Trends Affecting Today's Investor - Chris McDermott
*Trends Affecting Today’s Investor September 9, 2012 Chris McDermott CFP and SVP, Product Management Fidelity Investments
Fidelity Investments: Who are we? ASSET PERSONAL WORKPLACE MANAGEMENT INVESTING SAVINGS INSTITUTIONAL • $1.5 trillion under • No. 1 provider • No. 1 provider • 5,000 financial management1 of IRAs2 of 401(k) plans3 intermediary clients • Equity, fixed • 13.5 million • 14.5 million income and asset customer accounts DC participants •Broker/dealers allocation •Insurers • Major • Major provider of • Pyramis Global brokerage firm stock plan •Independent Advisors services and advisors health & welfare •Family offices • Global staff and plans client base Technology Private Ownership Integrity and Leadership and and Financial Investor Advocacy Open Architecture Reputation Innovation Strength 1 As of 12/31/2011. 2 Cerulli Associates, The Cerulli Edge Retirement Edition, First Quarter 2011. Based on an industry survey of firms reporting total IRA Assets Administered for Q3 2010. 3 Workplace defined contribution data is based on more than 20,000 plans and 11.9 million recordkept participants as of June2 30, 2012, and excludes tax-exempt market plans. The analysis is based on qualified plans and includes data from Fidelity Advisor 401(k) Program.
Three Focus Areas: Over a decade of difficult market conditions Economy, fiscal policy & demographic trends providing headwinds What does this mean for those who provide guidance to investors?3
They continue to vote with their feet… Retail Equity and Bond Flows 2007- Q2 2012 (in Billions) BONDS: +$762 billion EQUITIES: – $18 BILLION $302 $171 $121 $103 $82 $69 $49 $35 $21 $23 2007 2008 2009 2010 2011 2012 ytd -$36 -$196 2007 2008 2009 2010 2011 2012 ytd Source: SimFund, excludes ETFs, VA and Closed End; Data is7 global in scope and is as of 6/30/2012
Three Focus Areas: Over a decade of difficult market conditions Economy, fiscal policy & demographic trends providing headwinds What does this mean for those who provide guidance to investors?8
Trends we are seeing… Aging population with low retirement readiness Pension funding levels low – corporate and government Consumers facing mountain of debt Investor confidence and trust shaken9
Trend #1: Aging Populations Present Challenges: Percent Of Population Age 65 and Older 27% 26% 24% Developing World Developed World 20% 17% 15% 14% 13% 13% 12% 11% 10% 9% 8% 8% 6% 6% 5% 5% 4% 4% 4% 1950 1960 1970 1980 1990 2000 2010 2020E 2030E 2040E 2050E 1950-2000 CAGR Overall Pop = 1.7% 65+ = 1.4% 2000-2050 CAGR Overall Pop = 0.8% 65+ = 2.6% Source: U.S. Department of Health and Human Services and U.S. Department of Commerce, “An Aging World －International10 Population Reports,” June 2009. Estimates for years 2010 and beyond.
Americans are Falling Short of Retirement Needs: The average working American household (primary decision makers aged 45) has American saved only $33,000 households could experience a potential for retirement income drop of 28% in retirementSource: Fidelity Retirement Savings Assessment, April 18, 2012
This Includes Those In Retirement: For retired Americans, the median savings is $55,000 ~40% do not have sufficient income to cover monthly expensesSource: Fidelity Retirement Savings Assessment, April 18, 2012
Trend #2: Corporate DB Under-funded: Aggregate DB pension funding status (assets/liabilities) of S&P 500 sponsors 120% 108% Full 100% 101% Funding 90% level 92% 93% 79% 85% U. S. corporate 80% 82% pension plan 74% Mandated deficit is $458B 60% level to freeze benefits 40% 20% 0% 2003 2004 2005 2006 2007 2008 2009 2010 201113 Source: Goldman Sachs, 2011, Credit Suisse, 2012 estimates.
State Pension Under-funding Represents a Collective $660 Billion Gap: WA VT ME MT ND VT MN NH OR MA NY WI ID SD MI RI WY CT IA PA NE NJ NV IL OH IN DE UT WV CO VA DC CA MO KS KY MD NC TN OK AR SC AZ NM GA MS AL OK MS TX LA AK FL 92%-101% 84%-91% HI 79%-83% 69%-78% 52%-68% Source: Pew Center on the States 2011 NOTE: Pew was able to obtain fiscal year 2009 data for all states except Hawaii and14 Ohio. For Hawaii, fiscal year 2008 data were used; for Ohio, 2009 data were projected using preliminary valuations.
