Avoiding emotional investing presentation Avoiding emotional investing

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What do I need to know about emotional investing? Market volatility Market timing Misconceptions and downfalls Ways to avoid it Defining emotional investing

Ways to avoid it 4 Definition Emotional investing: allowing emotions to affect your investment decisions Defining emotional investing 4

Ways to avoid it 5 Investing involves market risk, including possible loss of principal and fluctuations in value. Past performance is no guarantee of future results. FEAR unwarranted anxiety EXCITEMENT unwarranted optimism Acting on emotions can be risky Acting on emotionsDefining emotional investing

Ways to avoid it 6 Ups and downs Emotional ups and downs Defining emotional investing

What is market volatility? Defining emotional investing Market timing Misconceptions and downfalls Ways to avoid it Market volatility

Ways to avoid it 8 Market volatility: prices fluctuate a lot over a short period DefinitionMarket volatility

Ways to avoid it 9 Source for index data: Commodity Systems, Inc. as of October 2012 The Standard & Poor’s (S&P) 500 Index is an unmanaged, market capitalization-weighted index of 500 widely held stocks of large-cap U.S. companies that gives a broad look at how the stock prices of those companies have performed. It doesn’t incur the fees and expenses that an actual portfolio would incur, which would reduce performance if included. You can’t invest directly in any market index. Past performance of an index is not an indicator of future results. Market volatility over the long-term Market volatility over the long term Market volatility

What is market timing? Defining emotional investing Market volatility Market timing Misconceptions and downfalls Ways to avoid it Market timing

Ways to avoid it 11 Market timing: attempting to predict market direction and investing to get ahead of it Market timing 11 Definition

Ways to avoid it 12 Missing the best-performing days You may lose out on some of the best-performing days This is a hypothetical chart that doesn’t include fees, charges and taxes, which would have lowered all the returns. Past performance is no guarantee of future results, because investing involves market risk, including possible loss of principal. Market timing

Ways to avoid it 13 Market timing in retirement plans Why plans discourage market timing: Drives up plan expenses Forces extra costs on all participants Potentially harms all investors Market timing

What misconceptions and downfalls should I be aware of? Defining emotional investing Market volatility Market timing Misconceptions and downfalls Ways to avoid it Misconceptions and downfalls

Ways to avoid it 15 “I’ll be safe by investing conservatively” Misconceptions and downfalls 15 Misconceptions Misconception #1 Any investment involves risk and there is no assurance that the investment objective of any fund will be achieved.

Ways to avoid it 16 “Safe” doesn’t mean “successful” 12-month CD rate is represented by the Bloomberg CD 12-month Index. Rates of inflation are calculated using the current Consumer Price Index published monthly by the Bureau of Labor Statistics (BLS). Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses have been reflected. Individuals cannot invest directly in an index. Data is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. * Certificates of Deposit are generally considered liquid assets and are used for short-term durations. CDs are insured by the FDIC, and if held to maturity, provide a guaranteed return of principal and interest. “Safe” doesn’t mean “successful”Misconceptions and downfalls

Ways to avoid it 17 “I can avoid market volatility now and make up losses later” This illustration is hypothetical and is not intended to serve as a projection of the investment results of any specific investment. If fees and expenses were reflected, the return would have been less. Investing involves risk, including the possible loss of principal, and there is no guarantee that investment objectives will be achieved. Please consult with your investment professional before making any investment decisions. Misconceptions Misconception #2 Misconceptions and downfalls

Ways to avoid it 18 “Luck has nothing or everything to do with it” Misconception #3 Misconceptions Misconceptions and downfalls

Ways to avoid it 19 “I’ll be alright on the sidelines” Misconceptions Misconception #4 Misconceptions and downfalls

Ways to avoid it 20 Source: DALBAR, Lipper via Wilshire Fund Management Note: DALBAR computed the “Average Stock Fund Investor” returns by using industry cash flow reports from the Investment Company Institute. The “Average Stock Fund Return” figures represent the average return for all funds listed in Lipper’s U.S. Diversified Equity fund classification model. Emotions can drive a “performance penalty” Performance penalty Misconceptions and downfalls

