio is composed of 80% stocks (S&P 500 index) and 20% bonds
(Bloomberg Barclays U.S. Aggregate Bond index). The "40/40/20" portfolio is composed of 40% stocks (S&P 500 index), 40% bonds (Bloomberg Barclays U.S. Aggregate Bond index), and 20%
cash (a composite of yield on 3-Month Treasury Bills and the Bloomberg Barclays U.S. Treasury Bill 1-3 Month index). The "25/25/50" portfolio is composed of 25% stocks (S&P 500 index), 25%
bonds (Bloomberg Barclays U.S. Aggregate Bond index), and 50% cash (a composite of yield on 3-Month Treasury Bills and the Bloomberg Barclays U.S. Treasury Bill 1-3 Month index).
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Your Asset Allocation
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Three primary factors to determine your asset allocation:
Investment
Objectives
Risk Tolerance Time Horizon
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When to Change
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Consider reviewing your asset allocation after certain events to
make sure your strategy is still appropriate.
Change in goals
Change in risk tolerance
Change in time horizon
Change in other life circumstances
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Rebalancing
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Rebalancing is the act of restoring your portfolio to its target mix
after market conditions have changed it.
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1. Target mix 2. Change from market
conditions • Stocks have grown to 50% • Bonds have decreased to 16% • Portfolio is significantly more
aggressive than intended
33 34 50
16
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3. Rebalance to target mix • Sold 17% of stock mix • Purchased additional 17% of bond
mix • Achieved target risk level
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33
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For illustrative purposes only. Graphic does not represent actual historical data.
Stocks Bonds Cash
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Target Retirement Funds
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Target Retirement Funds
Target Retirement Income
Target Retirement 2020
Target Retirement 2025
Target Retirement 2030
Target Retirement 2035
Target Retirement 2040
Target Retirement 2045
Target Retirement 2050
Target Retirement 2055
Target Retirement 2060
TIME Aggressive Conservative
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Core Funds
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Fund Name Objective
Caterpillar Stock Fund Company Stock
International Equity Index Growth
International Equity Fund Growth
US Small/Mid Cap Equity Index Growth
US Small/Mid Cap Equity Growth
US Large Cap Equity Index Growth
US Large Cap Equity Growth
Bond Index Fund Income
Bond Fund Income
Stable Principal Fund Preservation
Money Market Fund Preservation
Aggressive
Conservative
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Tools & Resources • Benefits Website
• Fund Fact Sheets
• Advisory Services
• Additional Resources
Advisory Services offered by Alight Financial Services LLC, a federally registered investment advisor.
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Advisory Services—Overview
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Advisory Services offered by Alight Financial Advisors LLC, a federally registered investment advisor.
Savings
Am I saving enough?
AFA helps with saving adequately for retirement.
Investments
Do I have the right investments?
AFA helps properly diversify and manage risk-appropriate portfolios.
Retirement Income
Will I have enough to retire?
AFA helps identify your income needs and sources.
Investing Savings Retirement
Income
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Advisory Services—Online Advice
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Advisory Services offered by Alight Financial Advisors LLC, a federally registered investment advisor.
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Advisory Services—Professional Management
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Advisory Services offered by Alight Financial Advisors LLC, a federally registered investment advisor.
• Receive a personalized
retirement plan
• Plan put into action for you
• Personalize your profile
so AFA can create a
strategy tailored to help
you meet your goals
• Routine monitoring of
account monthly • Investment advisors
available by phone
• Stay informed with quarterly
updates • Will consider outside
accounts you tell us
about
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Online Advice and Professional Management
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Advisory Services offered by Alight Financial Advisors LLC, a federally registered investment advisor.
Online Advice: Professional-grade tools for hands-on investors
Build a retirement plan
Get ready for retirement
Check in quarterly to stay on track
Professional Management: Professionals manage and monitor your retirement savings account
Receive a retirement plan
Get ready for retirement and receive payouts
AFA helps keep you on track
Online Advice • No additional cost • Get saving and investing
advice • Build and execute your
own strategy • Receive support from
Investment Advisors
Professional
Management • Fee-based service • Personalized plan
created for you • Actions taken for you • Routine monitoring • Retirement check ups
with Investment Advisors
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Additional Resources
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Financial
Education Center
Articles
Financial
Education Center
Calculators
Online Advice
Professional
Management
Target-Date Funds
Contributions Taxes Investments Distributions
Four primary areas participants need help, and where to get it
Advisory Services offered by Alight Financial Advisors LLC, a federally registered investment advisor.
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Contact Information
Alight Financial Advisors LLC is a federally registered investment advisor.
Alight Financial Advisors Representatives are available Monday–Friday,
8:00 a.m. – 8:00 p.m. CT
877-228-4010 and select “Investment advice”
advisorinfo@alight.com
Caterpillar Benefits Center Representatives are available Monday–Friday,
8:00 a.m.– 6:00 p.m. CT
877-228-4010
Caterpillar Benefits Center
http://resources.hewitt.com/cat
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Course Summary
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• The Risk/Return trade-off • Historical performance • Asset allocation in practice • Your asset allocation • When to change • Rebalancing • Investment options
• What is the stock market? • Three basic asset classes • What is a stock? • What is a bond? • What is a short-term investment? • Sub-asset classes • What is a fund?
• Benefits website • Fund fact sheets • Online Advice • Professional Management • Additional resources
Asset Allocation
Investment Basics
Tools and Resources
Advisory Services offered by Alight Financial Advisors LLC, a federally registered investment advisor.
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