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Seminar Presentation   Actions You Can Take In A Volatile Market
 

Seminar Presentation Actions You Can Take In A Volatile Market

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Market got you down? Can\'t make sense of what to do? Here\'s a practical guide to investing in a challenging market

Market got you down? Can\'t make sense of what to do? Here\'s a practical guide to investing in a challenging market

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  • I’ve covered a lot of material [TODAY] [TONIGHT] and I hope I’ve gotten you thinking about why planning makes sense for just about everyone. I have time for three questions now. If you have something you’d like to ask me privately, please stay after the seminar. [WAIT FOR QUESTIONS.]Earlier, I mentioned two cards in your packet. Please take a moment to fill out the comment card and let me know how I did. Did you learn something from the presentation? Did it inspire you to take action? If you think that what I do for my clients could help you, check this box on the comment card [HOLD UP CARD AND POINT TO BOX] to request a complimentary consultation. A complimentary consultation provides an overview of financial planning concepts, and gives us the opportunity to get to know each other. You will not receive any written analysis or recommendations at this meeting.When you do, my assistant, [STATE NAME AND GESTURE TOWARD IF PRESENT], or I will give you a call in a day or two to schedule an appointment to discuss your needs and those of your family. If, after that meeting, you decide I can be of help to you, we’ll start by working together to develop an estate plan that complements your overall goals. When you fill out the referral card [HOLD UP SECOND CARD], let me know of friends, coworkers and, of course, family members who you think could benefit from hearing what you experienced [TODAY] [TONIGHT]. Also, let me know if you’d like information about other topicsI’ll give you a minute now to complete the cards. [STAND TO THE SIDE AS CARDS ARE FILLED OUT.] [IF HOLDING A DRAWING FOR A STARBUCKS GIFT CARD OR OTHER PRIZE, GATHER THE CARDS AND CONDUCT THE DRAWING NOW.ALL DOOR PRIZE DRAWINGS MUST BE CONDUCTED IN COMPLIANCE WITH RIC 10.4.]

Seminar Presentation   Actions You Can Take In A Volatile Market Seminar Presentation Actions You Can Take In A Volatile Market Presentation Transcript

