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Weathering Market Storms

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  • Good afternoon, and welcome. I am pleased to be here today to speak with you about the markets. Our presentation is entitled “Weathering Market Storms: Chart a Course to Help Reach Your Goals.”

Transcript

  • 1. Weathering Market Storms Chart a Course to Help Reach Your Goals NOT FDIC INSURED—NO BANK GUARANTEE—MAY LOSE VALUE
  • 2. Important Information
    • The information in this presentation is being provided as general information and is not intended to be legal or tax advice. You should consult your tax advisor for specific questions related to your particular situation.
    • A prospectus contains important information about a fund, including its investment objectives, risks, charges, and ongoing expenses, which an investor should carefully consider before investing. To obtain a prospectus on any Lord Abbett mutual fund, please contact your investment professional or Lord Abbett Distributor LLC at 888-522-2388 or visit our Website at www.lordabbett.com. Read the prospectus carefully before investing.
  • 3. Who We Are and What We Do
      • Lord Abbett is an independent, privately held firm founded in 1929 with a singular focus on the management of money.
      • We view our business as the practice of a craft.
      • We are driven by an unwavering commitment to the stewardship of our clients’ assets.
  • 4. Stewardship and Lord Abbett
    • Stewardship defines the relationship between our firm and our clients.
    • We take this responsibility seriously and hold ourselves accountable for the results.
    • This sense of accountability and responsibility is reflected in how we manage the firm and how we manage money.
  • 5. Stewardship at Work * As of 12/31/07. A Prudent Approach Dedicated Portfolio Teams A proven, time-tested discipline, understanding the risks associated with return, and developing capabilities based on client needs 17 investment capabilities, 132 investment professionals with an average of 16 years of industry experience, managing more than $110 billion in client assets, compensated solely on investment performance, not on assets gathered* Consistency of Our Culture Our Singular Focus An independent, privately held firm that has maintained a commitment to serving clients’ needs since its founding in 1929 “ We believe that an investment firm worthy of the name fosters a sound relationship between the House and the Client.” ― From the Lord Abbett Credo published in The Wall Street Journal, 1929 100% of our revenues is generated by the management of money – eliminating unnecessary distractions and aligning our interests with those of our clients How We Manage the Firm How We Manage Money
  • 6. Our Agenda The market rarely moves in a straight line Market volatility causes investors to make emotional decisions Why invest in 2008? These decisions can adversely affect performance
  • 7. Long-Term Returns Stocks, Bonds, Cash, and Inflation 1925 - 2007* A hypothetical illustration of the growth of $1.00 The historical data are for illustrative purposes only, do not represent the performance of any Lord Abbett mutual fund, and are not indicative of any specific investment. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The main risk of any investment in a company’s equity or fixed income securities is that values can go up or down depending on market conditions or the performance of the company issuing the securities. *As of 12/31/07. Source: © 2007 Ibbotson Associates, Chicago. All rights reserved. Any copying, republication or redistribution of Ibbotson data is expressly prohibited without prior written consent of Ibbotson. Ibbotson proprietary rights – this slide may not be distributed. (1) Represents S&P 500® Index. (2) Center for Research in Security Prices (CRSP) U.S. Gov Bond File and U.S. Treasury Bill Index. (3) 30-day U.S. Treasury bills. (4) The rate of change of consumer goods prices as measured by the Consumer Price Index for All Urban Consumers (CPI-U). S&P 500 ® Index: Widely regarded as the standard for measuring large cap stock market performance, this popular index includes a representative sample of leading companies in leading industries. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. CRSP US Government Bond File Index: The CRSP US Government Bond File is available in two frequencies: daily and monthly. The daily product contains data for about 3,100 marketable US Government securities traded in the secondary market and during the issued trading period from June 14, 1961 to the present. The monthly product contains data for approximately 5,000 bonds, notes, and bills since 1925. Additional CRSP files contain information on stock summaries (indices), treasury bills, maturity portfolios, fama-bliss discount bonds, Risk Free rates, cap based portfolios, S&P 500, and bond, bills, and inflation. U.S. Treasury Bill Index: An index based on the auctions of U.S. Treasury bills, or on the U.S. Treasury's daily yield curve. It is commonly used in determining mortgage rates for mortgages with an unfixed component and as a performance benchmark for investors in the capital markets as it represents a rate of return that investors would be able to get from almost any bank, with minimal effort. Treasury indexes are proprietary. The calculations of treasury indexes and their components vary by the financial institution calculating the index. Consumer Price Index: An inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food, and transportation. 3.7% $20 5.5% $79 3.1% $12 Average Return Ending Balance 10.4% $3,246 Large company stocks (1) Government bonds (2) Cash (3) Inflation (4) 1925 1932 1939 1974 1967 1995 1946 1960 1953 1981 1988 2007
