FA 401K INVESTMENT STRAT WKSHP PRESENTATION
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FA 401K INVESTMENT STRAT WKSHP PRESENTATION

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FA 401K INVESTMENT STRAT WKSHP PRESENTATION FA 401K INVESTMENT STRAT WKSHP PRESENTATION Presentation Transcript

  • Investment Strategy Workshop[Presenter’s Name] Not FDIC Insured  May Lose Value  No Bank GuaranteeFor Plan Participants
  • Learning objectives Upon completing this seminar, participants will be able to: a. Understand the importance of proper asset allocation and diversification b. Communicate the types of risk associated with investing c. Understand the power of compounding and investing for the long termThis seminar is defined as basic level for continuing education credit. There are no required prerequisitesand no advance preparation is required.
  • Key topics • Asset allocation Why it’s important • Asset subclasses Understanding their characteristics • Risk Recognizing the different types • Diversification A factor in selecting your investments • Your plan’s investment options Why you should regularly review them • Your portfolio Knowing how and when to adjust it View slide
  • Two key terms Asset Allocation Diversification Percentage of Investing in different types of ⁃ Stocks ⁃ Stocks ⁃ Bonds ⁃ Bonds ⁃ Short-term ⁃ Short-termNeither diversification nor asset allocation ensures a profit or guarantees against loss. View slide
  • Comparing the asset classes • Short-term investments • Bonds • Stocks
  • In the short term • Money market, T-bills, CDs • Relatively stable value • Potential to pay interest • Lower risk, lower potential returnAn investment in a money market fund is not insured or guaranteed bythe FDIC or any other government agency. Although money marketfunds seek to preserve the value of your investment at $1.00 per share, itis possible to lose money by investing in these funds.Interest rate increases can cause the price of money market securities to decrease.
  • Short-term investments Ways to invest Types of investments By type of short-term Money Market funds vs. U.S. investments Government funds • Banks By issuer • Government • Other Financial InstitutionsAn investment in a money market fund is not insured or guaranteed bythe FDIC or any other government agency. Although money marketfunds seek to preserve the value of your investment at $1 per share, it ispossible to lose money by investing in these funds.Unlike mutual funds, most CDs and U.S. Treasuries offer a fixed rate of return and guarantee payment of principal if heldto maturity.
  • What about bonds? • I.O.U. • Debt securities • Issued by governments and corporations • Potential to pay interest • Moderate risk, moderate potential returnIn general the bond market is volatile and bond funds entail interest rate risk (as interest rates rise, bond prices usually fall, and vice versa).This effect is usually more pronounced for longer-term securities. Bond funds also entail the risk of issuer default, issuer credit risk, andinflation risk.Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks.Increases in real interest rates can cause the price of inflation-protected debt securities to decrease.Leverage can increase market exposure and magnify investment risk.
  • Bonds Ways to invest Types of investments High, moderate, and low quality By credit risk • Government • Corporate Short, intermediate, and By maturity long-term bondsIn general the bond market is volatile and bond funds entail interest rate risk (as interest rates rise, bond prices usually fall, and viceversa). This effect is usually more pronounced for longer-term securities. Bond funds also entail the risk of issuer default, issuer credit risk,and inflation risk. The fund may invest in lower-quality debt securities that generally offer higher yields, but also involve greater risk ofdefault or price changes due to potential changes in the credit quality of the issuer.Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks.Increases in real interest rates can cause the price of inflation-protected debt securities to decrease.Leverage can increase market exposure and magnify investment risk.
  • Bonds: Maturity and quality Maturity Short Intermediate Long High Quality Moderate Low
  • Take stock • Share of a company, “equity” • Long-term growth potential • Value can go up and down • Higher risk, higher potential returnStock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory,market, or economic developments.
  • Stocks: Size of company Large Cap $10 billion and above Mid Cap $2 to $10 billion Small Cap Less than $2 billionSource: FMR LLC, as of 1/08.Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory,market, or economic developments.The securities of smaller, less well-known companies can be more volatile than those of larger companies.Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks.