  • Actions You Can Take in a Volatile Market
    Now more than ever, you need a plan
    Justin J. Spraker, Financial Advisor
    September 12th 2009
  • 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
  • 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.
  • Our four cornerstones
  • 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
  • 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
  • 60%
    50%
    40%
    30%
    20%
    10%
    0%
    -10%
    -20%
    -30%
    -40%
    -50%
    1926
    1940
    1960
    1980
    2000
    The “flaw” of averages
    S&P 500 Annual Returns 1926-2008
    Source: Ibbotson for 1926 to 1970; Morningstar Direct for 1971 to current period.
  • Measuring volatility
    41%
    S&P 500 stock index 1976-2008:
    • Average return is about 11%
    • Standard deviation (volatility) has been about 15%
    • Range of returns is about 41% to -19%
    • Probability range is 95% — returns can be worse (or better) than those shown here
    26%
    11%
    -4%
    -19%
    Source: Morningstar Direct & PAG.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.
  • The stock market has delivered over the long term
    From 1966 through 2008, the S&P 500 has returned an average of 8.88% per year
    Returns in a given calendar year ranged from -37% to +38%
    Source: Source: Morningstar Direct for 1971 to current period and Ibbotson for 1966 to 1970.
    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.
  • Historical range of returns of S&P 500: 1970-2008*
    61
    30
    19
    18
    8
    -4
    -1
    -39
    20 years
    1 year
    10 years
    5 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.
  • Returns by decade
    1920s 3 2 5 8.77%
    1930s 6 0 4 -0.05%
    1940s 3 2 5 9.17%
    1950s 2 2 6 19.35%
    1960s 3 4 3 7.81%
    1970s 3 3 4 5.86%
    1980s 1 3 6 17.55%
    1990s 1 3 6 18.20%
    Average 2.75 2.375 4.875 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.
  • Where we stand in the current decade
    30
    25
    20
    15
    10
    5
    0
    -5
    -10
    -15
    -20
    -25
    -30
    -35
    -40
    28%
    16%
    11%
    5%
    5%
    ?
    -9%
    -12%
    -23%
    -37%
    2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
    Source: Morningstar Direct. Annual Returns of S&P 500 Index, 2000-2008, assuming reinvestment of dividends. The average annual total return for the period 12/31/99 to 12/31/08 was -3.6%. 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.
  • Comparing this decade to others
    Annualized performance of the S&P 500
    20
    15
    10
    5
    0
    -5
    19%
    18%
    18%
    9%
    9%
    8%
    6%
    -4%
    -0.05%
    20s 30s 40s 50s 60s 70s 80s 90s 00s
    (1925 – 1929) (2000 – 2008)
    Source: Ibbotson for 1925 to 1979, 20s encompasses the years 1925 to 1929; Morningstar Direct for 1980 to current period. 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.
  • 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
    Dollar-cost averaging involves continuous investment in securities, regardless of fluctuating price levels. Investors should consider their ability to continue purchases through periods of low price levels. 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. Dollar-cost averaging, diversification and asset allocation do not guarantee overall portfolio profit or protect against loss in declining markets. Neither Ameriprise Financial nor its representatives or affiliates provide tax or legal advice. Consult with your tax advisor or attorney regarding specific issues.
  • 2000
    2001
    2002
    2003
    2004
    2005
    2006
    2007*
    REAL ESTATE 31.04%
    SMALL CAP VALUE 14.02%
    BONDS 10.25%
    SMALL CAP GROWTH48.54%
    REAL ESTATE 33.16%
    INT’L STOCKS14.02%
    REAL ESTATE 35.97%
    LARGE CAP GROWTH11.81%
    SMALL CAP VALUE 22.83%
    REAL ESTATE 12.35%
    REAL ESTATE 3.58%
    SMALL CAP VALUE 46.03%
    SMALL CAP VALUE 22.25%
    REAL ESTATE 13.82%
    INT’L STOCKS26.86%
    INT’L STOCKS11.63%
    BONDS 11.63%
    BONDS 8.44%
    HIGH YIELD BONDS-1.41%
    MID CAP STOCKS 40.06%
    INT’L STOCKS20.70%
    MID CAP STOCKS12.65%
    SMALL CAP VALUE23.48%
    SMALL CAP GROWTH7.05%
    MID CAP STOCKS 8.25%
    HIGH YIELD BONDS5.28%
    SMALL CAP VALUE -11.43%
    INT’L STOCKS39.17%
    MID CAP STOCKS 20.22%
    DIVERSIFIED PORTFOLIO7.46%
    LARGE CAP VALUE22.25%
    BONDS 6.97%
    LARGE CAP VALUE7.01%
    DIVERSIFIED PORTFOLIO-1.87%
    DIVERSIFIED PORTFOLIO -11.74%
    REAL ESTATE 36.18%
    DIVERSIFIED PORTFOLIO 16.63%
    LARGE CAP VALUE7.05%
    DIVERSIFIED PORTFOLIO17.97%
    MID CAP STOCKS5.60%
    DIVERSIFIED PORTFOLIO 1.14%
    LARGE CAP VALUE-5.59%
    LARGE CAP VALUE-15.52%
    DIVERSIFIED PORTFOLIO 33.58%
    LARGE CAP VALUE16.49%
    LARGE CAP GROWTH5.26%
    MID CAP STOCKS15.26%
    DIVERSIFIED PORTFOLIO 2.19%
    HIGH YIELD BONDS-5.86%
    MID CAP STOCKS-5.62%
    INT’L STOCKS-15.66%
    LARGE CAP VALUE30.03%
    SMALL CAP VALUE 4.71%
    HIGH YIELD BONDS1.87%
    SMALL CAP GROWTH14.31%
    SMALL CAP GROWTH13.35%
    INT’L STOCKS-13.96%
    MID CAP STOCKS-16.19%
    LARGE CAP GROWTH29.75%
    HIGH YIELD BONDS11.13%
    HIGH YIELD BONDS11.85%
    LARGE CAP VALUE-0.17%
    SMALL CAP GROWTH -9.23%
    SMALL CAP GROWTH4.15%
    LARGE CAP GROWTH-22.42%
    LARGE CAP GROWTH–20.42%
    LARGE CAP GROWTH-27.88%
    HIGH YIELD BONDS28.97%
    LARGE CAP GROWTH6.30%
    HIGH YIELD BONDS2.74%
    LARGE CAP GROWTH9.07%
    SMALL CAP VALUE-9.78%
    INT’L STOCKS-21.21%
    BONDS4.10%
    BONDS 4.34%
    BONDS2.43%
    BONDS 4.33%
    REAL ESTATE-17.55%
    SMALL CAP GROWTH-22.43%
    SMALL CAP GROWTH-30.26%
    n Large Cap Growth: Russell 1000® Growth Index
    nLarge Cap Value: Russell 1000® Value Index
    n Int’l Stocks: MSCI EAFE Index
    nSmall Cap Value: Russell 2000® Value Index
    nSmall Cap Growth: Russell 2000® Growth Index
    nMid Cap Stocks: Russell Mid Cap® Index
    nHigh Yield Bonds: Barclays Capital High Yield Bond Index (formerly Lehman Brothers High Yield Bond Index)
    nBonds: Barclays Capital Aggregate Bond Index (formerly Lehman Brothers Aggregate Bond Index)
    nReal Estate: Wilshire REIT Index
    nDiversified Portfolio: Hypothetical portfolio with quarterly rebalancing and an equal weighting in each of the indices listed
