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Actions You Can Take In Volatile Market Linkedin

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  • 1. Actions You Can Take in a Volatile Market Now more than ever, you need a plan Benjamin Glover Financial planning services and investments offered through Ameriprise Financial Services, Inc. Member FINRA and SIPC. © 2008 Ameriprise Financial, Inc. All rights reserved.
  • 2. Today’s agenda How we arrived where we are today Putting today’s markets in historical perspective Fundamental investment strategies to help you deal with and even find opportunity in volatile markets Managing emotions as part of the investment process Steps to consider taking now
  • 3. Ameriprise Financial What we learned in our 110-year history More people come to Ameriprise Financial for financial planning than any other company* Ameriprise is America’s largest financial planning company* * Based on the number of financial plans annually disclosed in Form ADV, Part 1A, Item 5, available at adviserinfo.sec.gov as of December 31, 2007, and the number of CFP® professionals documented by the Certified Financial Planner Board of Standards, Inc.
  • 4. Our four cornerstones
  • 5. What’s been driving recent market volatility? An oversupply of lending which drove up home values and resulted in the eventual collapse of the U.S. housing market Repercussions from the subprime mortgage crisis which spread to global capital markets The residual impact of the current credit crisis and the follow-on effect it has had on the global economy
  • 6. I read the news today 1987-1991 > Real estate prices collapse > Largest one-day loss in the Dow Jones Industrial Average > Sub-prime bond market collapses, real estate continues to decline, credit dries up, savings institutions weaken > Government bailout is enacted. Billions of taxpayer dollars spent to deal with failing lending institutions > Recession sets in leading to another stock market decline
  • 7. Crisis events and subsequent market performance Source: Ned Davis Research Past performance is not a guarantee of future results.
  • 8. A familiar pattern Dow Jones Industrial Average (Monthly) Copyright © 2008 Thechartstore.com Past performance is not a guarantee of future results. The Dow Jones Industrial Average is an unmanaged index that follows the returns of 30 well-established American companies, and is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in the market prices, but excludes brokerage commissions and other fees. It is not possible to invest directly in an index.
  • 9. The ―flaw‖ of averages S&P 500 Annual Returns 1926-2007 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% 1926 1940 1960 1980 2000 Ibbotson. Calendar year total returns of S&P 500 Index assuming reinvestment of all dividends and capital gains. The S&P 500 Index is an unmanaged index commonly used to measure stock performance. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.
  • 10. Measuring volatility 44% S&P 500 stock index 1976-2007: Average return is about 14% Standard deviation (volatility) has 29% been about 15% Range of returns is about 44% to -17% 14% -2% -17% The S&P 500 Index is an unmanaged index commonly used to measure stock performance. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.
  • 11. The stock market has delivered over the long term From 1966 through 2007, the S&P 500 has returned an average of 10.2% per year Returns in a given calendar year ranged from -26% to +37% Below -20% -20% – -10% -10% – 0% 0% – +10% +10% – +20% Over +20% 2002 2001 2000 2007 2006 2003 1983 1974 1973 1990 2005 2004 1999 1982 1966 1981 1994 1988 1998 1980 1977 1993 1986 1997 1975 1969 1992 1979 1996 1967 1987 1976 1995 1984 1972 1991 1978 1971 1989 1970 1968 1985 Source: Ned Davis Research. Standard & Poor’s 500 Index. It is not possible to invest directly in an index. Standard & Poor's 500 Index (S&P 500 Index) is an unmanaged list of common stocks which includes 500 large companies, and is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in the market prices, but excludes brokerage commissions or other fees. Past performance is not a guarantee of future results.
  • 12. Historical range of returns of S&P 500: 1970-2008* 61.18 29.63 19.21 18.26 9.94 -3.77 2.88 -38.94 1 year 5 years 10 years 20 years The Standard & Poor’s 500 Market Index (S&P 500) is an unmanaged list of common stocks frequently used as a measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. The highest return is represented by the top of each bar and the lowest annual return is shown at the bottom. The rolling 5-,10- and 20-year ranges are also shown. Over time, lower performing years will be offset by higher performing years and vice versa. Therefore the range of the historical returns over the entire period is narrower than the range of returns in any single year. Returns over 1 year in length are annualized. It is not possible to invest directly in an index. Past performance is no guarantee of future results.
