Investment and Financial Services: What Every Financial Educator Should Know

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Today We Will Talk About…

The need to build wealth

Investment tools How to manage risk

Not for distribution to the general public. For educational training only.

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Why Invest?

Accumulate wealth for: Retirement income Education costs Major purchases like a home Health care for you and your family

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The Changing Look of Retirement

Source: Standard & Poor’s. Data is from Fast Facts & Figures About Social Security, published by the Social Security Administration, September 2010. (CS000123)

Other2.7%

Private and Government

Pensions18.5%

Social Security36.5%

Earnings29.6%

Asset Income12.7%

Sources of Retirement Income

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Education Costs are Rising

Anticipated College Costs

Source: Standard & Poor’s. Projections are based on 2010-2011 total costs of $36,993 for a four-year private college and $16,140 for a four-year public college (in-state rate), as reported by the College Board. (CS000113)

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Your Audience Should Understand

Types of investments

Choices

Strategies

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Help in Setting Their Investment Goals

List your goals and time frames

How much money will you need?

Gauge your tolerance for investment risk

Make sure you have emergency funds

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Help to Understand Types of Investments

Stocks

Bonds

Cash securities

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Stocks

Higher risk/higher return potential

Own part of a company

Tradeoff between risk and return

Stock investing involves risk, including loss of principal.

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Bonds

Mainly for income

Interest payments by bond issuer

Issuer promises to repay principal

Variety of risks

Lower risks and returns than stocks

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.

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Cash

Protect principal

Treasury bills

Certificates of deposit (CDs)

Money market accounts

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and, if held to maturity, offer a fixed rate of return and fixed principal value. CDs are FDIC insured and offer a fixed rate of return if held until maturity.

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Low

H

igh

Stocks

Bonds

Cash Equivalents

High Low

Risk

Pot

entia

l

Return Potential

How Investments Stack Up

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The Inflation Factor

Sources: Standard & Poor’s; the Federal Reserve; Barclays Capital; Bureau of Labor Statistics. For the 30-year period ended December 31, 2010. Stocks are represented by the S&P 500 index, an unmanaged index of stocks generally considered representative of the U.S. stock market. Bonds are represented by the returns of the Barclays U.S. Aggregate Bond Index. Cash is represented by a composite of yields on 3-month Treasury bills and the Barclays 3-Month Treasury Bills Index. Inflation is represented by the change in the Consumer Price Index. Investors cannot invest directly in any index. Past performance is not indicative of future results.

30-Year Historical Market Performance

Annualized Return Inflation-Adjusted Return

Stocks 10.72% 7.33%

Bonds 8.92% 5.59%

Cash 5.29% 2.07%

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Mutual Funds

Pool investors’ dollars

Invest in a mix of securities (for example, stocks, bonds, cash or a combination of them)

Pursue a stated objective (for example, “growth”)

Managed by professionals

Provide diversification to help control risk

Investing in mutual funds involves risk, including possible loss of principal. Investments in specialized industry sectors have additional risks, which are outlined in the prospectus.

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Special Investment Vehicles

Tax-saving incentives help you accumulate funds for: Retirement

Education

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Strategies for Managing Risk

Asset allocation

Diversification*

“Buy-and-hold”

Dollar-cost averaging**

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.

* Diversification does not ensure against market risk.

** Dollar-cost averaging involves continuous investments in securities regardless of price fluctuations. An investor should consider their ability to continue purchasing through periods of low price levels. Dollar-cost averaging does not ensure a profit or protect against a loss in declining markets.

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What Does “Asset Allocation” Look Like?

Stocks Bonds Cash

For illustrative purposes only. Your situation may vary. Asset allocation does not ensure a profit or protect against a loss. A more aggressive portfolio may carry greater risk.

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Put Time On Your Side

What Missing the Best Days Could Mean for You(Initial $10,000 investment)

Source: Standard & Poor’s. For the 20-year period ended December 31, 2010. Stocks are represented by the S&P 500, an unmanaged index that is generally considered representative of the U.S. stock market. Past performance is not a guarantee of future results. The S&P 500 is an unmanaged index that may not be invested into directly. (CS000076)

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Dollar Cost Averaging

An Example: Dollar Cost Averaging With $50 a Month

Total Shares Purchased: 42.7

Average Price per Share: $14.17

Average Cost per Share: $14.05

Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Share Price $15 $13 $12 $14 $13 $12 $13 $14 $15 $16 $17 $16Shares Bought 3.3 3.8 4.2 3.6 3.8 4.2 3.8 3.6 3.3 3.1 2.9 3.1

Systematic investment strategies such as dollar cost averaging doesn’t assure a profit or protect against losses in declining markets. Investors should consider the risks involved in purchasing shares during declining markets. For illustrative purposes only. This example is not indicative of any particular investment. Investing in mutual funds involves risk, including possible loss of principal. Investments in specialized industry sectors have additional risks, which are outlined in the prospectus.

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To Summarize…

Identify your specific investment goals

Align your portfolio with these goals

Balance risk against potential return

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Questions and Answers

For Training purposes only, Not to be used with the General Public.