  • Value vs. growth Value Growth Companies undervalued or Companies whose earnings out of favor and profits are growing Buy it “on sale” Relatively higher share price Pay a premium for earnings Turnaround story potentialValue stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periodsof time.Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market,or economic developments.
  • Stocks: Market cap and style Investment Style Value Blend Growth Large Capitalization Market Medium SmallStyleMap® depictions of mutual fund characteristics produced using data and calculations provided by Morningstar, Inc. StyleMaps estimatecharacteristics of a funds equity holdings over two dimensions: market capitalization and valuation.
  • Stocks: International Ways to invest Types of investments By whether they include • Global: includes U.S. the U.S. • International: outside U.S • Regional, e.g., Europe By where they invest • Country, e.g., Japan • International small cap By segment of the market • International bondStock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market,or economic developments.Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emergingmarkets.
  • International investing • Tap a world of investing opportunity • Today, non-U.S. markets account for greater than half the exposure of the aggregate world equity market capitalization.1 • International investments can add the benefits of diversification to a portfolio – helping to reduce risk and potentially improve risk-adjusted returns.Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market,or economic developments.Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emergingmarkets.1. Factset. MSCI All-Country World index market capitalization data as of Sept. 2009.
  • International investing Broadly International Diversified Global Funds Emerging markets Targeted Regional or country specific Funds International small capStock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market,or economic developments.Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emergingmarkets. The risks are particularly significant for funds that focus on a single country or region.The securities of smaller, less well-known companies can be more volatile than those of larger companies.
  • Types of risk • Inflation risk • Investment risk
  • The risk of inflation Even low inflation can damage purchasing power $60,000 Annual Income of $50,000 $50,000 $40,000 $30,000 $30,477 $23,880 $20,000 $18,756 $10,000 2% inflation 3% inflation 4% inflation $0 Today 5 10 15 20 25 YearsAll numbers were calculated based on hypothetical rates of inflation of 2%, 3%, and 4% (historical average from 1926 to 2008 was 3%) toshow the effects of inflation over time; actual inflation rates may be more or less and will vary.Fidelity Research Institute, 2008.
  • Return potential of the asset classes Growth of $100 in each of three asset classes, 1959–2008 Stocks $8,085 Bonds $3,174 Short-term investments $1,380 Inflation $723 $100 1959 2008Source: Ibbotson Associates, 2009 (1959–2008). Past performance is no guarantee of future results. The asset class (index) returns reflect the reinvestment of dividends andother earnings. This chart is for illustrative purposes only and does not represent actual or future performance of any investment option. It is not possible to invest directly in amarket index. Stocks are represented by the Standard and Poor’s 500 Index (S&P 500® Index). The S&P 500 Index is a registered service mark of the McGraw-HillCompanies, Inc., and has been licensed for use by Fidelity Distributors Corporation and its affiliates. It is an unmanaged index of the common stock prices of 500 widely heldU.S. stocks that includes the reinvestment of dividends. Bonds are represented by the U.S. Intermediate Government Bond Index, which is an unmanaged index that includesthe reinvestment of interest income. Short-term instruments are represented by U.S. Treasury bills, which are backed by the full faith and credit of the U.S. government.Inflation is represented by the Consumer Price Index (CPI), a widely recognized measure of inflation, calculated by the U.S. government. Stock prices are more volatile thanthose of other securities. Government bonds and corporate bonds have more moderate short-term price fluctuations than stocks but provide lower potential long-term returns.U.S. Treasury bills maintain a stable value (if held to maturity), but returns are only slightly above the inflation rate.