  • 13. Returns by decade # of years # of years # of years Average annual Decade down up 0–18% up 18%+ return for decade 1920s 1920s 3 2 5 5 8.77% 8.77% 1930s 1930s 6 0 4 4 -0.05% -0.05% 1940s 1940s 3 2 5 5 9.17% 9.17% 1950s 1950s 2 2 6 6 19.35% 19.35% 1960s 1960s 3 4 3 3 7.81% 7.81% 1970s 1970s 3 3 4 4 5.86% 5.86% 1980s 1980s 1 3 6 6 17.55% 17.55% 1990s 1990s 1 3 6 6 18.20% 18.20% Average Average 2.75 2.75 2.375 2.375 4.875 4.875 10.83% 10.83% Source: Ibbotson. S&P 500 Index returns assume reinvestment of all dividends and capital gains. The S&P 500 Index is an unmanaged index commonly used to measure stock market performance. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.
  • 14. Where we stand in the current decade 30 28. 37% 25 20 15.79% 15 10.87% 10 4.91% 5.49% 5 ? ? 0 -5 -10 -9.10% -15 -11.88% -20 -22.9% -25 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: S&P Fact Book. Annual Returns of S&P 500 Index, 2000-2007, assuming reinvestment of dividends. The average annual total return for the period 12/31/99 to 12/31/07 was 3%. The S&P 500 Index is an unmanaged index commonly used to measure stock market performance. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.
  • 15. Comparing this decade to others Annualized performance of the S&P 500 19.35% 20 17.55% 18.20% 15 10 8.77% 9.17% 7.81% 5.86% 5 1.66% 0 -0.05% 20s 30s 40s 50s 60s 70s 80s 90s 00s -5 (1925 – 1929) (2000 – 2007) Source: Ibbotson. S&P 500 Index returns assume reinvestment of all dividends and capital gains. The S&P 500 Index is an unmanaged index commonly used to measure stock market performance. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.
  • 16. Markets don’t move in a linear fashion Stocks tend to bounce back after five-year periods of negative performance 25 22.47% 20 17.87% 15 14.29% 14.76% 14.10% 12.83% 10.67% 10.91% 10 5 0 -0.20% -0.59% -.057% -2.36% -2.29% -5 -5.10% -10 -7.51% -9.93% -11.24% -15 -12.47% 1927– 1932– 1929– 1933– 1929– 1934– 1930– 1935– 1937– 1942– 1970– 1975– 1973– 1978– 1998– 2003– 1999– 2004– 2000– 1931 1936 1933 1937 1933 1938 1934 1939 1941 1946 1974 1979 1977 1982 2002 2007 2003 2008 2004 Source: Ibbotson. Losses are based on Large-Capitalization U.S. Stocks, based on annualized performance of the Standard & Poor's 500® Index through the five calendar-year periods ending on the dates shown. Returns assume reinvestment of all dividends and capital gains. It is not possible to invest directly in an index. Standard & Poor's 500 Index (S&P 500 Index) is an unmanaged list of common stocks which includes 500 large companies, and is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in the market prices, but excludes brokerage commissions or other fees. Past performance is not a guarantee of future results.