    *Data as of 12/31/07. The table above shows how various asset classes and a hypothetical diversified portfolio based upon equal weighting of each of the asset classes have performed from 2000–2007. 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 investments that do poorly may be balanced by others that do relatively better. Diversification and asset allocation do not guarantee overall portfolio profit and do not protect against loss. The 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 reinvestment of interest and does not include the expenses of managing a mutual fund. Every investor has unique goals and 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 values. Russell 1000® Value Index measures the performance of the 1,000 largest companies in the Russell 3000 Index with lower price-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 2000 securities with lower price-to-book ratios. Russell 2000® Growth Index contains those Russell 2000 securities with higher price-to-book ratios. Russell Midcap® Index consists of the smallest 800 companies in the Russell 1000 Index, as ranked by total market capitalization. Barclays Capital High Yield Bond Index (formerly Lehman Brothers High Yield Bond Index) covers the universe of fixed rate, non-investment grade debt. The Index includes both corporate and noncorporate sectors. Barclays Capital High Yield Bond Index (formerly Lehman Brothers High Yield 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 group of publicly-traded real estate investment trusts. Diversified Portfolio assumes quarterly rebalancing and an equal weighting in each of the listed indices. This is for illustrative purposes only and does not reflect the performance of any specific investment.
  • Historic volatility by standard deviation
    Stocks
    41%
    Bonds
    20%
    26%
    14%
    S&P 500 Stock Index
    1976-2008
    Barclays Capital Aggregate Bond Index (formerly Lehman Aggregate Bond Index) 1976-2008
    11%
    8%
    3%
    -4%
    -3%
    -19%
    Source: Morningstar Direct & PAG.Past performance is not a guarantee of future results. Barclays Capital Aggregate Bond Index (formerly 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.
  • 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 helps you 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 protection against loss.
  • Diversification can temper market volatility
    S&P 500 Index
    Performance of Stocks, Bonds and 50/50 Mix 1988 to 2008
    50%
    40%
    30%
    20%
    10%
    0%
    -10%
    -20%
    -30%
    -40%
    1988
    1998
    2008
    Barclays Capital Aggregate Bond Index
    (formerly Lehman Brothers Aggregate
    Bond Index)
    50/50 Mix
    Source: Morningstar Direct & PAG. Blended index returns calculated by PAG using a monthly weighting.Past performance does not guarantee future results. These examples do not reflect sales charges, taxes or other costs associated with investing. Barclays Capital Aggregate Bond Index (formerly 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.
  • Rebalancing can keep you on plan
    50%
    Bonds
    50%
    Stocks
    50%
    Stocks
    50%
    Bonds
    40%
    Bonds
    60%
    Stocks
    Initial allocation
    Rebalance back
    One year later
    Diversification helps you 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 protection against loss.
  • 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.
  • 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.
  • 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: $7,166.70
    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.
  • Three different markets — three positive results
    Total invested – $6,000 in monthly $1,000 increments
    $10,000
    $7,500
    $5,000
    $8,667
    $8,456
    $7,167
    Market down:
    partial recovery
    Market down:
    full recovery
    Market goes up
    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.
  • Understanding emotional investing
    Euphoria
    Point of maximum financial risk
    Anxiety
    Thrill
    Denial
    “Wow, I am
    making money.
    I feel good about this investment.”
    “This is just a temporary setback.”
    Excitement
    Fear
    Optimism
    Optimism
    Desperation
    Panic
    Relief
    Capitulation
    “I think I need to sell.”
    Despondency
    Hope
    “Things may be turning around.”
    Depression
    Point of maximum financial opportunity
    Source: Radarwire.com. A product of Simon Economic Systems, Ltd.
  • The average equity investor lags the market
    Equity market returns v. equity mutual fund investors’ returns
    16%
    11.8%
    12%
    8%
    4.3%
    3.0%
    4%
    0%
    S&P 500 Index
    Average equity
    Fund investor
    Inflation
    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.
  • 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.
    Dollar-cost averaging involves continuous investment in securities, regardless of fluctuating price levels. Investors should consider their ability to continue purchases through periods of low price levels. 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. Dollar-cost averaging, diversification and asset allocation do not guarantee overall portfolio profit or protect against loss in declining markets. Neither Ameriprise Financial nor its representatives or affiliates provide tax or legal advice. Consult with your tax advisor or attorney regarding specific issues.
  • Steps you can take
  • 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
    Dollar-cost averaging involves continuous investment in securities, regardless of fluctuating price levels. Investors should consider their ability to continue purchases through periods of low price levels. 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. Dollar-cost averaging, diversification and asset allocation do not guarantee overall portfolio profit or protect against loss in declining markets. Neither Ameriprise Financial nor its representatives or affiliates provide tax or legal advice. Consult with your tax advisor or attorney regarding specific issues.
  • Next steps
  • Let’s get started.
    Justin J. Spraker, Financial Advisor
    Ameriprise Financial Advisors
    5 Southside Drive
    Ste 202
    Clifton Park, NY 12065
    (518) 669-3440
    Justin.j.spraker@ampf.com
    Financial planning services and investments offered through Ameriprise Financial Services, Inc. Member FINRA and SIPC.
    © 2008-2009 Ameriprise Financial, Inc. All rights reserved.