  • Advantages of time Historical chance of loss (1959–2008) 24% 9% 7% 0% 0% 0% 0% 0% 0% 1 Year 5 Years 10 Years S&P 500 Index U.S. Intermediate Government Bond Index U.S. Treasury BillsSource: Ibbotson Associates, 2009 (1959–2008). Past performance is no guarantee of future results. The asset class (index) returns reflect the reinvestment ofdividends and other earnings. This chart is for illustrative purposes only and does not represent actual or future performance of any investment option. It is notpossible to invest directly in a market index. Stocks are represented by the Standard and Poor’s 500 Index (S&P 500® Index). The S&P 500 Index is a registeredservice mark of the McGraw-Hill Companies, Inc., and has been licensed for use by Fidelity Distributors Corporation and its affiliates. It is an unmanaged indexof the common stock prices of 500 widely held U.S. stocks that includes the reinvestment of dividends. Bonds are represented by the U.S. IntermediateGovernment Bond Index, which is an unmanaged index that includes the reinvestment of interest income. Short-term instruments are represented by U.S.Treasury bills, which are backed by the full faith and credit of the U.S. government. Stock prices are more volatile than those of other securities. Governmentbonds and corporate bonds have more moderate short-term price fluctuations than stocks but provide lower potential long-term returns. U.S. Treasury billsmaintain a stable value (if held to maturity), but returns are only slightly above the inflation rate.
  • Importance of diversification
  • Two reasons to consider diversification • To help take advantage of market conditions • To help protect yourself against downturnsDiversification does not ensure a profit or protect against a loss.
  • Callan table of investment returns BEST- TO WORST-PERFORMING INDICES, FROM 1989-2008Source: Callan Associates, Inc., 12/31/08. Neither diversification nor asset allocation ensures a profit or guarantees against loss. You cannotinvest directly in an index.
  • The case for diversification 2005 2006 Value Blend Growth Value Blend Growth Large 4.6 3.8 2.9 Large 22.9 15.5 8.6 Mid-Cap 12.7 12.7 12.1 Mid-Cap 20.2 15.3 10.7 Small 4.7 4.6 4.2 Small 23.5 18.4 13.4 2007 2008 Value Blend Growth Value Blend Growth Large 0.3 5.9 12.2 Large -36.1 -36.1 -36.1 Mid-Cap -1.4 5.6 11.4 Mid-Cap -38.4 -41.5 -44.3 Small -9.8 -1.6 7.1 Small -28.9 -33.8 -38.5 Best-performing style Worst-performing styleNeither diversification nor asset allocation ensures a profit or guarantees against loss.Source: FMR Co. & Frank Russell Company, as of 12/31/08.Styles are represented by:Large Value = Russell Top 200® Value Index, Large Blend = Russell Top 200® Index, Large Growth = Russell Top 200® Growth Index.Mid Value = Russell® Mid Cap Value, Mid Blend = Russell® Mid Cap, Mid Growth = Russell® Mid Cap Growth.Small Value = Russell® 2000 Value, Small Blend = Russell® 2000, Small Growth = Russell® 2000 Growth.
  • Your investment options
  • Investments: Your investment options Investment options available in your plan Less aggressive More aggressive Income Funds Asset Allocation Domestic Equity International Funds Funds Equity Funds Invest primarily in debt Invest across various asset Invest primarily in common Invest primarily in stocks securities, which seek classes, including stocks, stocks and seek capital outside the U.S. and seek income and capital bonds, and short-term appreciation. They provide capital appreciation. Foreign appreciation, and money instruments. These funds greater return but also tend investments incur additional market instruments, which seek to maximize returns to carry higher risk than risk compared to U.S. seek income and and minimize risk. income funds. investments, including preservation of capital. political and economic risks and the risk of currency fluctuation, all of which are magnified in emerging markets. [insert fund name] [insert fund name] [insert fund name] [insert fund name] [insert fund name] [insert fund name] [insert fund name] [insert fund name] [insert fund name] [insert fund name] [insert fund name] [insert fund name] [insert fund name] [insert fund name] [insert fund name] [insert fund name]Stock values fluctuate in response to activities of individual companies and general market and economic conditions. In general, bondprices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Each spectrum is basedsolely on quarterly analysis of the general portfolio characteristics of each fund and not on actual security holdings, which can change frequently.Risks associated with the funds can vary significantly under certain economic conditions. For more information on the risks associated with eachfund, consult the funds prospectus.