  • 17. Long-term investing strategies Diversify to manage business, market, and interest rate risk Rebalance your portfolio if it is appropriate Consider the current and future tax ramifications of your actions Dollar-cost average to keep your investment strategy on track Manage your emotions by following a disciplined plan based on solid fundamentals, not emotion
  • 18. 2000 2001 2002 2003 2004 2005 2006 2007* n Large Cap Growth: Russell 1000® Growth Index n Large Cap Value: Russell 1000® Value Index REAL SMALL CAP SMALL CAP REAL INT’L REAL LARGE CAP ESTATE VALUE BONDS GROWTH ESTATE STOCKS ESTATE GROWTH n Int’l Stocks: MSCI EAFE Index 10.25% n Small Cap Value: Russell 2000® Value Index 31.04% 14.02% 48.54% 33.16% 14.02% 35.97% 11.81% n Small Cap Growth: Russell 2000® Growth Index n Mid Cap Stocks: Russell Mid Cap® Index SMALL CAP REAL REAL SMALL CAP SMALL CAP REAL INT’L INT’L VALUE ESTATE ESTATE VALUE VALUE ESTATE STOCKS STOCKS n High Yield Bonds: Lehman Brothers High Yield Bond 22.83% 12.35% 3.58% 46.03% 22.25% 13.82% 26.86% 11.63% Index n Bonds: Lehman Brothers Aggregate Bond Index n Real Estate: Wilshire REIT Index HIGH YIELD MID CAP INT’L MID CAP SMALL CAP SMALL CAP BONDS BONDS BONDS STOCKS STOCKS STOCKS VALUE GROWTH n Diversified Portfolio: Hypothetical portfolio with quarterly 11.63% 8.44% rebalancing and an equal weighting in each of the -1.41% 40.06% 20.70% 12.65% 23.48% 7.05% indices listed *Data as of 12/31/07. The table above shows how various asset MID CAP HIGH YIELD SMALL CAP INT’L MID CAP DIVERSIFIED LARGE CAP classes and a hypothetical diversified portfolio based upon equal PORTFOLIO BONDS STOCKS BONDS VALUE STOCKS STOCKS VALUE weighting of each of the asset classes have performed from 2000– 7.46% 6.97% 8.25% 5.28% -11.43% 39.17% 20.22% 22.25% 2007. Sources: Lipper, Inc., Thomson/InvestmentView and Wilshire REIT Index. Past performance does not guarantee future results. Diversification helps you spread risk throughout your portfolio, so LARGE CAP DIVERSIFIED DIVERSIFIED REAL DIVERSIFIED LARGE CAP DIVERSIFIED MID CAP investments that do poorly may be balanced by others that do VALUE PORTFOLIO PORTFOLIO ESTATE PORTFOLIO VALUE PORTFOLIO STOCKS relatively better. Diversification and asset allocation do not -1.87% -11.74% 16.63% 17.97% guarantee overall portfolio profit and do not protect against loss. The 7.01% 36.18% 7.05% 5.60% above performance is not intended to represent any specific investment. It is not possible to invest directly in any of the unmanaged indices shown above. All performance shown assumes DIVERSIFIED LARGE CAP LARGE CAP DIVERSIFIED LARGE CAP LARGE CAP MID CAP DIVERSIFIED reinvestment of interest and does not include the expenses of PORTFOLIO VALUE VALUE PORTFOLIO VALUE GROWTH STOCKS PORTFOLIO managing a mutual fund. Every investor has unique goals and 1.14% -5.59% -15.52% 33.58% 16.49% 5.26% 15.26% 2.19% tolerance for risk. Russell 1000® Growth Index measures the performance of the 1,000 largest companies in the Russell 3000 Index with higher price-to-book ratios and higher forecasted growth HIGH YIELD MID CAP INT’L LARGE CAP SMALL CAP SMALL CAP SMALL CAP HIGH YIELD values. Russell 1000® Value Index measures the performance of the BONDS STOCKS STOCKS VALUE GROWTH VALUE GROWTH BONDS 1,000 largest companies in the Russell 3000 Index with lower price- -5.86% -5.62% -15.66% 30.03% 14.31% 4.71% 13.35% 1.87% to-book ratios and lower forecasted growth values. MSCI EAFE Index is designed to measure the performance of the developed stock markets of Europe, Australia and the Far East, weighted by capitalization. Russell 2000® Value Index contains those Russell INT’L SMALL CAP MID CAP LARGE CAP HIGH YIELD SMALL CAP HIGH YIELD LARGE CAP 2000 securities with lower price-to-book ratios. Russell 2000® STOCKS GROWTH STOCKS GROWTH BONDS GROWTH BONDS VALUE Growth Index contains those Russell 2000 securities with higher -13.96% -9.23% -16.19% 29.75% 11.13% 4.15% 11.85% -0.17% price-to-book ratios. Russell Midcap® Index consists of the smallest 800 companies in the Russell 1000 Index, as ranked by total market capitalization. Lehman Brothers High Yield Bond Index covers the LARGE CAP LARGE CAP LARGE CAP HIGH YIELD LARGE CAP HIGH YIELD LARGE CAP SMALL CAP universe of fixed rate, non-investment grade debt. The Index GROWTH GROWTH GROWTH BONDS GROWTH BONDS GROWTH VALUE includes both corporate and noncorporate sectors. Lehman Brothers -22.42% –20.42% -27.88% 28.97% 6.30% 2.74% 9.07% -9.78% Aggregate Bond Index is composed of corporate, U.S. Government, mortgage-backed and Yankee bonds with an average maturity of approximately 10 years. Wilshire REIT Index is an unmanaged SMALL CAP INT’L SMALL CAP REAL group of publicly-traded real estate investment trusts. Diversified BONDS BONDS BONDS BONDS Portfolio assumes quarterly rebalancing and an equal weighting in GROWTH STOCKS GROWTH ESTATE 4.10% 4.34% 2.43% 4.33% each of the listed indices. This is for illustrative purposes only and -22.43% -21.21% -30.26% -17.55% does not reflect the performance of any specific investment.