Ways to avoid it 21 Emotional investing tends to repeat mistakes This is a hypothetical chart that doesn’t include fees, charges and taxes, which would have lowered all the returns. Past performance is no guarantee of future results, because investing involves market risk, including possible loss of principal. Repeat mistakes Misconceptions and downfalls

How can I avoid emotional investing? Defining emotional investing Market volatility Market timing Misconceptions and downfalls Ways to avoid it

23 3 ways to avoid emotional investing 1 Be proactive 2 Make investing a habit 3 Take a long-term view Ways to avoid it

24 Did you buy/sell on “the buzz”? Avoid reactive decisions Did you try to catch the wave? Did you jump too soon? Be proactiveWays to avoid it

25 Past performance is not an indicator of future results. Investing involves market risk, including loss of principal and fluctuations in value. No investment strategy, including asset allocation, diversification and dollar-cost averaging, can assure a profit or guarantee against loss in a declining market. Stop doing what hasn’t worked Continue doing what has worked Ways to avoid it Start using a defined strategy Be proactive

Ways to avoid it 26 Past performance is not an indicator of future results. Investing involves market risk, including loss of principal and fluctuations in value. No investment strategy, including asset allocation, diversification and dollar-cost averaging, can assure a profit or guarantee against loss in a declining market. Allows you to invest small amounts systematically Takes emotions out of buying/selling decision Tends to lower average cost of investing Make investing a habit with dollar-cost averaging Make investing a habitWays to avoid it

27 Make investing a habit Dollar-cost averaging: Helps make investing a habit Dollar-cost averaging does not assure a profit and does not guarantee against loss in a declining market. This type of strategy involves continuous investment in the security regardless of fluctuating price levels of such securities. Investors should consider their financial ability to continue purchases through periods of low price levels. For example, if one did a lump sum purchase on July 1 at $15 per share, total shares purchased would be 800. Past performance is not an indicator of future results. Investing involves market risk, including loss of principal and fluctuations in value. No investment strategy, including asset allocation, diversification and dollar-cost averaging, can assure a profit or guarantee against loss in a declining market. Ways to avoid it

28 Take a long-term view Create a plan Accept market ups and downs Revise your plan as appropriate Ways to avoid it

29 Consider asset rebalancing Consider asset rebalancing to stay on track Ways to avoid it 29

Ways to avoid it 30 Alternative ways to invest Lifestyle funds Target-date funds Managed account programs “Do it for me” investing Asset allocation, lifestyle and target date funds are designed to provide diversification and asset allocation across several types of investments and asset classes, primarily by investing in underlying funds. Therefore, in addition to the expenses of the funds, an investor is indirectly paying a proportionate share of the applicable fees and expenses of the underlying funds. Please see fund prospectuses for further fee and expense details. By investing in Lifestyle/Lifecycle funds, you receive asset allocation services that you would not receive by investing in the funds directly. Many of these funds invest primarily in other funds. Because you are investing indirectly in other funds, you are paying a proportionate share of the applicable expenses of those funds (including management fees) as well as the expenses of the Lifestyle/Lifecycle fund. Target Maturity Funds are designed to provide diversification and asset allocation across several types of investments and asset classes, primarily by investing in underlying funds. Therefore, in addition to the expenses of the Target Maturity Funds, an investor is indirectly paying a proportionate share of the applicable costs and expenses of the underlying funds. Target Maturity Funds are designed for people who plan to withdraw funds during or near a specific year. These funds use a strategy that reallocates equity exposure to a higher percentage of fixed investments over time. As a result, the funds become more conservative as they approach retirement. It’s important to remember that no strategy can assure a profit or prevent a loss in a declining market. A target date fund’s principal value is not guaranteed at any time, including the target date designated in the fund’s name.

Ways to avoid it 31 Keep your emotions in check Revisit allocations regularly Monitor progress regularly Revise as appropriate Think it through Keep your emotions in check Ways to avoid it

32 Recheck your plan Recheck your plan with each life event Ways to avoid it 32

33 SummaryAvoiding emotional investing Acting on emotions can be risky “Safe” investing may not be the answer Market volatility is natural Time, not timing is key Take a long-term view Points to remember

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