  • Lifecycle funds • Managed for a specific retirement date • Ongoing graduated asset allocation • Automatic rebalancing • Professional management • Diversification may help to mitigate portfolio risk**Diversification does not guarantee against a loss.
  • Fidelity Advisor Freedom Funds® Fidelity Advisor Freedom Funds offer a blend of stocks, bonds, and short-term investments within a single fund. They are designed for investors expecting to retire around the year indicated in each funds name. Funds to left have potentially more Funds to right have potentially less inflation risk and less investment risk inflation risk and more investment risk Fidelity Advisor Fidelity Advisor Fidelity Advisor Fidelity Advisor Fidelity Advisor Freedom 2005 Freedom 2015 Freedom 2025 Freedom 2035 Freedom 2045 ® ® ® ® Fund ® Fund Fund Fund Fund Fidelity Advisor Fidelity Advisor Fidelity Advisor Fidelity Advisor Fidelity Advisor Fidelity Advisor Freedom Income Freedom 2010 Freedom 2020 Freedom 2030 Freedom 2040 Freedom 2050 ® ® ® ® ® ® Fund Fund Fund Fund Fund FundThe Fidelity Advisor Freedom Funds are represented on a separate investment spectrum because each fund (except FidelityAdvisor Freedom Income) will gradually adjust its asset allocation to be more conservative as the fund approaches its targetretirement date. Approximately ten to fifteen years after the target date, the asset allocation of each Freedom Fund will matchthe allocation of the Freedom Income Fund. The spectrum illustrates the relative risk and return of each fund as compared withthe other funds in the Freedom family. This spectrum does not represent actual or implied performance.The Advisor Freedom Funds are subject to the volatility of the financial markets, including equity and fixed incomeinvestments in the U.S. and abroad, and may be subject to risks associated with investing in high yield, small-cap,commodity-linked, and foreign securities. Principal invested is not guaranteed at any time, including at or after thetarget dates.Strategic Advisers, Inc., a subsidiary of FMR LLC, manages the Fidelity Advisor Freedom Funds.
  • Fidelity Advisor Freedom Funds®Lifecycle funds for your 401(k) planOne fund can help you diversify for retirement FIDELITY ADVISOR FREEDOM FUNDS’ TARGET ALLOCATION Before Retirement In Retirement At Target Asset class 30 years 20 years 10 years Date 10 years 15 years+ U.S. Equity Funds 67% 60% 50% 40% 27% 20% International Equity Funds 17% 15% 12% 10% 1% - High Yield Bond Funds 9% 8% 7% 5% 5% 5% Investment-Grade Bond Funds 8% 17% 28% 35% 30% 35% MM/Short-Term Funds and Other Assets - - 3% 10% 37% 40% Although diversification Portfolio allocations shift gradually and continually each year. does not ensure a profit or MORE AGGRESSIVE LESS AGGRESSIVE guarantee against a loss, it is an important step in When an employee’s retirement is far By 15 years after the target date, the preparing a portfolio for off, their fund is more aggressively portfolio remains allocated for income, long-term goals. allocated for growth. Gradually, it with 80% exposure to fixed-income reduces exposure to riskier assets. assets.This table illustrates the approximate target asset allocations for Fidelity Advisor Freedom Funds. The table also illustrates how these allocations may change over time. Due torounding and/or cash balances, asset allocations may not equal 100.This table is not intended to represent current or future allocations in any portfolio. The portfolio manager will periodically rebalance the portfolios as market conditions and thefunds’ performance weightings change.The Fidelity Advisor Freedom Funds are subject to the volatility of the financial markets, including equity and fixed-income investments in the U.S. and abroad, andmay be subject to risks associated with investing in high yield, small-cap, commodity-linked, and foreign securities. Principal invested is not guaranteed at anytime, including at or after the target dates.Fidelity Advisor Freedom Funds are managed by Strategic Advisers,® Inc., a subsidiary of FMR LLC.