  • 19. Historic volatility by standard deviation Stocks 44% Bonds 23% 29% 16% S&P 500 Stock Index Lehman Aggregate 1976-2007 14% 9% Bond Index 1976-2007 2% -2% -6% -17% Past performance is not a guarantee of future results. Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a representative list of government, corporate, asset-backed and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. Standard & Poor's 500 Index (S&P 500 Index), an unmanaged list of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. You can not invest directly in an index.
  • 20. Diversification options Asset classes (stocks, bonds, cash, real estate, etc.) Investment products (e.g. mutual funds, annuities, ETFs) Tax characteristics (taxable, tax-deferred, tax-free) Diversification does not guarantee overall portfolio profit or protect against loss in declining markets.
  • 21. Expected risk and return in any single year 50% stocks/ 65% stocks/ 50% bonds 35% bonds On occasion returns may occur above this point 25.5% 31.2% Some of the time returns may fall into this range 16.6% 19.8% Most of the time returns may 7.7% 8.4% fall into this range -1.2% -3% Some of the time returns may fall into this range -10.1% -14.4% On occasion returns may occur below this point This hypothetical example is provided for illustrative purposes only. It is not intended to represent the performance of a specific investment or investment strategy. Investment products involve risks including possible loss of principal and fluctuation in value.
  • 22. Diversification can temper market volatility Performance of Stocks, Bonds and 50/50 Mix 1988 to 2007 50% 40% 30% 20% 10% 0% -10% 1988 1998 2007 -20% -30% S&P 500 Index Lehman Brothers Aggregate Bond Index 50/50 Mix Past performance does not guarantee future results. These examples do not reflect sales charges, taxes or other costs associated with investing. Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a representative list of government, corporate, asset-backed and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. Standard & Poor's 500 Index (S&P 500 Index), an unmanaged list of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. You can not invest directly in an index.
  • 23. Rebalancing can keep you on plan Initial allocation One year later Rebalance back 50% 50% 60% 40% 50% 50% Stocks Bonds Stocks Bonds Stocks Bonds
  • 24. Dollar-cost averaging – price rises $25 $20 $15 $10 $5 $0 1 2 3 4 5 6 Average price: $15.00 Average cost: $14.19 Invested amount: $6,000.00 Ending value: $8,456.40 Dollar-cost averaging does not guarantee a profit or protect against losses in a declining market. Investors should consider their ability to continue investing during periods of low markets. This illustration is hypothetical and is not a forecast or guarantee of specific investment results.
  • 25. Dollar-cost averaging – market down, then recovers $25 $20 $15 $10 $5 $0 1 2 3 4 5 6 Average price: $15.00 Average cost: $13.85 Invested amount: $6,000.00 Ending value: $8,666.80 Dollar-cost averaging does not guarantee a profit or protect against losses in a declining market. Investors should consider their ability to continue investing during periods of low markets. This illustration is hypothetical and is not a forecast or guarantee of specific investment results.