  • 8. When Will the Market Return to “Normal”? S&P 500 Index Calendar-Year Total Returns for Large Company Stocks – 1926 to 2007 The historical data are for illustrative purposes only, do not represent the performance of any Lord Abbett mutual fund, and are not indicative of any specific investment. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. Stocks, historically, have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Source:  2007 Ibbotson Associates, Inc. All rights reserved. Any copying, republication or redistribution of Ibbotson data is expressly prohibited without prior written consent of Ibbotson. Ibbotson proprietary rights; this slide may not be distributed. Recent volatility is nothing new. Negative returns: 28% (23 years) 12 years 5 years 31 years 11 years 5 years 5 years 13 years -20% or more -20% to -10% -10% to 0% 0% to 8% 8% to 12% 12% to 20% 20% or Greater 1974 2002 1930 1931 1937 1973 2001 1941 1957 1966 1962 1969 1977 1981 1990 2000 1929 1932 1934 1939 1940 1946 1953 1984 1987 1992 1994 2005 2007 1947 1948 1956 1960 1970 1978 1993 2004 1926 1959 1968 1972 1979 1986 1988 2006 1944 1949 1952 1964 1965 1971 1967 1975 1976 1980 1982 1983 1985 1989 1991 1995 1996 1997 1998 1999 2003 1927 1928 1933 1935 1936 1938 1942 1943 1945 1950 1951 1954 1955 1958 1961 1963 Positive returns: 72% (59 years) 82 years of stock market returns
  • 9. The Market Rarely Moves in a Straight Line In any period of market volatility when peaks and valleys are evident, investors must evaluate their circumstances and risk tolerance. While investors can enjoy the benefits of gains in their portfolios, they must also understand that they can suffer losses when the market goes the other way. Successful investing often requires investors to maintain a long-term focus and ignore short-term market fluctuations and the emotional reactions they can cause. Stocks, historically, have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted.
  • 10. S&P 500 Index: Ten Years Ending 12/31/07 Source: Standard & Poor’s. *This illustration is based on growth of a $10,000 investment over a 10-year period ended 12/31/07. Results are hypothetical and for illustrative purposes only. The historical data are for illustrative purposes only, do not represent the performance of any Lord Abbett mutual fund, and are not indicative of any specific investment. Stocks, historically, have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. S&P 500® Index is the standard for measuring large-cap U.S. stock market performance, and includes a representative sample of leading companies in leading industries. An index is unmanaged, does not reflect the deduction of fees or expenses, and is not available for direct investment.
  • 11. A Closer Look at the Last Ten Years Source: Standard & Poor’s. *This illustration is based on growth of a $10,000 investment over a 10-year period ended 12/31/07. Results are hypothetical and for illustrative purposes only. The historical data are for illustrative purposes only, do not represent the performance of any Lord Abbett mutual fund, and are not indicative of any specific investment. Stocks, historically, have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. S&P 500® Index is the standard for measuring large-cap U.S. stock market performance, and includes a representative sample of leading companies in leading industries. An index is unmanaged, does not reflect the deduction of fees or expenses, and is not available for direct investment.
  • 12. A Closer Look at the Last Ten Years
    • “ New Economy”
    • Technology Bubble
    S&P 500 ® Index 1998-1999 Source: Standard & Poor’s. *This illustration is based on growth of a $10,000 investment over a 10-year period ended 12/31/07. Results are hypothetical and for illustrative purposes only. The historical data are for illustrative purposes only, do not represent the performance of any Lord Abbett mutual fund, and are not indicative of any specific investment. Stocks, historically, have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. S&P 500® Index is the standard for measuring large-cap U.S. stock market performance, and includes a representative sample of leading companies in leading industries. An index is unmanaged, does not reflect the deduction of fees or expenses, and is not available for direct investment. 21.04% 28.58% Annual Return 1999 1998 Year
  • 13. The Bubble Bursts Source: Standard & Poor’s. *This illustration is based on growth of a $10,000 investment over a 10-year period ended 12/31/07. Results are hypothetical and for illustrative purposes only. The historical data are for illustrative purposes only, do not represent the performance of any Lord Abbett mutual fund, and are not indicative of any specific investment. Stocks, historically, have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. S&P 500® Index is the standard for measuring large-cap U.S. stock market performance, and includes a representative sample of leading companies in leading industries. An index is unmanaged, does not reflect the deduction of fees or expenses, and is not available for direct investment.
