AFN32287_1007 AFN32287_1009 Investing in a Volatile Market
Agenda <ul><li>Today’s market environment  </li></ul><ul><li>Is this time different?  </li></ul><ul><li>Learning from the ...
Today’s Exceptional Market Environment Beginning of bear market Fed real effective rate below 0% Bear Stearns bailout anno...
Behind the Bear <ul><li>Bursting real estate bubble </li></ul><ul><li>Subprime crisis </li></ul><ul><li>Institutional bank...
Is This Time Different? Sources: Standard & Poor’s; Bureau of Economic Analysis; International Monetary Fund; Economic Pla...
Learning From the Past: Bear Markets Since 1950 Source: Standard & Poor’s. For the  period from January 1, 1950, through D...
Learning From the Past: Stock Markets and Economic Contractions Source: Standard & Poor’s. For the  period from January 1,...
Learning From the Past: Conclusions <ul><li>Economic cycles don’t tell the whole story </li></ul><ul><li>Every bear is uni...
Gauging Volatility: Standard Deviation S&P 500 Standard Deviation — 1959-2009 Source: Standard & Poor's. Represents the an...
Gauging Volatility: VIX Source: Chicago Board Options Exchange. For the period from January 1990 to December 2009.
Five Investing Strategies for a Volatile Market <ul><li>Don’t panic </li></ul><ul><li>Take advantage of asset allocation <...
Don’t Panic Source: Standard & Poor’s. This chart shows how a $10,000 investment would have been affected by missing the m...
Take Advantage of Asset Allocation All Stock Portfolio 40% Stock Portfolio 60% Stock Portfolio *Annualized monthly standar...
Diversify by Sector, Size, and Style <ul><li>Sector outperformance varies with the economic cycle </li></ul>Source: Standa...
Keep a Long-Term Perspective <ul><li>The longer the holding period, the lower the variability in returns </li></ul>Source:...
Consider Buying Opportunities  Market Valuation Metrics in Selected Bull and Bear Markets  Source: Standard & Poor’s. For ...
Special Considerations for  Retirement Plan Assets  <ul><li>Reallocate, don’t cut </li></ul><ul><li>Never cut contribution...
Looking Ahead  <ul><li>Economy still in a downturn </li></ul><ul><li>Housing slump continues </li></ul><ul><li>Administrat...
Forward, Not Back <ul><li>Steps to recovery in process </li></ul><ul><li>Upside greater than downside </li></ul><ul><li>Us...
Questions? Investment options are offered through a group variable annuity contract (Forms 902-GAQC-09 or 902-GAQC-09(OR) ...
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AFN32287_1007 AFN32287_1009 Investing in a Volatile Market

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AFN32287_1007 AFN32287_1009 Investing in a Volatile Market

  1. 1. AFN32287_1007 AFN32287_1009 Investing in a Volatile Market
  2. 2. Agenda <ul><li>Today’s market environment </li></ul><ul><li>Is this time different? </li></ul><ul><li>Learning from the past </li></ul><ul><li>Gauging volatility </li></ul><ul><li>Investing strategies in a volatile market </li></ul><ul><li>Looking ahead </li></ul>
  3. 3. Today’s Exceptional Market Environment Beginning of bear market Fed real effective rate below 0% Bear Stearns bailout announced National housing market down 20% from peak Barak Obama elected President U.S. economy enters recession Congress passes $787 billion stimulus package Federal Reserve takes over AIG Lehman Brothers files for bankruptcy Government takes over Fannie and Freddie U.S. Stock Market in Decline
  4. 4. Behind the Bear <ul><li>Bursting real estate bubble </li></ul><ul><li>Subprime crisis </li></ul><ul><li>Institutional bankruptcies and bailouts </li></ul><ul><li>Economic slump </li></ul><ul><li>Growing risk aversion of banks </li></ul><ul><li>Changing consumer attitudes </li></ul><ul><li>Changing demographics </li></ul>
  5. 5. Is This Time Different? Sources: Standard & Poor’s; Bureau of Economic Analysis; International Monetary Fund; Economic Planning Agency (Japan); National Bureau of Economic Research. GDP data is based on quarterly data for the most recent bear market and the 1970’s bear market; it is based on annual data otherwise. Periods of economic contraction do not exactly coincide with bear markets. *Assumes that the most recent bear market ended on March 9, 2009, and that the recession ended on March 31, 2009. Neither of these has been determined conclusively. Recent Bear * 1970’s Bear 1930’s Bear Japan's &quot;Lost Decade&quot; Drop in Market Value (peak to trough) 57% 48% 86% 80% Duration 17 months* 19 months 39 months 161 months Annualized Real GDP Growth -0.70% 1.5% -9.4% 1.5% Recession/Depression Duration 16 months* 16 months 43 months Over 12 years
