~ Global equities and high yield bonds suffered their greatest losses since the fourth quarter of 2008
Fears of a global recession
EU debt default
~ Commodity prices collapsed
~ 10-year Treasury yield fell to a record low
~ Equity volatility at its highest since March ’09
~ Investors pricing in a hard landing in China
Intensifying the risk-off sentiment
October was a treat, but ends with a trick 3 rd best October for S&P since 1928 October was a treat, but ends with a trick With a return of 10.8% for the S&P 500, October was a treat for investors. It was the third best October and the 23rd highest monthly return for the S&P since 1928. But, renewed concerns over the lack of a solid plan to resolve the European sovereign debt crisis have turned the equity markets to a trick from a treat. The drop of 5.2% from the 28 October high in the S&P 500 has generated two 90% down days on a pick-up in volume. This bear market behavior has tricked the bullish seasonal pattern, but the risk is that Europe’s sovereign debt issues trump bullish year-end seasonals. Key levels to watch – 1200 area support The bad news is that the S&P 500 is back below the 200-day moving average near 1274 . While below this moving average, the bullish seasonal bias into year-end is called into question. The good news is that the S&P is testing support at 1230-1200, which is the breakout area of the recently completed double bottom off the 1100-1074 lows. Holding this support would keep the breakout intact with an upside pattern projection of 1350-1360 to as high as 1385. But, with the exception of projected Fibonacci support at 1184-1158, there is not much support ahead of 1100-1074 on a decisive break below 1200.
What to expect moving forward
Our Research Investment Committee’s base case:
~ Over the medium term:
Low growth, Low interest rates, and High liquidity
(portfolios tilted toward assets that generate high growth, high yields and high quality)
~ In the short term, tail risks exist (low probability):
Disorderly Greek debt default
A hard landing in China
Slump in global earnings growth
~ If the global economy avoids a recession:
Policy stimulus gains traction
Yields attract buyers
Possible reversal of fortune for risk assets in 4Q11
20-Yr annualized returns by asset class (1990-2009) (1) Barclays Capital US Aggregate Bond Index. (2) Calculated using Dalbar Funds Flow information. Source: JPMorgan (1) (2)
During today’s seminar we will help you explore: It’s Your Future What We’ll Discuss Today
Build a solid spending and savings foundation
Develop a relationship with a financial provider
Include your spouse or life partner in managing your finances
Balance your priorities and make tradeoffs
Invest for growth potential while managing risk
Safeguard your health and well-being
Protect your earnings potential
Focus on family and intergenerational topics
Expand your life experiences
Take the long view and invest in yourself Create the Future You Want
Become more aware of day-to-day cash flow and expenses
Pay down debt, especially high-interest debt
Consider health care and insurance options
Set up an emergency fund
Hypothetical example for illustrative purposes only. Assumed minimum payment is calculated by using 2.5% of the balance Budgeting Develop a Budget and Stick to It Create a budget to help plan for the long term High Interest Debt can be crippling
Paying the minimum balance on a $1,000 balance credit card with an 18% APR will take 153 months to pay off and you would have paid $1,115.41 in interest!
No upkeep fees (drippy faucets, broken dishwashers, etc.)
Annual rent increase could outpace inflation
Budgeting Buy or Rent? Renting Pros Cons
Tax-break: deduct mortgage interest and property taxes
Potential tax-free capital gain
Property tax and upkeep
Less flexibility should you want to move; in very bad housing markets, you could lose principal
The interest rate of this loan is locked in at origination and remains the same throughout the term of the loan
These loans have an interest rate that is tied to an index, changing with prevailing market rates
Adjustable Rate Mortgage Fixed Rate Mortgage Budgeting Financing a Home
The FHA loan is a fixed rate mortgage that is designed especially for the first time home buyer of moderate or low income.
A VA loan, is designed for men and women with a history of active military service or he/she is the surviving spouse of an active service member.
Government Guaranteed Loans
Learn about investing
Identify your financial goals
Work with a Financial Advisor
Monitor your portfolio
Taking Control Investors can take greater control of their financial situation.
Your goals, timetable and tolerance for risk
A balance of stocks, bonds and cash
Monitoring and rebalancing your portfolio
The more time you have, the more aggressive you can be!
