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Investing Basics Learning to Invest  with Confidence Ray Henderson, CLTC Financial Representative
Volatility is a natural part of investing. Investing Basics
<ul><li>Goal Setting </li></ul><ul><li>Diversification </li></ul><ul><li>Risk and Reward </li></ul><ul><li>Discipline </li...
<ul><li>Expert Guidance </li></ul><ul><li>Asset Allocation </li></ul><ul><li>Investing Fundamentals </li></ul>A Focus on C...
Avoid making emotional decisions. Market Declines Are To Be Expected Market Declines Are Normal Declines in the Dow (1900–...
<ul><li>Hypothetical Value of $1 Investment in Stocks  from 1987-2006 </li></ul>Dangers of Market Timing $2.32 $2.42 $9.31...
Step 1:  Start With Your Goals If you fail to plan, you plan to fail.
<ul><li>Life insurance </li></ul><ul><li>Disability income insurance </li></ul><ul><li>Health insurance </li></ul><ul><li>...
<ul><li>Measurable </li></ul><ul><li>Time frame </li></ul><ul><li>Resources defined </li></ul><ul><li>Action steps </li></...
<ul><li>Personal goals </li></ul><ul><li>Risk tolerance </li></ul><ul><li>Time frame </li></ul><ul><li>Investment options ...
Mix Matters Use asset allocation to manage investment risk. Potential to Reduce Risk or Increase Return Fixed Income Portf...
<ul><li>Equities </li></ul><ul><li>Fixed Income </li></ul>Asset Categories Different asset types perform differently to ch...
Your Personal Investor Profile The goal of asset allocation is to produce the highest level of returns for a given level o...
Your portfolio should be a reflection of your goals, risk tolerance and time frame. Asset Allocation Conservative Asset Al...
Winner and Losers Can you predict next year’s winner? Source: Large-Cap S&P 500; Mid-Cap S&P 400; Small-Cap S&P 600; Real ...
<ul><li>Investment time frame </li></ul><ul><li>Withdrawal time frame </li></ul><ul><li>Secure assets </li></ul><ul><li>Pe...
Take a Long-Term View Stocks historically have provided positive returns over the long term. Reduction of Risk Over Time 1...
Inflation and Taxes Reduce Returns Compound Annual Returns, 1926-2006 10.4% Consider the impact of inflation and taxes on ...
Step 4:  Give It Time Power of Compounding $113,223 $20,000 S & P 500 S & P Minus Best 17 months Treasury Bills Past perfo...
Steady as You Go Dollar cost averaging can help take the guesswork out of deciding when to invest. Market-Timing Risk The ...
Step 5:  Let Your Progress Build on Itself Reinvesting is using the dividends, interest and capital gains earned from an i...
The Power of Reinvesting Reinvesting can help build the value of your portfolio even faster. 1987 $9,306 $5,857 $5,216 $1,...
<ul><li>Step 1: Start with your goals </li></ul><ul><li>Step 2: Develop a diversified investment program </li></ul><ul><li...
<ul><li>Received the best possible insurance financial strength ratings from the four major rating agencies in 2006 </li><...
<ul><li>Customized Investment Plan </li></ul><ul><li>An Objective Perspective </li></ul><ul><li>Discipline to Move Forward...
Hazardous to Your Wealth Return After Inflation Return After Inflation Return After Inflation Individual investors tend to...
Our Commitment It is our mission to develop enduring relationships with clients by  providing expert guidance for a lifeti...
Evaluation Form Please complete and hand in form.
Learning to Invest with Confidence Learning to Invest with Confidence The Northwestern Mutual Financial Network™ is a mark...
Learning to Invest With Confidence Learning to Invest with Confidence Investing Basics Thank You
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Investing Basics

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  • Slide # 1 Today’s program is entitled: Investing Basics: Learning to Invest with Confidence . INTRODUCE YOURSELF AS THE PRESENTER.
  • Slide #2 Sometimes it’s hard to make heads or tails of the news, isn’t it? There are so many mixed signals out there. Of course, a lot of this is to be expected. Conventional wisdom tells us what goes up…must come down. But even if you view market volatility as a normal occurrence, it can be tough to handle when it’s your money at stake. That’s why I’m glad you’re here this morning/afternoon/evening. Because my goal today is to help you answer a question that’s on the minds of so many investors: How can I feel more secure in my investment strategy, in today’s changing world ?
  • Slide #3 First, I’ll let you in on a little secret: Investing successfully isn’t nearly as hard as many people believe. Not if you start with the basics and build from there. That’s why I’d like to help you get a handle on some of the fundamentals of investing – core strategies that even the largest institutional investors rely on to help them navigate the often choppy waters of investing. In fact, I’m going to share with you five strategies that can change how you view the markets. Five simple steps you can put to work right away to help you invest more confidently, regardless of market direction. -First , you’ll see why a sound investment strategy starts with your end goals in mind. - Second , you’ll learn the components of a balanced, diversified investment program. - Third , you’ll see why risk and reward are an unavoidable part of investing - Fourth , we’ll talk about why discipline is crucial to investment success; and - Finally , you’ll learn how you can build momentum in your investment plan.