Trend #3: Consumer Face Mountain of Debt: S&P/Case-Shiller U.S. National Home Price Index & Total Household Mortgage Debt $T 200 2000-2011, Quarterly 11 190S&P/ Case-Shiller Index 10 180 9 Mortgage debt 170 $8.27T total mortgage debt (rhs) 8 160 U.S. home price index 150 (lhs 2000=100) 7 140 6 130 5 120 4 110 100 3 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201115 Source: Haver Analytics, February 2012.
Deleveraging Still a Headwind of U.S. Economy: Change in Debt Levels, Q3 2008–Q3 2011 30% 20% 10% 0% -10% -20% Percentage Point Change -30% -40% Non-Financial Financial Government Households Corporations Corporations 30-Yr Avg. Debt/GDP 57% 63% 69% 65% Ratio: Current Debt/GDP 87% 76% 87% 91% Ratio: Government debt includes federal, state, and local government debt. Source: Federal Reserve16 Board, FAM(AART) as of 9/30/11.
Trend #4: Investors are Pessimistic: 53% 56% 52% concerned with how concerned about the pessimistic about the market conditions are impact a downturn will general economic impacting their have on their market over the next investments investments six months 46% 68% 42% have changed the believe that the rules of investors expect long term growth rate for investing have stocks to return 3% or they anticipate changed in the past 3 less on average over receiving on their years the next 5 years. investments Source: These results are based on an online survey conducted among a sample of 621 adults comprising 321 men and 300 women 18 years of age and older who own a retirement or investment account. The data was collected January 19-22, 2012 by ORC International, an independent research firm not affiliated with Fidelity Investments. The results of this survey may not17 be representative of all investors meeting the same criteria as those surveyed for this study.
Three Focus Areas: Over a decade of difficult market conditions Economy, fiscal policy & demographic trends providing headwinds What does this mean for those who provide guidance to investors?18
Different Approaches to Engaging and Educating: Articles & Interactive Graphics 1:1 Planning Interactions 1 million+ planning interactions annually 48% lift in one- on-one planning sessions ‘08- vs.’11 Seminars & Webinars Quarterly Webinars 70% lift in Seminar attendance ‘11 vs.‘08 Viewpoints reaches over 10 million investors annually Screenshots for illustrative purposes only19 Source: Fidelity business data as of Dec. 31, 2011. One-on-one retirement planning sessions with Fidelity representatives and workplace participants or individual investors using Retirement Quick Check, Retirement Income Planner or Income Strategy Evaluator
Focus On The Key Questions: Market Related: “How can we little investors protect ourselves from the fallout from Europe?” “How will the slowing economy in Europe and China effect the USs recovery?“ “How should I adjust my portfolio in order to gain additional yield? Financial Planning Related: “Help we find ways to help generate/maintain income in retirement?” “How will tax changes impact my financial plan? What strategies should I be thinking about?” “How do I balance competing financial priorities?” Debt, Retirement, College?20
Done well, it can positively influence behavior… Employees Who Used Guidance Tools… 57% 45% acted on the information acted on the information by more than by making Asset Allocation changes doubling their Deferral Rate Source: Fidelity Investments as of Sept 201121
Appendix: Important Disclosure Information S&P 500 Index S&P 500 Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. Barclays Capital U.S. Long Government/Credit Bond Index Barclays Capital U.S. Long Government/Credit Bond Index is a market value-weighted index designed to measure the performance of fixed-rate, dollar-denominated, investment-grade debt securities with maturities of 10 years or more. CBOE Volatility Index CBOE (Chicago Board Options Exchange) Volatility Index (VIX) is a weighted average of prices on S&P 500 Index options with a constant maturity of 30 days to expiration. It is designed to measure the market’s expectation of near-term stock market volatility. S&P/Case-Shiller U.S. National Home Price Index S&P/Case-Shiller U.S. National Home Price Index is a value-weighted quarterly index that measures changes in U.S. single-family home prices nationally. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Indexes are unmanaged. It is not possible to invest directly in an index. Fidelity Brokerage Services LLC, Member NYSE, SIPC 900 Salem St., Smithfield, RI 02917 625567.1.023