  • 14. The Bubble Bursts
    • Economic downturn/ recession
    • Corporate scandals
    • Terrorism
    • War with Iraq
    S&P 500 ® Index 2000-2002 -47% * Peak to Trough Decline 03/24/2000—10/09/2002 Source: Standard & Poor’s. This illustration is based on growth of a $10,000 investment over a 10-year period ended 12/31/07. Results are hypothetical and for illustrative purposes only. The historical data are for illustrative purposes only, do not represent the performance of any Lord Abbett mutual fund, and are not indicative of any specific investment. Stocks, historically, have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. S&P 500® Index is the standard for measuring large-cap U.S. stock market performance, and includes a representative sample of leading companies in leading industries. An index is unmanaged, does not reflect the deduction of fees or expenses, and is not available for direct investment. *Cumulative performance -22.10% 2002 -11.89% -9.10% Annual Return 2001 2000 Year
  • 15. The Rebound Source: Standard & Poor’s. *This illustration is based on growth of a $10,000 investment over a 10-year period ended 12/31/07. Results are hypothetical and for illustrative purposes only. The historical data are for illustrative purposes only, do not represent the performance of any Lord Abbett mutual fund, and are not indicative of any specific investment. Stocks, historically, have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. S&P 500® Index is the standard for measuring large-cap U.S. stock market performance, and includes a representative sample of leading companies in leading industries. An index is unmanaged, does not reflect the deduction of fees or expenses, and is not available for direct investment.
  • 16. The Rebound
    • Interest Rate Increases
    • High Energy Prices
    • Terrorism
    • Interest rate cuts
    S&P 500 ® Index 2003-2007 Source: Standard & Poor’s. *This illustration is based on growth of a $10,000 investment over a 10-year period ended 12/31/07. Results are hypothetical and for illustrative purposes only. The historical data are for illustrative purposes only, do not represent the performance of any Lord Abbett mutual fund, and are not indicative of any specific investment. Stocks, historically, have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. S&P 500® Index is the standard for measuring large-cap U.S. stock market performance, and includes a representative sample of leading companies in leading industries. An index is unmanaged, does not reflect the deduction of fees or expenses, and is not available for direct investment. 5.49% 2007 15.79% 2006 4.91% 2005 10.88% 28.68% Annual Return 2004 2003 Year
  • 17. Market Volatility has Caused Investors to Make Emotional Decisions Source: Standard & Poor’s and Strategic Insights *This illustration is based on growth of a $10,000 investment over a 10-year period ended December 31, 2007. Results are hypothetical and for illustrative purposes only. **Cash flows associated with the buying and selling of fixed assets. S&P 500® Index: Widely regarded as the standard for measuring large cap U.S. stock market performance and includes a representative sample of leading companies in leading industries. The index is unmanaged, does not reflect the deduction of fees or expenses, and is not available for direct investment. Past performance is no guarantee of future results. Stocks, historically, have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Record Inflows Q1 2000 Record Outflows Q3 2002 Record Inflows Q1 2004
  • 18. Emotional Decisions Can Derail Investment Strategies *The “best” days to be invested are defined as the days in which the S&P 500 Index delivered its highest returns for the given periods based on historical data. † Returns are measured based on the S&P 500 Index, which is unmanaged. An investor cannot invest directly in an index. S&P 500® Index is the standard for measuring large-cap U.S. stock market performance, and includes a representative sample of leading companies in leading industries. An index is unmanaged, does not reflect the deduction of fees or expenses, and is not available for direct investment. Past performance is no guarantee of future results.
  • 19. Why Invest in 2008?