  • Slide #4 I know these strategies work. How? Because they’re part of the core values that guide how we invest at Northwestern Mutual. - First , we believe in the value of expert guidance that can help you build your overall portfolio. - Second, we believe in the value of asset allocation, the foundation of a diversified investment program. - And finally , we believe in the value of investment fundamentals –the basic principles, such as getting an early start, investing regularly, and using dollar-cost averaging to help reduce market risk. My presentation will take approximately 35 minutes. As I talk, please feel free to jot down any questions that you have. I’ll be glad to answer any and all of them after the talk. Additionally, I recognize that some may not be as familiar with investment concepts and terms as others. On page eight of the Participant Handout, you’ll find a list of common terms; feel free to refer to it throughout this talk.
  • Slide #5 Think back to February 2007, when the S&amp;P 500 plunged 50 points and lost 3.5% of its value in one day. What did you do? Did you run for cover, selling every stock or mutual fund you own? Did you pull your money out of one investment and put it into another that looked like a surer bet? Or did you wait on the sidelines until the markets once again stabilized? If you felt a little panicked, you’re not alone. After seven months without a major correction, the market’s February dive was unnerving. But here’s the thing: market declines happen. In fact, historically, the market has experienced a loss of 5% or more, on average, 3.3 times per year. [Source Ned Davis Research] Still, it’s not surprising that investors often make emotional choices at times like these – jumping in and out of investments in the hope of timing the markets. The problem is, those decisions can be costly in the long run. How costly? Let’s take a look.
  • Slide #6 Let’s say you invested $1 in the S&amp;P 500 at the beginning of 1987. The S&amp;P 500 is an unmanaged index that broadly measures the performance of large CAP U.S. stocks. If you kept your investment over the last 20 years, your money would have grown to $9.31 by the end of December, 2006. Not bad, especially considering the rocky road the markets endured a few years ago. Now take a look at what would have happened had you jumped in and out of the market during that time period. If you had missed the 17 best months in the 20 year-period ending December 31, 2006, your $1 investment would have barely doubled in value. The problem with market timing is that investors too often end up chasing past winners, either making the wrong guess or buying in just as the price turns lower. What’s more, market timing can be costly, triggering trading costs and unwanted capital gains that can reduce returns even further. The investor who moves steadily forward may be more likely to succeed than the one who darts in and out of the market.
  • Slide #7 So if market timing isn’t a sound solution to investing, what is? How do you get ahead when the economy and the financial markets are changing so fast? The first step is to have a clear idea of what your goals are and how you’re going to reach them. The old adage, “if you fail to plan, you plan to fail,” proves the point. Who would you say is more likely to realize her dream of buying a vacation home for her family? There’s Karen, who says she can picture how much fun she and her kids are going to have playing on the beach…and then there’s Amy, who talks about calling a realtor early next year and can show you housing comparables she’s collected and the written savings plan she’s put together to make the down payment. Very simply, identifying your goals brings your future into the present. When you identify your goals you are saying to yourself, I know what I want my money to do for me and I can control it. The goals you set will help you decide where you are going, what you need to do to get there and when you want to arrive. They can help you understand yourself as an investor. They can help you organize and direct your decision making. And they can carry you through the emotional ups and downs that accompany challenging markets.
  • Slide #8 Regardless of your specific goals, however, a successful plan needs a secure foundation – and that means proper insurance coverage and an emergency fund to provide ongoing income in the event of an emergency. When you have fulfilled your needs in this stage, you will have more confidence that your goals can be achieved, regardless of events beyond your control.
  • Slide #9 Once your foundation is in place, you can begin to think about what you want to accomplish with your money. - Ask yourself : What are your goals for the future? Where would you, your spouse and your children like to be five, ten or twenty years ahead? Maybe you want to increase your income or prepare for your children’s education. Maybe you want to save for a boat or buy an investment property. Maybe you want a higher return on your investments or to increase your net worth by a certain amount in the next several years. Whatever your goals, it’s important to write them down and be as specific as possible. For example, it’s not enough to say, &amp;quot;I want to retire comfortably.” Goals should be: - Measurable . For example, “I will accumulate $500,000 for my retirement.” -They should include a time frame – in other words, when you want to reach the goal. “I will need to have that money ready by the time I turn 65 in 2015.” -They should define what resources you already have. “I will use my 401(k) plan at work and a tax-advantaged variable annuity to help me save enough.” -And, they should identify the specific steps you need to take in order to reach them. “I will contribute 15% of my salary to my 401(k) each year and I will contribute an additional $5,000 a year to my variable annuity account.” And of course, as you realize some of your goals, they will be replaced by others. That’s why it’s also important to revisit your goals annually or whenever you have a major change in your life circumstances. To help you get started thinking about your goals, I’ve included some exercises on page 2 of the Participant Handout.