  6. 6. Learning From the Past: Bear Markets Since 1950 Source: Standard & Poor’s. For the period from January 1, 1950, through December 31, 2009. Stocks are represented by the daily closing price of the Standard & Poor's 500. Past performance is not a guarantee of future results. (CS000144)
  7. 7. Learning From the Past: Stock Markets and Economic Contractions Source: Standard & Poor’s. For the period from January 1, 1950, through December 31, 2009. U.S. stocks are represented by Standard & Poor’s Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. Economic contractions are as defined by the National Bureau for Economic Research. (CS000228)
  8. 8. Learning From the Past: Conclusions <ul><li>Economic cycles don’t tell the whole story </li></ul><ul><li>Every bear is unique </li></ul><ul><li>Fundamental investing concepts and strategies still apply </li></ul>
  9. 9. Gauging Volatility: Standard Deviation S&P 500 Standard Deviation — 1959-2009 Source: Standard & Poor's. Represents the annualized monthly standard deviation of the total returns of the S&P 500 index for rolling 10-year periods from January 1959 to December 2009. Past performance is not a guarantee of future results.
  10. 10. Gauging Volatility: VIX Source: Chicago Board Options Exchange. For the period from January 1990 to December 2009.
  11. 11. Five Investing Strategies for a Volatile Market <ul><li>Don’t panic </li></ul><ul><li>Take advantage of asset allocation </li></ul><ul><li>Diversify by sector, size, and style </li></ul><ul><li>Keep a long-term perspective </li></ul><ul><li>Consider buying opportunities </li></ul>
  12. 12. Don’t Panic Source: Standard & Poor’s. This chart shows how a $10,000 investment would have been affected by missing the market's top-performing days over the 20-year period from January 1, 1990, to December 31, 2009. Stocks are represented by Standard & Poor's Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. Past performance is not a guarantee of future results. (CS000076)
  13. 13. Take Advantage of Asset Allocation All Stock Portfolio 40% Stock Portfolio 60% Stock Portfolio *Annualized monthly standard deviation. Sources: Standard & Poor’s, Barclays Capital. For the periods ended December 31, 2009. Stocks represented by the S&P 500 index. Bonds represented by the Barclays U.S. Aggregate Bond Index. Cash represented by the Barclays 3-Month Treasury-Bill Index. Past performance is no guarantee of future performance. Total Return Risk* Total Return Risk* Total Return Risk* 1-year 26.45% 21.36% 17.77% 14.03% 13.06% 9.82% 5-year 0.41% 16.04% 2.34% 9.96% 3.07% 6.94% 10-year -0.95% 16.13% 1.93% 9.73% 3.06% 6.61% 20-year 8.21% 15.03% 7.72% 9.31% 7.19% 6.49%
  14. 14. Diversify by Sector, Size, and Style <ul><li>Sector outperformance varies with the economic cycle </li></ul>Source: Standard & Poor’s. Sector performance represented by the performance of the 10 GICS sectors within Standard & Poor's Composite Index of 500 Stocks. Past performance is not a guarantee of future results. (CS000172) Sector Rotation -- 2000 to 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Utilities 57.17% Materials 3.50% Consumer Staples -4.28% Information Technology 47.23% Energy 31.54% Energy 31.37% Telecom Services 36.81% Energy 34.41% Consumer Staples -15.44% Information Technology 61.71% Health Care 37.06% Consumer Discretionary 2.79% Materials -5.46% Materials 38.23% Utilities 24.33% Utilities 16.84% Energy 24.20% Materials 22.55% Health Care -22.81% Materials 48.58% Financials 25.69% Industrials -5.75% Energy -11.13% Consumer Discretionary 37.42% Telecom Services 19.85% Health Care 6.48% Utilities 20.99% Utilities 19.39% Utilities -28.97% Consumer Discretionary 41.30% Consumer Staples 16.78% Consumer Staples -6.41% Financials -14.64% Industrials 32.20% Industrials 18.05% Financials 6.48% Financials 19.18% Information Technology 16.33% Telecom Services -30.49% Industrials 20.91% Energy 15.68% Financials -8.95% Health Care -18.84% Financials 