  • 20. 2008 is Shaping Up to be an Interesting Year…
      • Sub prime crisis
      • Election uncertainty
      • Recession fears
      • Turmoil in the fixed income markets
  • 21. Recessions/market corrections of 10% or more since 1970 according to the S&P 500 Index: Source: © 2007 Ibbotson Associates, Inc., Standard & Poor’s, 2007. S&P 500® Index: Widely regarded as the standard for measuring large cap U.S. stock market performance, this popular index includes a representative sample of leading companies in leading industries. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. In managing downside risk, or years of large negative returns, you should carefully consider what level of exposure to stocks is appropriate given your risk tolerance, time horizon and individual needs. Stocks, historically, have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Past performance is no guarantee of future results. The chart above is for illustrative purposes only and is not indicative of any investment. Take Advantage of Market Volatility 21 market corrections since 1970 43.7 3 % -36. 06 % 5/26/70 29. 66 % -13.9 4 % 11/23/71 37. 87 % -4 7.99 % 10/4/74 25. 78 % -13.3 1 % 9/15/75 12. 49 % -1 6.99 % 3/16/78 11. 79 % -13. 55 % 11/14/78 29. 35 % -10. 25 % 11/7/79 37. 09 % -17. 07 % 3/27/80 9. 36 % -19. 75 % 9/25/81 40.9 2 % -1 4.98 % 3/8/82 58.3 3 % -14.2 4 % 8/12/82 38.2 2 % -14.7 1 % 3/11/03 26.14% -20.68% NA -16. 27 % 1/22/08 33.7 3 % -33. 75 % 10/9/02 -12. 47 % -26.4 3 % 9/21/01 2. 09 % -27. 77 % 4/4/01 39. 25 % -19. 15 % 10/8/98 29.1 0 % 5. 55 % 21. 39 % 29.6 0 % Following 12 month return -19.9 2 % 10/11/90 -10.2 1 % 1/30/90 -33.5 1 % 12/4/87 -14. 38 % 7/24/84 Correction Date of Market Low
  • 22. Trailing 10-Year Returns: S&P 500 Index As of 12/31/07. The historical data are for illustrative purposes only, do not represent the performance of any Lord Abbett mutual fund, and are not indicative of any specific investment. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. Represents S&P 500 ® Index. S&P 500 ® Index: Widely regarded as the standard for measuring large cap U.S. stock market performance, this popular index includes a representative sample of leading companies in leading industries. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. The main risk of any investment in a company’s equity or fixed income securities is that values can go up or down depending on market conditions or the performance of the company issuing the securities. Stocks, historically, have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. Source: Standard and Poors.
  • 23. Rolling 10-Year Returns: S&P 500 Index 1926-2007 Since 1926, there have been 73 rolling 10-year periods. Only 12 of these rolling 10-year periods have had an annual return of less than 6%. Source: Ibbotson Associates 2007. S&P 500® Index: Widely regarded as the standard for measuring large cap U.S. stock market performance, this popular index includes a representative sample of leading companies in leading industries. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted.
  • 24. S&P 500: 10-Year Periods When Return Was Less Than 6% Source: Ibbotson Associates 2007. S&P 500® Index: Widely regarded as the standard for measuring large cap U.S. stock market performance, this popular index includes a representative sample of leading companies in leading industries. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. The historical data are for illustrative purposes only, do not represent the performance of any Lord Abbett mutual fund, and are not indicative of any specific investment. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. 14.82% 13.14% Average ???? ???? 5.91% 1998-2007 17.87% 17.55% 5.86% 1970-1979 17.75% 16.33% 3.16% 1969-1978 16.65% 15.26% 3.59% 1968-1977 14.59% 14.33% 3.27% 1966-1975 14.58% 14.76% 1.24% 1965-1974 13.72% 18.43% 4.41% 1937-1946 14.76% 13.38% 1.80% 1931-1940 14.15% 13.48% 12.98% 12.48% Next 20-Year Average Return 9.17% 7.26% 9.62% 8.42% Next 10-Year Average Return -0.05% 1930-1939 -0.89% 1929-1938 0.02% 1928-1937 5.86% 1926-1935 Average Annual Return of S&P 500 10-Year Period
  • 25. “I’ll Wait Until After the Election” Since 1926, there have been 20 presidential elections. The average gain during these 17 election years has been 13.43%. The S&P 500 Index has been positive in 17 of these election years. Source: Ibbotson Associates 2007. S&P 500® Index: Widely regarded as the standard for measuring large cap U.S. stock market performance, this popular index includes a representative sample of leading companies in leading industries. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted.
  • 26. Historically, What Has Happened After Election Years? Historically, in the 5 years following an election, the S&P 500 Index has averaged 9.30% per year. Historically, in the 10 years following an election, the S&P 500 Index has averaged 10.25% per year. Source: Ibbotson Associates 2007. S&P 500® Index: Widely regarded as the standard for measuring large cap U.S. stock market performance, this popular index includes a representative sample of leading companies in leading industries. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. Performance data quoted above are historical. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance data quoted.
  • 27. Summary The market rarely moves in a straight line Market volatility causes investors to make emotional decisions In volatility, there is often opportunity These decisions can adversely affect performance
  • 28. What Should I Do Now?
    • Your financial professional can help you with:
      • Formulating an investment strategy
      • Determining the proper asset allocation based on your individual circumstances
      • Selecting the proper investments based on your individual circumstances
      • Navigating volatile markets
    Asset allocation does not guarantee a profit or protect against loss in declining markets.