  • Fidelity Advisor Freedom Funds ® Risk level drops as investors approach retirement 3-year standard deviation of Fidelity Advisor Freedom Funds vs. S&P 500 as of 6/30/09 Higher risk far 25 from retirement S&P 500 STANDARD DEVIATION 20 15 10 Lower risk near and during retirement 5 0 2050 2045 2040 2035 2030 2025 2020 2015 2010 2005 Income FIDELITY ADVISOR FREEDOM FUNDSFidelity Advisor Freedom Funds are designed for investors expecting to retire around the year indicated in each fund’s name. Except for the Fidelity AdvisorFreedom Income Fund, the funds asset allocation strategies become increasingly conservative as they approach the target dates and beyond. Ultimately, thefunds are expected to merge with the Freedom Income Fund.This graph illustrates that Fidelity Advisor Freedom Funds’ risk levels drop as the target year approaches. The graph maps each fund’s standard deviation, ameasure of volatility that shows the risk level of each fund, and compares it to the S&P 500® Index. Funds with nearer-term target years are notably less risky thanthose with target years farther into the future. While standard deviations have historically been lower as the funds reach their target dates, there is no guaranteethat principal invested in the funds will not be lost.The investment risks of each Fidelity Advisor Freedom Fund change over time as the fund’s asset allocations change. The funds are subject to the volatility of thefinancial markets, including equity and fixed-income investments in the U.S. and abroad, and may be subject to risks associated with investing in high yield, small-cap, commodity-linked, and foreign securities. Principal invested is not guaranteed at any time, including at or after the target dates.
  • Creating your mix Factors to consider • Characteristics of each asset class • Number of years until you plan on using the money • Your attitude about risk • Your personal financial situation
  • Determine a target asset mix Conservative Balanced Growth Aggressive Growth 15% 21% 50% 40% 49% 60% 25% 35% 25% 30% 14% 15% 6% 10% 5% Domestic Equity International Equity Bonds MM/Short-Term Investments & Other Assets Risk Spectrum Decreasing Investment Risk Increasing Investment Risk and Increasing Inflation Risk and Decreasing Inflation RiskEffective November 2009, Strategic Advisers, Inc., adjusted its target asset mixes to increase the percentage of international equity to30% of the overall equity portion for each target asset mix.Generally, among asset classes, stocks may present more short-term risk and volatility than bonds or short-term instruments but mayprovide greater potential return over the long term. Although bonds generally present less short-term risk and volatility than stocks,bonds contain interest rate risk (as interest rates rise bond prices usually fall); the risk of issuer default; and inflation risk. Foreigninvestments, especially those in emerging markets, involve greater risk and may offer greater potential return than U.S. investments.These target asset mixes are hypothetical models and illustrate certain examples of many combinations of investment allocations thatcan help an investor pursue his or her goals; these target asset mixes do not constitute investment advice under the EmployeeRetirement Income Security Act of 1974 (ERISA). You should choose your own investments based on your particular objectives andsituation. Remember, you may change how your account is invested. Be sure to review your decisions periodically to make sure theyare still consistent with your goals.Education on investment alternatives and services do not generally constitute investment advice as defined under the EmployeeRetirement Income Security Act of 1974 (“the Act”).Asset allocation does not ensure a profit or guarantee against loss. For illustrative purposes only.
  • NetBenefits For illustrative purposes only.