A Strategy Defined By Your Goals Your overall investment strategy depends on: ? ? ? STOCKS BONDS CASH
Conservative Moderately Conservative Moderate Moderately Aggressive Aggressive Source: Bank of America Merrill Lynch Research Investment Committee (RIC) Report, March, 2011. Models are for illustrative purposes only. Merrill Lynch has changed the allocations for each model in the past and may change the allocations in the future, depending upon research and investment strategy recommendations. Determining An Appropriate Asset Allocation Merrill Lynch Asset Allocation Models 20% 55% 25% 40% 50% 10% 60% 35% 5% 70% 25% 5% 80% 15% 5% Stocks Bonds Cash
16.5 to 1 3.3 to 1 2.3 to 1 "The 2009 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds," May 12, 2009. Not-so-good News: Social Security Is Threatened by an Aging Population Ratio of Workers to Beneficiaries 2010 2025 1950
Private Pension Plans, Participation, and Assets: Update
(Data from tabulations of the U.S. Department of Labor's Form 5500)
Number of Defined Contribution Plans Number of Defined Benefit Plans Not Your Parent’s Retirement Plan
There Is Hope “The Rule of 72” "Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it." - Attributed to Albert Einstein
The “Rule of 72” is a simple way to determine how long an investment could take to double, given a fixed annual rate of interest.
You divide 72 by the annual rate of return, to get an estimate of how many years it could take for the initial investment to double.
Hypothetical example for illustrative purposes only. Results are not meant to represent the past or future performance of any specific investment vehicle. Actual rates of return cannot be predicted and will fluctuate. Your results may be more or less. Example
$100 invested at 10% would take approximately 7.2 years to turn into $200.
Start Saving As Soon As You Can The sooner you start, the more money you could potentially have in retirement This hypothetical illustration assumes an annual $5000 IRA contribution made at the beginning of each year for 35 years, a 7% annual rate of return, and no taxes on any earnings within the IRA. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost. (35 Years later) At Retirement $5,000 $739,567
Save for Retirement Every Year Even one year can potentially make a difference in your nest egg This hypothetical illustration assumes annual $5000 IRA contribution made at the beginning of each year and beginning one year apart for various ages, a 7% annual rate of return, and no taxes on any earnings within the IRA until the age of 71. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost.
Roth IRA Traditional IRA Choose the IRA That’s Right for You
Contributions may be tax-deductible
Withdrawals taxed as ordinary income
Contributions are not tax-deductible
Withdrawals are taken tax-free
Must be under 70½ to open and contribute
Anyone with earned income can contribute
No age limit
Contribution eligibility is based on income
Required Minimum Distributions
Distributions prior to age 59½ may incur a 10% additional federal tax
No Required Minimum Distributions
10% additional federal tax on early withdrawals applies to earnings only
Many companies offer to match a percentage of employees’ 401(k) contributions
Investors should consider contributing at least as much as the company is willing to match
Don’t leave “free money” on the table by failing to contribute to your company’s 401(k)
Meet Your Company Match In 401(k) Plans ¹ http://www.bls.gov/news.release/pdf/nlsoy.pdf , September 2010 The average person born in the latter years of the baby boom held 11 jobs from age 18 to age 44 1
Reasons to Invest Early Impacts on Your Paycheck A pre-tax contribution to your retirement account reduces your take home pay less than the amount of your contribution.
Mary is 35 and her annual salary is $50,000. She wants to contribute 5% of her salary to her 401(k) to take advantage of her company’s matching contributions and retire in 30 years.
Mary’s monthly take-home pay would be reduced by: $156
Her annual income tax bill would decrease by: $625
With an employer match, at age 65 her account would grow to: $395,291
This hypothetical illustration assumes a 5% contribution rate at the beginning of each year, a 6% annual rate of return, and a 25% federal tax bracket (state and local taxes are not included). It also assumes a company match of 100% for every dollar contributed up to 5% of eligible compensation. Hypothetical results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost. Taxes are due upon withdrawal. If you take a withdrawal prior to age 59½, you may also be subject to a 10% additional federal tax.
Best Practices to Help You Plan for your Future Save Every Year Pay Down Debt Monitor and Adjust Your Portfolio Start Saving As Soon As You Can Meet Your Company’s 401(k) Match Create A Budget