  • Slide #10 Never before have investors been faced with so many choices. Today, you can select from an ever-expanding range of investment vehicles, available from hundreds of financial service providers. How do you know which ones are right for you? With your list of goals as a guide, you can begin to match available investments to your own needs. For example, let’s say someone recommends a product that offers capital growth over the long-term. By reviewing your goals, you may find the long-term growth is exactly what you need, given the fact you have 10 years to prepare for your son’s college. Or, you may find that such an investment isn’t appropriate, since retirement is right around the corner and current income will be a greater need. Of course, it takes more than a list of goals to make smart investment choices. The second step to sound investing is to develop a diversified investment program . In other words, don’t put all your eggs in one basket; find the right combination of investments to meet your goals. How you divide your investable dollars depends on a number of factors, including your tolerance for risk and how long you have until you’ll need your money.
  • Slide #11 How important is asset allocation? Research shows that asset allocation can be more critical to your ability to reach your financial goals than when you actually make your investment or the specific investments you choose. In fact, an often cited Stanford University report found that asset allocation decisions – not individual investment selection or market timing – accounted for 92% of the variance in returns of the pension plan portfolios they studied. The goal of asset allocation is to combine investments with different characteristics so that the risks inherent in any one may be balanced by the performance of others. It works because different investment types tend to respond differently to changes in the financial markets and the economy. When one is falling, another may be rising in value or holding steady. William F. Sharpe, “Asset Allocation: Management Style and Performance Measurement,” Journal of Portfolio Management, Winter 1992, pp. 7-19
  • Slide #12 Asset allocation doesn’t have to be complicated to work, but it can include two asset categories – Equities, for example stocks or – fixed income, for example bonds and cash equivalents. That’s because each asset category has something unique to contribute to your long-term investment plan. Stocks typically offer the greatest long-term growth potential – along with a higher level of risk. Bonds offer a good choice for steady income, while cash equivalents, such as money market funds, provide a foundation of stability and liquidity. As your investment portfolio grows over time, it may be good to broaden your asset allocation. For example, the U.S. stock market is composed of small, medium and large companies – each of which can be further subdivided into growth or value categories. The same is true for bonds and cash investments. They can be categorized by investment grade, maturity, sector and tax status.
  • Slide #13 Of course, no one mix of assets is right for everyone all the time. What’s important to remember is that the best portfolio for your needs is the one that will earn the highest return for the amount of risk you’re willing to take. For example, someone who is close to needing their money may put a premium on predictability. For them, a strategy that focuses on asset protection may be a good choice. But that same mix of investments might not make sense for someone who has many years until retirement. That’s because an overly conservative asset allocation strategy may sacrifice too much growth potential in exchange for a level of safety that a younger investor may not need. Remember, there is an asset allocation strategy that will give you the least amount of risk for the level of return you need – a mix of investments that will offer the smoothest ride possible on your way to achieving your financial goals.
  • Slide #14 - Optional slide To illustrate how asset allocation can work for you, we’ve created sample allocations for 5 hypothetical investors. Each has a diversified portfolio that focuses on a specific risk profile. Your particular situation may not match any of these samples. How you allocate your money will depend on your investment goals, your feelings about risk and your time frame for investing. But whatever your specific goals, a well-crafted asset allocation strategy is crucial to your success. That’s because a well diversified portfolio can help you weather all sorts of changing market conditions.
  • Slide #15 Despite the clear advantages of asset allocation, many people’s portfolios represent a hodgepodge of investments, some based on “hot tips” rather than their clearly defined goals. If only one asset class led the market, that might work. In reality, however, the markets are changing all the time, making it impossible to predict which asset class will be the best or worst performing in any given year. Of course, past performance doesn’t guarantee future results, but when asset classes move in and out of favor this quickly, trying to shift money from one to another seldom works. The better approach takes us back to our second step: By developing a balanced, diversified program of investing, you may be better able to reduce some of the volatility associated with changing markets.
  • Slide #16 There’s no getting around the fact that the markets can be risky. Investing is definitely a “no pain, no gain” endeavor. That’s why the third step to investing successfully is to know how much risk – or volatility – you’re willing to take on. At Northwestern Mutual, we use a Personal Investor Profile to help investors uncover their feelings about risk. It focuses on questions such as: How many years will you invest before your money is needed to meet financial goals? This is called your “investment time frame.” Once you have reached that point, for how long will you be making withdrawals to achieve your financial goal? This is your “withdrawal time frame.” Do you have a substantial portion of your net worth in what many people consider “secure assets”? – such as cash value life insurance, pensions, personal savings accounts or fixed interest assets? If we were to meet together on the Personal Investor Profile questionnaire, you would see similar questions could help define your personal liquidity, income stability and risk tolerance. All of these areas together shape your Profile. In turn, having a Profile will increase your confidence in evaluating and taking specific investment actions. Take a look at page 4 of the Participant Handout for a self-evaluation.