  • 26. Dollar-cost averaging – market down, partial rebound $25 $20 $15 $10 $5 $0 1 2 3 4 5 6 Average price: $10.83 Average cost: $9.73 Invested amount: $6,000.00 Ending value: $6,166.70 Dollar-cost averaging does not guarantee a profit or protect against losses in a declining market. Investors should consider their ability to continue investing during periods of low markets. This illustration is hypothetical and is not a forecast or guarantee of specific investment results.
  • 27. Three different markets — three positive results Total invested – $6,000 in monthly $1,000 increments $10,000 $8,667 $8,456 $7,500 $6,167 $5,000 Market goes up Market down: Market down: full recovery partial recovery Dollar-cost averaging does not guarantee a profit or protect against losses in a declining market. Investors should consider their ability to continue investing during periods of low markets. This illustration is hypothetical and is not a forecast or guarantee of specific investment results.
  • 28. Understanding emotional investing Euphoria Point of maximum financial risk Thrill Anxiety ―Wow, I am Excitement making money. Denial I feel good ―This is just a temporary setback.‖ about this Optimism investment.‖ Fear Optimism Desperation Panic Relief Capitulation ―I think I need to sell.‖ Hope Despondency ―Things may be turning around.‖ Depression Point of maximum financial opportunity Source: Radarwire.com. A product of Simon Economic Systems, Ltd.
  • 29. The average equity investor lags the market Equity market returns v. equity mutual fund investors’ returns 16% 11.8% 12% 8% 4.3% 4% 3.0% 0% S&P 500 Index Average equity Inflation Fund investor Source: Dalbar, Inc., 2007 Quantitative Analysis of Investor Behavior for the period (1986 - 2006). Benchmark returns represented by total returns of the S&P 500. The Standard & Poor’s 500 Stock Market Index (S&P 500) is an unmanaged list of common stocks frequently used as a measure of market performance. You can not invest directly in an index.
  • 30. How emotion can put investors on the wrong path Net inflows to equity mutual funds and subsequent 5-year returns Net flows 5-year Avg. Year (in $ billions) Annual Return 1988 -$14.9 15.88% 2000 +$309.4 -2.30% 2002 -$27.6 6.19% Source: Net inflows from Investment Company Institute. 5-year AATR represents total return of S&P 500 for five year period beginning in the year listed. No taxes or fees are assumed. It is not possible to invest directly in the index.
  • 31. Benefits of a personalized financial plan Focuses on your goals, not short-term market conditions Assesses your risk tolerance Employs time-tested disciplines to dampen market volatility, such as rebalancing, dollar-cost averaging and opportunity purchases Takes taxes into consideration Helps you neutralize the inclination to make emotional investment decisions Provides for review and rebalancing on a regular basis A financial plan can help you feel more on track during market turmoil* *The Financial Planning Association® (FPA®) and Ameriprise® Value of Financial Planning Study, was conducted by Harris Interactive in June/July, 2008 among 3,022 adults. While market volatility was significant during the study period, subsequent financial developments, which may have affected attitudes and behaviors, had not yet occurred. No estimates of theoretical sampling error can be calculated; a full methodology is available.
  • 32. Steps you can take
  • 33. Saving and Building Market volatility may be a new experience for you Your portfolio may be heavily weighted in equities You may feel tempted to sit on the sidelines for awhile until things settle down
  • 34. Smart choices in uncertain times Stay invested so you don’t miss out on the upside Dollar-cost average through your workplace retirement plan Diversify your portfolio Have a cash reserve
  • 35. Missing the best days S&P 500 Index 1977 - 2007 All 7,571 Trading Days 12.90% Miss the Best 10 Days 10.88% Miss the Best 20 Days 9.40% Miss the Best 30 Days 8.09% Miss the Best 40 Days 6.89% 0% 5% 10% 15% For illustrative purposes. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. The chart shows the S&P 500 total return. Dividends are reinvested. It is not possible to invest directly in an index. Source: Ned Davis Research, Inc.
  • 36. The benefits of diversification Initial investment: $10,000 12% 6% 8% 4% 8% LOSE Ben Kent Hypothetical example. Rate of return is for illustration purposes only and is not meant to represent any specific investment. Yields are hypothetical compounded rates of return. The actual value and returns on most investments will fluctuate. It does not take into account any federal or state taxes that may apply. Diversification and asset allocation help spread risk throughout your portfolio, so that investments that do poorly may be balanced by others that do relatively better. Diversification and asset allocation do not guarantee overall portfolio profit or protect against loss in declining markets.
