Seminar Presentation Actions You Can Take In A Volatile Market

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%
REAL ESTATE 12.35%
REAL ESTATE 3.58%
REAL ESTATE 13.82%
BONDS 11.63%
BONDS 8.44%
HIGH YIELD BONDS-1.41%
MID CAP STOCKS 40.06%
MID CAP STOCKS12.65%
SMALL CAP VALUE23.48%
HIGH YIELD BONDS5.28%
SMALL CAP VALUE -11.43%
DIVERSIFIED PORTFOLIO7.46%
LARGE CAP VALUE22.25%
BONDS 6.97%
DIVERSIFIED PORTFOLIO-1.87%
DIVERSIFIED PORTFOLIO -11.74%
REAL ESTATE 36.18%
DIVERSIFIED PORTFOLIO 16.63%
DIVERSIFIED PORTFOLIO17.97%
MID CAP STOCKS5.60%
LARGE CAP VALUE-5.59%
MID CAP STOCKS15.26%
HIGH YIELD BONDS-5.86%
MID CAP STOCKS-5.62%
INT’L STOCKS-15.66%
MID CAP STOCKS-16.19%
SMALL CAP GROWTH -9.23%
LARGE CAP GROWTH-22.42%
LARGE CAP GROWTH–20.42%
LARGE CAP GROWTH-27.88%
SMALL CAP VALUE-9.78%
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 cost: $13.85

Dollar-cost averaging – market down, partial rebound
$25
$20
$15
$10
$5
$0
1 2 3 4 5 6
Average cost: $9.73

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

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.

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

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.

Seminar Presentation Actions You Can Take In A Volatile Market

by r49265 on Sep 12, 2009

Accessibility

Tags

Upload Details

Usage Rights

1 Embed 1

Statistics

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