  • Slide #17 The good news is, while the market can be rocky over short periods of time, market “ups” tend to offset periods of low returns over the long run. This graph illustrates the range of compound annual returns for stocks, bonds and cash over one-, five- and 20-year holding periods. On an annual basis since 1926, the returns of large-company stocks have ranged from a high of 54% to a low of –43%. For longer holding periods of five or 20 years, however, the picture changes. The average returns range from 29% to –12% over five-year periods, and between 18% and 3% over 20-year periods. During the worst 20-year holding period for stocks since 1926, stocks still posted a positive 20-year compound annual return. Of course, past performance doesn’t guarantee future results and investing in stocks always involves risk, including the possibility of losing the entire investment. But while stocks are more volatile over the short periods, the risk of holding them has historically diminished with time. What can we learn from this? While it’s easy to become rattled by day-to-day market moves, it’s more important to keep your eyes focused on the long-term. That way, a drop in values or so-so performance may not be reason for worry. If you’ve invested in a mix of stocks or stock funds, it’s likely your portfolio will overcome temporary set-backs, providing the growth needed to help you reach your long-term financial goals. Small-company stocks on this slide are represented by the fifth capitalization quintile of stocks on the NYSE for 1926–1981 and the performance of the Dimensional Fund Advisors, Inc. (DFA) U.S. Micro Cap Portfolio thereafter. Large-company stocks are represented by the Standard &amp; Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general. Government bonds are represented by the 20-year U.S. government bond, and Treasury bills by the 30-day U.S. Treasury bill. The data assumes reinvestment of all income and does not account for taxes or transaction costs.
  • Slide #18 The ability of stocks to provide growth over time is also crucial to investment success for another reason: Without the growth they provide, it will be hard for your portfolio to stay ahead of inflation and taxes. Technically defined, inflation is the rising cost of goods and services over time. Like termites gnawing away at the foundation of a house, it’s slowly eroding the buying power of your money. For example, assuming that prices continue at the current 3% inflation rate, $100 today will buy only $55 worth of goods just 20 years from now. Taxes are also an enemy to your long-term goals. Federal taxes subtract between 15 and 35% of the earnings generated by your savings and investments. And the money you earn may be also subject to state taxes as well. Consider the impact of inflation and taxes on investment returns over time. Since 1926, stocks have provided a long-term average annual return of 10.4%. Factor in inflation, and that 10.4% is reduced to a real return of just 7.2%. Add taxes to the mix and that number drops even further, to 5.1%. Now take a look at how inflation and taxes impact the returns from bonds and Treasury bills. Government bonds fell well short of inflation. Treasury bills, however, fared the worst. After considering both inflation and taxes, returns were actually negative. Can you now see why so-called “safe” investments are often not enough? It is important to keep your long-term investment dollars hard at work if you want to build for your future and protect yourself against inflation. This means you may need not only the regular income you may be getting from savings accounts and bank CDs, but also the opportunity for growth that may come with investments in stocks and mutual funds. On this slide, federal income tax is calculated using the historical marginal and capital gains tax rates for a single taxpayer earning $100,000 in 2005 dollars every year. This annual income is adjusted using the Consumer Price Index in order to obtain the corresponding income level for each year. Income is taxed at the appropriate federal income tax rate as it occurs. When realized, capital gains are calculated assuming the appropriate capital gains rates. The holding period for capital gains tax calculation is assumed to be five years for stocks, while government bonds are held until replaced in the index. No state income taxes are included. Stocks in this example are represented by the Standard &amp; Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general. Government bonds are represented by the 20-year U.S. government bond, Treasury bills by the 30-day U.S. Treasury bill, and inflation by the Consumer Price Index. The data assumes reinvestment of income and does not account for transaction costs.
  • Slide #19 The key point to remember is that sound investing isn’t a sprint – it’s a marathon. It takes stamina and discipline to get where you want to go – and that’s why the fourth step to successful investing is to give it time. Time is a powerful tool in the hands of people who commit to a disciplined investment plan and stick with it. The sooner you begin working toward your goals, the easier it will be and the greater your chance of success. Let me illustrate how much. Consider Investor A, who began investing $2,000 each year in stocks at the beginning of 1987. After 10 years, Investor A stopped contributing to the portfolio. However, he allowed his investment to continue growing. By the end of 2006, his $20,000 outlay had grown to $113,233. Investor B postponed investing until 1997, 10 years after Investor A began. Recognizing that he was getting a later start, Investor B began investing $4,000 each year in stocks. He continued this for 10 years. So at the end of 2006, Investor B’s $40,000 outlay had grown to $57,245. By starting early and giving his investment plan time to work, Investor A put the advantage of compounding to work. As a result, he was able to accumulate $55,988 more than Investor B, while investing $20,000 less. Keep in mind, you’re never too old to start. Even if you’re in your 60’s or beyond, there’s still time to make progress toward your goals. The sooner you start, the harder compounding can work for you.