  • 37. The benefits of diversification 25 years later, Kent has earned $23,367 more 12% $42,500 $66,286 6% $42,919 8% $17,121 4% $6,665 Ben Kent Hypothetical example. Rate of return is for illustration purposes only and is not meant to represent any specific investment. Yields are hypothetical compounded rates of return. The actual value and returns on most investments will fluctuate. It does not take into account any federal or state taxes that may apply.
  • 38. *The Financial Planning Association® (FPA®) and Ameriprise® Value of Financial Planning Study, was conducted by Harris Interactive in June/July, 2008 among 3,022 adults. While market volatility was significant during the study period, subsequent financial developments, which may have affected attitudes and behaviors, had not yet occurred. No estimates of theoretical sampling error can be calculated; a full methodology is available.
  • 39. Preparing and protecting You’ve experienced market volatility before Though time is still your ally, retirement is closer so you have less time to recover You feel challenged to protect what you have and grow your wealth
  • 40. Smart moves in uncertain times Rebalance your portfolio Re-assess your risk tolerance Reduce portfolio volatility Raise cash to fill up reserves Plan for five key risks in retirement and your withdrawal strategy Be flexible
  • 41. Five key risks your retirement plan should address Market volatility Longevity Tax risks Health care Unexpected events
  • 42. The Ameriprise Financial Retirement Income Framework Long-Term Assets Sources of Contingent Income Cash Flows Short-Term Assets Cash Hub Ameriprise ONE® Financial Account Paycheck Needs Dreams Legacy Ameriprise Bank, FSB, member FDIC, provides certain deposit and lending products and services for Ameriprise Financial Services, Inc. Ameriprise Bank, FSB products are FDIC-insured to at least $250,000 per depositor. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. The Ameriprise ONE® Financial Account is a brokerage account with cash management features. Investments, brokerage and investment advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC.
  • 43. Determining a safe rate of withdrawal Portfolio of 50% stocks/50% intermediate-term bonds $1,600,000 An individual who began taking inflation-adjusted withdrawals $1,400,000 of 5% at age 65 in 1972 would have seen their portfolio last until approximately 1995 at age 88. $1,200,000 $1,000,000 Withdrawal Rates $800,000 9% $600,000 8% 7% $400,000 6% $200,000 5% 4% $0 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 For illustrative purposes only. Ameriprise Financial cannot guarantee financial results. Source: Ibbotson Presentation Materials, © 2005 Ibbotson Associates, Inc. All rights reserved. Used with permission. Each hypothetical portfolio has an initial starting value of $500,000. It is assumed that a person retires on December 31, 1972, and withdraws an inflation-adjusted percentage of the initial portfolio wealth ($500,000) each year beginning in 1973. Each monthly withdrawal is adjusted for inflation. Each portfolio is rebalanced monthly. Government bonds are guaranteed by the full faith and credit of the United States government as to the timely payment of principal and interest, while stocks are not guaranteed and have been more volatile than the other asset classes. Sources of information: Stocks: Standard & Poor’s 500®, which is an unmanaged group of securities and is considered to be representative of the stock market in general; bonds: five-year U.S. Government Bond; inflation: Consumer Price Index.
  • 44. *The Financial Planning Association® (FPA®) and Ameriprise® Value of Financial Planning Study, was conducted by Harris Interactive in June/July, 2008 among 3,022 adults. While market volatility was significant during the study period, subsequent financial developments, which may have affected attitudes and behaviors, had not yet occurred. No estimates of theoretical sampling error can be calculated; a full methodology is available.
  • 45. Accessing and preserving your money Your retirement security is challenged by market volatility Portfolio losses can leave a lasting mark in retirement You might think that stocks are no longer appropriate for your portfolio
  • 46. Smart moves in uncertain times Know your risk tolerance Be realistic about your withdrawals Understand the impact of volatile markets Maintain a sufficient cash reserve Plan for the unexpected Be flexible
  • 47. The impact of volatility on income portfolios Beginning value $100,000 Sarah starts retirement Bill starts retirement End value Annual End value w/$5,000 Annual Annual End value w/$5,000 Year Year w/$5,000 return withdrawals* return return withdrawals* withdrawals* 1 20% $114,000 1 -20% $76,000 2 6% $115,540 2 -6% $66,740 3 0% $110,540 3 0% $61,740 4 -6% $99,208 4 6% $60,144 5 -20% $75,366 5 20% $66,173 Distributions occur at the beginning of each year. This illustration is hypothetical and is not meant to represent any specific investment.