31.13% Consumer Discretionary 13.26% Materials 4.43% Consumer Discretionary 18.67% Consumer Staples 14.18% Consumer Discretionary -33.48% Health Care 19.70% Industrials 5.88% Energy -10.41% Consumer Discretionary -23.81% Utilities 26.36% Materials 13.21% Consumer Staples 3.59% Materials 18.64% Industrials 12.01% Energy -34.88% Financials 17.20% Materials -15.72% Health Care -11.94% Industrials -26.34% Energy 25.61% Financials 10.90% Industrials 2.32% Consumer Staples 14.37% Telecom Services 11.95% Industrials -39.91% Consumer Staples 14.89% Consumer Discretionary -20.00% Telecom Services -12.26% Utilities -29.99% Health Care 15.04% Consumer Staples 8.18% Information Technology 1.00% Industrials 13.29% Health Care 7.16% Information Technology -43.14% Energy 13.82% Telecom Services -38.81% Information Technology -25.87% Telecom Services -34.11% Consumer Staples 11.58% Information Technology 2.56% Telecom Services -5.62% Information Technology 8.40% Consumer Discretionary -13.21% Materials -45.64% Utilities 11.91% Information Technology -40.89% Utilities -30.44% Information Technology -37.42% Telecom Services 7.09% Health Care 1.77% Consumer Discretionary -6.36% Health Care 7.53% Financials -18.64% Financials -55.32% Telecom Services 8.93% S&P 500 -9.09% -11.88% -22.10% 28.69% 10.87% 4.89% 15.79% 5.50% -36.99% 26.45% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  15. 15. Keep a Long-Term Perspective <ul><li>The longer the holding period, the lower the variability in returns </li></ul>Source: Standard & Poor’s. For all indicated holding periods between between January 1, 1926, and December 31, 2009. Domestic stocks are represented by the total annual returns of Standard & Poor's Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. Past performance is not a guarantee of future results. (CS000070)
  16. 16. Consider Buying Opportunities Market Valuation Metrics in Selected Bull and Bear Markets Source: Standard & Poor’s. For the period from January 1, 1950, through December 31, 2009. Price/earnings ratios are based on 4-quarter trailing earnings. Average bull and bear market peak and bottom ratios based on final month average in cycle. Price/Earnings Ratio 2000-02 bull market peak (2000) 30.0 2000-02 bear market bottom (2002) 25.9 2007 bull market peak (2007) 19.9 Average bull market peak since 1950 19.6 Average bear market bottom since 1950 16.9 Average all markets since 1950 17.8
  17. 17. Special Considerations for Retirement Plan Assets <ul><li>Reallocate, don’t cut </li></ul><ul><li>Never cut contributions below employer match </li></ul><ul><li>If employer cuts match, contributing still makes sense </li></ul>
  18. 18. Looking Ahead <ul><li>Economy still in a downturn </li></ul><ul><li>Housing slump continues </li></ul><ul><li>Administration and Congress are confronting the issues </li></ul><ul><li>Increased government oversight of financial markets will come </li></ul><ul><li>Other structural changes to markets and economy are likely </li></ul><ul><li>= Market volatility is likely to remain a given </li></ul>
  19. 19. Forward, Not Back <ul><li>Steps to recovery in process </li></ul><ul><li>Upside greater than downside </li></ul><ul><li>Using time-proven investing strategies is the best way to deal with continued market volatility </li></ul>
  20. 20. Questions? Investment options are offered through a group variable annuity contract (Forms 902-GAQC-09 or 902-GAQC-09(OR) or 901-GAQC-07 or 901-GAQC-07(OR)) underwritten by United of Omaha Life Insurance Company for contracts issued in all states except New York. United of Omaha Life Insurance Company is not licensed in New York. In New York, Companion Life Insurance Company, Hauppauge, NY underwrites the group variable annuity (Form 900-GAQC-07(NY)). Each company accepts full responsibility for each of their respective contractual obligations under the contract but does not guarantee any contributions or investment returns except as to the Guaranteed Account and the Lifetime Guaranteed Income Account as provided under the contract. Neither United of Omaha, Companion Life Insurance, nor their representatives or affiliates offers investment advice in connection with the contract. All content supplied by Standard & Poor’s  

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