  • Slide #20 If you haven’t been as disciplined about investing as you’d like, you might feel the urge to make up for lost time. How do you decide when’s the best time to jump in? The answer is, you don’t need to. One of the easiest and most effective ways to put your plan into action is by investing regularly, rather than all at once. Here’s how dollar cost averaging works. You invest the same amount at consistent intervals, say every month or once a quarter. As you can see, you’ll end up buying more shares when prices are low, and fewer shares when prices are high. Over time, your average cost per share should be lower than if you had invested all your money at one time. Of course, dollar cost averaging can’t guarantee a profit or protect against a loss in declining markets. And to make it work, you have to be willing to continue investing even during periods of falling prices. However, a steady approach to investing can help you avoid two big pitfalls: First, jumping in and out of the market as you try to time the highs and lows. And second, not getting started at all, because you’re nervous that the market may decline. In deciding, take your financial ability to continue your planned purchases throughout periods of low price levels into consideration. Dollar cost averaging is an excellent way to overcome the jitters caused by market volatility. It can help you stay in the game and make steady progress toward your goals no matter which way the markets are heading.
  • Slide #21 The fifth step to investing successfully through changing markets is simple: Let your progress build on itself. Let me ask you a question: How many of you exercise? I know—it’s a struggle for me, too. But here’s what I’ve found. As much as I hate to suit up and get out there, I always feel better when I do. And the more I exercise, the more energy I seem to have. Reinvesting your investment earnings produces the same type of momentum. That’s because when you allow your dividends to compound over time, your investment earnings are building more investment earnings. Income-producing investments are key to this approach. They can help keep your investment plan on track, even during market declines. The reason? Historically, many companies have continued to pay dividends at the same rate whether the market is rising or falling. Bonds and money market funds also provide a steady stream of interest payments, which can also help cushion your portfolio during periods of stock market volatility.
  • Slide #22 To see how powerful reinvesting can be, consider this example. Let’s say you invested $1,000 in stocks 20 years ago. Assuming you took your investment earnings in cash, your money would have grown to $5,857 – an annual return of 9.2% Now let’s say you decided to leave your account untouched, reinvesting your dividends and capital gains instead. Your $1,000 would be worth more than $9,300 after 20 years – that’s $3,449 more than without reinvestment. Your compound annual return? Nearly 12%. The power of reinvesting is even more dramatic for bonds during this same time period. Without reinvestment, a $1,000 would have grown to $1,397 in 20 years – a compound annual return of 1.7%. Leave your coupon payments to compound in your account and your $1,000 would have grown to $5,216 – a compound annual return of 8.6% – quite a difference. If you don’t need current income from your investments, you can maximize the growth of your portfolio as compounding takes effect. On this slide, stocks are represented by the Standard &amp; Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general. Bonds are represented by the 20-year U.S. government bond.
  • Slide #23 Earlier, I told you that there are five investing basics that can help you stay on track despite market ups and downs. Let’s summarize them quickly. The first step is to start with your goals – writing them down and quantifying them to the extent possible. The second step is to understand and learn the components of a balanced, diversified strategy – one that can provide the smoothest ride possible when it comes to investing. The third step is to know yourself as an investor – to understand the unique role risk plays in helping you build wealth over time. The fourth step? That one’s easy: you need to give your investment plan time to work. And the fifth? Let the momentum build via some of the strategies learned today. Compounding and reinvestment are two strategies that can help speed your way to your investment goals.
  • Slide #24 I’d like to close with some thoughts about choosing the organization you want to work with, as you start down the path to building financial security. One of the most important things you can do is shop for quality. I strongly recommend you work with a company that has the top ratings for insurance financial strength and claims paying ability from the four major rating agencies. (Moody’s, Standard &amp; Poor’s, Fitch and A.M. Best). And most importantly, you should choose a representative you trust and like working with.
  • Slide #25 It takes a lot of focus to ignore outside events – to keep your eye on the goal when there’s so much noise about the markets around you. That’s why many investors turn to financial representatives to help them create and maintain a sound investing program. Before providing solutions, your financial representative can help you assess what shape your finances currently are in and help you decide where you’d like to be 5, 10 or 30 years from now. With an ever-growing choice of investments available today, your financial representative can also help you wade through your options and help you create an investment program that will get you where you want to go. Once your investment strategy is in place, your financial representative can provide continuing support to help you stay on track toward your goals. And finally, your financial representative can also help you put current market events into perspective – which, in turn, can help you maintain your focus, especially during periods of market ups and downs.