  • Consider making changes • Rebalance when your mix shifts out of proportion by ± 5% to 10% • Revisit your mix following major life events • Review your strategy at least once a year
  • How to achieve your target mix • Change the way future contributions are distributed • Change your current balances • Move small portions of holdings at a time
  • Next steps www.netbenefits.com 800-294-4015 • Retirement Benefits Line ⁃ Participant phone representatives Available 8:30 a.m. to 8:30 p.m. ET each day the New York Stock Exchange is open • Voice Recognition System ⁃ Available virtually 24/7
  • Next steps • Determine your appropriate mix and compare it to your current mix • Evaluate the investment options in your plan • Select investment options that fit your target asset mix • Review and adjust your asset allocation at least once a year • Go online or call your plan’s toll-free number
  • Index definitionsBarclays Capital U.S. Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, withmaturities of at least one year.Merrill Lynch High Yield Master Index is a market value-weighted index of all domestic and Yankee high yield bonds.Issues included in the index have maturities of one year or more and have a credit rating lower than BBB-/Baa3 butare not in default.MSCI Europe, Australasia, Far East Index (EAFE) is an unmanaged market capitalization-weighted index that is designedto represent the performance of developed stock markets outside the United States and Canada.The Russell Top 200® Index measures the performance of the largest-cap segment of the U.S. equity universe. TheRussell Top 200 Index is a subset of the Russell 3000® Index. It includes approximately 200 of the largest securitiesbased on a combination of their market cap and current index membership and represents approximately 65% of theU.S. market.Russell Top 200® Value Index measures the performance of the especially large-cap segment of the U.S. equity universerepresented by stocks in the largest 200 by market cap that exhibit value characteristics. It includes Russell Top 200companies with lower price-to-book ratios and lower forecasted growth values. These stocks also are members of theRussell 1000® Value Index.Russell Top 200® Growth Index measures the performance of the especially large-cap segment of the U.S. equityuniverse represented by stocks in the largest 200 by market cap that exhibit growth characteristics. It includesRussell Top 200 Index companies with higher price-to-book ratios and higher forecast growth values. The companiesalso are members of the Russell 1000® Growth Index.The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000 Index, whichrepresent approximately 26% of the total market capitalization of the Russell 1000 Index.
  • Index definitionsThe Russell Midcap Value Index is an unmanaged market capitalization-weighted index of medium-capitalization value-oriented stocks of U.S.-domiciled companies that are included in the Russell Midcap Index. Value-oriented stockstend to have lower price-to-book ratios and lower forecasted growth values.The Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth Index.The Russell 2000® Index is an unmanaged index composed of the 2,000 smallest securities in the Russell 3000 Indexand includes reinvestment of dividends. It represents approximately 11% of the Russell 3000® Index.The Russell 2000 Value Index measures the performance of those Russell 2000 companies with lower price-to-bookratios and lower forecasted growth values.The Russell 2000 Growth Index measures the performance of those Russell 2000 companies with higher price-to-bookratios and higher forecasted growth values.Standard & Poors 500 Index (S&P 500) is an unmanaged index of the common stock prices of 500 widely held U.S.stocks and includes reinvestment of dividends.You cannot invest directly in an index. Past performance does not guarantee future results.All indices are unmanaged.Index Fund is a passively managed, limited-expense (advisor fee no higher than 0.50%) fund designed to replicate theperformance of an unmanaged stock index on a reinvested basis.
  • Important informationBefore investing, consider the funds investment objectives, risks, charges, and expenses. For aprospectus, or a summary prospectus if available, containing this information, contact your investmentprofessional or visit www.netbenefits.com. Read it carefully before you make your investment choices.The information provided herein is general in nature and should not be construed as legal or tax adviceas Fidelity does not provide legal or tax advice regarding your plan and as legal or tax opinions can berendered only when related to specific situations. Please seek the advice of your legal counsel or taxadvisor to assist you with any questions you may have or with specific situations that apply to yourplan.This workshop only provides a summary of the plan’s investment options, and the plan document will govern in the event of anydiscrepancies.Unless otherwise noted, transaction requests confirmed after the close of the market, normally 4 p.m. Eastern time, or onweekends or holidays, will receive the next available closing prices.Not NCUA or NCUSIF insured. May lose value. No credit union guarantee.The Fidelity Advisor Freedom Funds are managed by Strategic Advisers, Inc., a subsidiary of FMR LLC.The trademarks and service marks appearing herein are the property of FMR LLC.©2009 FMR LLC. All rights reserved.Fidelity Investments & Pyramid Design is a registered service mark of FMR LLC.© 2009 FMR LLC. All rights reserved. Fidelity Investments Institutional Services Company, Inc., 82 Devonshire Street, Boston, MA 02109 Insight Your Advisor Diversification436123.9.0 and Fidelity Dedicated Support1.832910.106