  • 48. The Ameriprise Financial Retirement Income Framework Long-Term Assets Sources of Contingent Income Cash Flows Short-Term Assets Cash Hub Ameriprise ONE® Financial Account Paycheck Needs Dreams Legacy Ameriprise Bank, FSB, member FDIC, provides certain deposit and lending products and services for Ameriprise Financial Services, Inc. Ameriprise Bank, FSB products are FDIC-insured to at least $250,000 per depositor. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. The Ameriprise ONE® Financial Account is a brokerage account with cash management features. Investments, brokerage and investment advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC.
  • 49. Determining a safe rate of withdrawal Portfolio of 50% stocks/50% intermediate-term bonds $1,600,000 An individual who began taking inflation-adjusted withdrawals $1,400,000 of 5% at age 65 in 1972 would have seen their portfolio last until approximately 1995 at age 88. $1,200,000 $1,000,000 Withdrawal Rates $800,000 9% $600,000 8% 7% $400,000 6% $200,000 5% 4% $0 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 For illustrative purposes only. Ameriprise Financial cannot guarantee financial results. Source: Ibbotson Presentation Materials, © 2005 Ibbotson Associates, Inc. All rights reserved. Used with permission. Each hypothetical portfolio has an initial starting value of $500,000. It is assumed that a person retires on December 31, 1972, and withdraws an inflation-adjusted percentage of the initial portfolio wealth ($500,000) each year beginning in 1973. Each monthly withdrawal is adjusted for inflation. Each portfolio is rebalanced monthly. Government bonds are guaranteed by the full faith and credit of the United States government as to the timely payment of principal and interest, while stocks are not guaranteed and have been more volatile than the other asset classes. Sources of information: Stocks: Standard & Poor’s 500®, which is an unmanaged group of securities and is considered to be representative of the stock market in general; bonds: five-year U.S. Government Bond; inflation: Consumer Price Index.
  • 50. Chances of success based on withdrawal rate 100% Conservative Moderate Conservative Moderate 75% Moderate Aggressive Aggressive Probability of Success 50% 25% 0% 3% 4% 5% 6% 7% 8% 9% Withdrawal Rate Indices: cash—30-day T bills Bonds—US Intermediate Govt., plus Median Premium of LEHB Agg Index to 1976, then LEHB Agg Index Stocks—CRSP NY/AM/NM 1-10 TR For illustrative purposes only. Ameriprise Financial cannot guarantee financial results.
  • 51. Chances of success based on withdrawal rate Annual Withdrawal Rate Portfolio Composition 3% 4% 5% 6% 7% 8% 9% Cash/Bonds/Equities Conservative: 20/45/35 99% 84% 48% 16% 0% 0% 0% Chance of Mod. Cons.:15/35/50 99% 87% 61% 29% 10% 0% 0% Success (liquidity Moderate: 10/25/65 99% 88% 68% 40% 19% 7% 0% through retirement) Mod. Agg.: 10/15/75 99% 88% 70% 46% 25% 11% 0% Aggressive: 10/0/90 98% 88% 73% 52% 32% 18% 0% For illustrative purposes only. Ameriprise Financial cannot guarantee financial results.
  • 52. Six steps to consider taking now 1. Diversify, diversify, diversify 2. Rebalance or review your asset allocation 3. Dollar-cost average 4. Avoid market timing, but prepare for opportunities 5. Don’t let your emotions affect your financial future 6. Get or review your financial plan
  • 53. Next steps
  • 54. Let’s get started. [Benjamin Glover 919-227-3170 Financial planning services and investments offered through Ameriprise Financial Services, Inc. Member FINRA and SIPC. © 2008 Ameriprise Financial, Inc. All rights reserved.