  • Slide #26 Research points to an even more important reason to seek professional guidance: A financial representative can help protect investors from acting on their impulses – from acting in a way that might be hazardous to their wealth. They act on emotion, pulling out of a falling market and jumping in just as the latest “hot” stock hits a high. The problem is, these actions often have predictably negative financial consequences. In fact, one study found that, on their own, individual investors tend to significantly underperform the markets – by as much as 6.4%. Source: The Journal of Finance, April 2000, Brad Barber and Terrance Odean, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors
  • Slide #27 As a Northwestern Mutual Financial Representative, my mission is to help my clients attain financial security for their families and businesses. I provide support to help you make progress toward your financial goals, despite an uncertain market. Partnership is part of the equation. At Northwestern Mutual, I’ll match your needs with innovative solutions utilizing internationally recognized investment products – to guide you through the maze of options available for retirement, college and all your other financial goals. My hope is that this program will be the start of a conversation about how I can help... an ongoing discussion about what matters most in your life, including the enduring dreams and values that define what financial security means to you. We can continue it in a personal meeting that I make available at no cost or obligation to all attendees. Please see me after the meeting or sign up for a personal meeting by… [give instructions].
  • Slide #28 I would like to thank you for your time and attention. I would encourage you to use the evaluation form to tell us whether you’re interested in taking advantage of the complimentary consultation. PROVIDE DIRECTION FOR TURNING IN EVALUATION FORM Are there any other questions at this time?
  • Slide #29 Disclosure
  • Slide #30 Thank you
  • Transcript of "Investing Basics"

    1. 1. Investing Basics Learning to Invest with Confidence Ray Henderson, CLTC Financial Representative
    2. 2. Volatility is a natural part of investing. Investing Basics
    3. 3. <ul><li>Goal Setting </li></ul><ul><li>Diversification </li></ul><ul><li>Risk and Reward </li></ul><ul><li>Discipline </li></ul><ul><li>Momentum </li></ul>Investing Basics Investing is not difficult if you understand the fundamentals.
    4. 4. <ul><li>Expert Guidance </li></ul><ul><li>Asset Allocation </li></ul><ul><li>Investing Fundamentals </li></ul>A Focus on Core Values Northwestern Mutual has a proven investing approach.
    5. 5. Avoid making emotional decisions. Market Declines Are To Be Expected Market Declines Are Normal Declines in the Dow (1900–3/31/07) “ Routine” Declines 357 Feb. 2007 39 days 3.3 per year 33% (5%+ Loss) “ Moderate” Declines 116 Nov. 2002 106 days 1.1 per year 49 (10%+ Loss) “ Severe” Corrections 57 Nov. 2002 211 days 0.5 per year 54 (15%+ Loss) “ Bear” Markets 31 Mar. 2002 367 days 0.3 per year N/A (20%+ Loss) The performance data quoted represents past performance, which does not guarantee future results. Source of chart data: Ned Davis Research. Data as of 3/31/07. Stocks are represented by the Dow Jones Industrial Average (DJIA), a widely used measure of stock market performance, without considering income, transaction costs or taxes. The index is unmanaged and cannot be purchased directly by investors. This chart is shown for illustrative purposes only and does not predict or depict the performance of any investment. Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested. Number of Declines Last Occurred Average Length Frequency What % Gets Worse?
    6. 6. <ul><li>Hypothetical Value of $1 Investment in Stocks from 1987-2006 </li></ul>Dangers of Market Timing $2.32 $2.42 $9.31 $10 8 6 4 2 0 S & P 500 S & P Minus Best 17 months Treasury Bills Trying to time the market can be costly. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. ©2007 Morningstar, Inc. All rights reserved. 3/1/2007
    7. 7. Step 1: Start With Your Goals If you fail to plan, you plan to fail.
    8. 8. <ul><li>Life insurance </li></ul><ul><li>Disability income insurance </li></ul><ul><li>Health insurance </li></ul><ul><li>Auto and home owner’s insurance </li></ul><ul><li>Long-term care insurance </li></ul>A Strong Foundation: Risk Management A financial pyramid is only as strong as its foundation. Risk Management Wealth Accumulation Wealth Preservation & Distribution
    9. 9. <ul><li>Measurable </li></ul><ul><li>Time frame </li></ul><ul><li>Resources defined </li></ul><ul><li>Action steps </li></ul>Goal Setting Get specific about your goals.
    10. 10. <ul><li>Personal goals </li></ul><ul><li>Risk tolerance </li></ul><ul><li>Time frame </li></ul><ul><li>Investment options </li></ul>Step 2: Develop a Diversified Investment Program Diversification is the key to a sound investment strategy.
    11. 11. Mix Matters Use asset allocation to manage investment risk. Potential to Reduce Risk or Increase Return Fixed Income Portfolio Lower Risk Portfolio Higher Return Portfolio Return 8.2% Risk 7.6% Return 8.2% Risk 5.4% Return 9.2% Risk 7.6% Risk is measured by standard deviation. Return is the compound annual return. Risk and return are based on annual data over the period 1970-2006. Portfolios presented are based on modern portfolio theory. © 2007 Morningstar, Inc. All rights reserved. Used with permission. This is for illustrative purposes only and not indicative of any investment. Past performance is no guarantee of future results. 3/01/2007.
    12. 12. <ul><li>Equities </li></ul><ul><li>Fixed Income </li></ul>Asset Categories Different asset types perform differently to changes in the market. Small Company Stocks International Stocks <ul><ul><ul><li>Government Bonds </li></ul></ul></ul>Corporate Bonds <ul><ul><ul><li>Municipal Bonds </li></ul></ul></ul><ul><ul><ul><li>International Bonds </li></ul></ul></ul>Stocks <ul><ul><li>Cash Equivalents </li></ul></ul>Bonds Large Company Stocks Certificates of Deposit Treasury Bills Money Market Funds
    13. 13. Your Personal Investor Profile The goal of asset allocation is to produce the highest level of returns for a given level of risk. Disclosure: Risk is measured by standard deviation. Return is measured by arithmetic mean. Risk and return are based on annual data over the period 1970-2005. Portfolios presented are based on modern portfolio theory. Asset Allocation Models Risk Return Equities Fixed Income Conservative Moderate Aggressive
    14. 14. Your portfolio should be a reflection of your goals, risk tolerance and time frame. Asset Allocation Conservative Asset Allocation Model Moderately Conservative Asset Allocation Model Balanced Asset Allocation Model Aggressive Asset Allocation Model Very Aggressive Asset Allocation Model 18% International 5% Small Cap 7% Mid Cap 25% Large Cap 5% Real Estate Securities 3% High Yield Bonds 37% Bonds 12% International 3% Small Cap 5% Mid Cap 17% Large Cap 3% Real Estate Securities 4% High Yield Bonds 56% Bonds 24% International 6% Small Cap 10% Mid Cap 34% Large Cap 6% Real Estate Securities 1% High Yield Bonds 19% Bonds 30% International 8% Small Cap 12% Mid Cap 42% Large Cap 8% Real Estate Securities 6% International 2% Small Cap 2% Mid Cap 8% Large Cap 2% Real Estate Securities 5% High Yield Bonds 15% Cash/Cash Equivalents 60% Bonds Portfolios presented are based on modern portfolio theory. This is for illustrative purposes only and not indicative of any investment.
    15. 15. Winner and Losers Can you predict next year’s winner? Source: Large-Cap S&P 500; Mid-Cap S&P 400; Small-Cap S&P 600; Real Estate NAREIT Equity; International MSCI EAFE; Core Bond LB U.S. Aggregate; High Yield Bond LB U.S. High Yield; Cash CITI 90 Day T-Bill This is for illustrative purposes only and not indicative of any investment. The data assumes reinvestment of all income and does not account for taxes or transactions costs. An investment cannot be made directly in an index, and past performance is no guarantee of future results. Highest Return Lowest Return
    16. 16. <ul><li>Investment time frame </li></ul><ul><li>Withdrawal time frame </li></ul><ul><li>Secure assets </li></ul><ul><li>Personal liquidity </li></ul><ul><li>Income stability </li></ul><ul><li>Risk tolerance </li></ul>Step 3: What’s Your Tolerance for Risk? Understanding your Personal Investor Profile will increase your confidence in evaluating risks in your portfolio.
    17. 17. Take a Long-Term View Stocks historically have provided positive returns over the long term. Reduction of Risk Over Time 1926-2006 Large Stocks Government Bonds Treasury Bills 1-Year 5-Year 20-Year Holding Period 1-Year 5-Year 20-Year 1-Year 5-Year 20-Year 1-Year 5-Year 20-Year Past performance is no guarantee of future results. Each bar shows the range of compound annual returns for each asset class over the period1926-2006. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. ©2007 Morningstar, Inc. All rights reserved. 3/1/2007 150% 120 90 60 30 0 -30 Small Stocks Compound Annual Return: 12.6% 10.4% 5.4% 3.7%
    18. 18. Inflation and Taxes Reduce Returns Compound Annual Returns, 1926-2006 10.4% Consider the impact of inflation and taxes on investment returns over time. 12% 10 8 6 4 2 0 -2 5.4% 2.3% 0.4% 3.7% 0.7% -0.7% 7.2% 5.1% Stocks Bonds Cash Return After Inflation After Taxes & Inflation Return After Inflation After Taxes & Inflation Return After Inflation After Taxes & Inflation Past performance is no guarantee of future results. Assumes reinvestment of income and no transaction costs. Inflation rate over the time period 1926-2006 was 3%. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. ©2007 Morningstar, Inc. All rights reserved. 3/1/2007
    19. 19. Step 4: Give It Time Power of Compounding $113,223 $20,000 S & P 500 S & P Minus Best 17 months Treasury Bills Past performance is no guarantee of future results. Stocks are represented by the Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. ©2007 Morningstar, Inc. All rights reserved. 3/1/2007 The sooner you start, the harder compounding can work for you. $140k 120 100 80 60 40 20 0 $40,000 $57,245 Investor A 1987-2006 Years contributing: 10 Annual Amount Contributed: $2000 Investor B 1997-2006 Years contributing: 10 Annual Amount Contributed: $4000 Total Amount Invested Compounded Value at Year-End 2006
    20. 20. Steady as You Go Dollar cost averaging can help take the guesswork out of deciding when to invest. Market-Timing Risk The effects of missing the best month on annual returns Compound annual return ©2007 Morningstar, Inc. All rights reserved. Used with permission This is for illustrative purposes only and not indicative of any investment. Past performance is no guarantee of future results. 40% 30% 20% 10% 0% -10% -20% -30% -40% Annual Return Annual Return Minus Best Month 1970 1976 1982 1988 1994 2000 2006 Return if invested for the whole year Return if the best month is missed Return if invested for the whole year Return if the best month is missed
    21. 21. Step 5: Let Your Progress Build on Itself Reinvesting is using the dividends, interest and capital gains earned from an investment to buy additional shares or units. Exercise Your Investments
    22. 22. The Power of Reinvesting Reinvesting can help build the value of your portfolio even faster. 1987 $9,306 $5,857 $5,216 $1,397 2005 2002 1999 1996 1993 1990 Compound Annual Return 10K 1K Stocks with Reinvestment 11.8% Stocks without Reinvestment 9.2 Bonds with Reinvestment 8.6 Bonds without Reinvestment 1.7 Past performance is no guarantee of future results. Hypothetical value of $1,000 invested at the beginning of 1987. Data does not account for taxes or transaction costs. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. ©2007 Morningstar, Inc. All rights reserved. 3/1/2007
    23. 23. <ul><li>Step 1: Start with your goals </li></ul><ul><li>Step 2: Develop a diversified investment program </li></ul><ul><li>Step 3: What’s your tolerance for risk? </li></ul><ul><li>Step 4: Give it time </li></ul><ul><li>Step 5: Let your progress build on itself </li></ul>Steps to Investing
    24. 24. <ul><li>Received the best possible insurance financial strength ratings from the four major rating agencies in 2006 </li></ul><ul><li>Named “America’s Most Admired” company in its category for 23 years, according to 2006 Fortune magazine survey </li></ul>About Northwestern Mutual Who we are…a company with a 150-year tradition Sources: A.M. Best (May 2006) for “largest direct provider”; Fortune magazine for “most admired” company. Ratings: A++ by A.M Best (5/06); AAA by Fitch (2006); AAA by S&P (5/06) AAA by Moody’s (3/06) March 6, 2006 FORTUNE® Magazine survey For further information, see our Annual Report on our Web site. Unless indicated otherwise, Northwestern Mutual and its annual statement are the sources for all statistics. Figures as of Dec. 31, 2005. The Northwestern Mutual Life Insurance Company. Dividends are not guaranteed.  They are reviewed annually and are subject to change by the Company's Board of Trustees.
    25. 25. <ul><li>Customized Investment Plan </li></ul><ul><li>An Objective Perspective </li></ul><ul><li>Discipline to Move Forward </li></ul>The Value of Professional Guidance A trusted guide can lead the way to a sound investment program.
    26. 26. Hazardous to Your Wealth Return After Inflation Return After Inflation Return After Inflation Individual investors tend to under-perform the market. Source: The Journal of Finance, April 2000, Brad Barber and Terrance Odean, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors 25% 20% 15% 10% 5% 0 Gross Return Net Return Turnover Percentage Annual Return/Monthly Turnover 1 (Low Turnover) 5 (High Turnover) 2 3 4 Average Individual S&P 500 Index Fund
    27. 27. Our Commitment It is our mission to develop enduring relationships with clients by providing expert guidance for a lifetime of security.
    28. 28. Evaluation Form Please complete and hand in form.
    29. 29. Learning to Invest with Confidence Learning to Invest with Confidence The Northwestern Mutual Financial Network™ is a marketing name for the sales and distribution arm of The Northwestern Mutual Life Insurance Company, its affiliates and subsidiaries. The products and services referenced are offered and sold only by appropriately appointed and licensed entities and Financial Representatives. The Northwestern Mutual Life Insurance Company (Northwestern Mutual), Milwaukee, WI (life insurance, disability insurance and annuities) is neither a registered investment advisor nor a registered broker-dealer. Securities are offered through Northwestern Mutual Investment Services, LLC, member NASD and SIPC. 1-866-664-7737. Long-term care insurance is offered through Northwestern Long Term Care Insurance Company, a subsidiary of The Northwestern Mutual Life Insurance Company, Milwaukee, WI. Mutual funds are offered and sold by prospectus only. You should carefully consider the investment objectives, risks, expenses and charges of the investment company before you invest. Your Northwestern Mutual Investment Services Registered Representative can provide you with a contract and fund prospectus that will contain the information noted above, and other important information that you should read carefully before you invest or send money.
    30. 30. Learning to Invest With Confidence Learning to Invest with Confidence Investing Basics Thank You

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