1. The ins and outs of the ups and downs Investment volatility – what it means and how to manage it

2. Important notice The information in this presentation is prepared by MLC Limited (ABN 90 000 000 402, AFSL 230694). MLC’s registered office is at 105-153 Miller Street North Sydney NSW 2060. MLC Limited is a registered member of the National Australia Group of companies. Any advice in this communication has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice in this communication, consider whether it is appropriate to your objectives, financial situation and needs. Information is current as at 27 May 2008

3. Agenda What happened to the share market What might happen next Why volatility is a normal part of investing Why volatility is your friend 4 steps to managing volatility

4. Definition of volatility Science: A measure of how fast a liquid evaporates Individual share price: The relative rate at which the price of a security moves up and down* The share market: When the price of many stocks moves up and down rapidly over short periods of time, the market is volatile

5. What happened recently – the downside 2008 2006 2002 1998 1997

9. SMH: 28 th August 1998

11. What caused the recent volatility: sub-prime mortgage crisis

12. Beware the NINJA! No Income, No Job, No Assets

13. Credit crunch! Collateralised Debt Obligations (CDOs) Mortgage-related losses Credit crunch – reduced lending Impacts felt across the globe

14. Source: SMH, March 2008 What happens next Ben Bernanke Chairman, US Federal Reserve

15. Log scale dollar value How long will it last?

16. Why volatility is a normal part of investing

17. 3.2% inflation Comparison of various investments at different tax rates - 20 years to 31/12/07 Inflation and taxation: your deadly enemies

18. Risk and return - do not separate! Shares are more risky (volatile) You cannot change this Risk creates the higher returns that shares pay It makes sense

19. Shares are affected by a range of forces Government policy Competition Economic factors Technology Fashion and trends Management (good and bad)

20. Business is a risky business “We bet the company on Windows and we deserve to benefit. It was a risk that's paid off immensely. In retrospect, committing to the graphics interface seems so obvious that now it's hard to keep a straight face.” Bill Gates

21. Money changes everything Image source: www.apple.com

22. Launch of the iPod October 2001 Upward volatility

23. Why volatility is your friend

24. Volatility: playing with your mind Humans are not rational More pain from a loss than pleasure from a gain Loss aversion Understand how your emotions may affect decision making

25. 4 steps to managing volatility 1.Think long-term 2.Don’t chase returns 3.Diversify 4.Get expert help

26. 1. Think long term

27. Put time on your side “Time is the friend of the wonderful company, the enemy of the mediocre.” Warren Buffett

28. 2. Don’t chase returns

29. Different asset classes Different fund managers Different countries, regions and sectors 3. Diversify

30. 4. Get expert help 4.3% per annum 11.8% per annum

31. To sum up Markets are volatile now but returns will improve over time Volatility is the price you pay for higher returns and a logical result of investing in real businesses Volatility can play tricks with your mind but can be managed Good advice is the secret to investment decisions that make volatility work for you.

32. Questions?

33. Next steps

34. Source notes Slide 4 – Definition of volatility *Volatility is found by calculating the annualised standard deviation of the daily change in price. Source: investorwords.com Slide 5 – What happened recently –The downside Source: All Ordinaries Accumulation Index (2007 – 2008) Slides 6 - 7 AFR, 23 Jan 2008, AFR 14 June 2006 Slide 11 – What caused the recent volatility American Gothic, Grant Wood, 1930 Slide 12 - Beware the NINJA image source: www.martialartsone.co.uk Slide 14 – What happens next image source: telegraph.co.uk Slide 15 – How long will it last (history of Australian Sharemarket) Company & Industrial Index monthly average (1900 – 1936), Sydney All Ordinaries Index Average (1936 – 1979), All Ordinaries Share Price Index monthly average (1980 – 1999) Slide 16 – Why volatility is a normal part of investing: Australian shares: All Ordinaries Accumulation Index, Global shares: MSCI World Gross Accumulation Index ($A), Property: ASX 200 Property Accumulation Index (Property Trust Accumulation Index prior to July 2000), Australian bonds: Commonwealth Bank Bond Index, Cash: UBS Warburg Bank Bill Index (13 Week Treasury Notes prior to April 1987) Slide 17 – Inflation & taxation your deadly enemies ASX/Russell Long-Term investing Report, December 2007 Slide 19 – Shares are affected by a range of forces Image sources: www.nokia.com, www.ford.com, www.worldcasio.com Slide 20 – Business is a risky business image source: www.microsoft.com Slide 22 – Upward volatility www.finance.yahoo.com Slide 23 - Why volatility is your friend RBA 1 year fixed deposits; S&P/ASX 200 Ind. Index (All industrials Index prior to April 2000) Slide 26 – Think long term MSCI World Gross Accumulation Index ($A) Slide 27- Put time on your side image source: www.accumulatingmoney.com

35. Source notes Slide 28 Don’t chase returns Australian Shares: All Ordinaries Accumulation Index; Global Shares: MSCI World Gross Accumulation Index ($A), Australian Bonds: Commonwealth Bank Bond Accumulation Index, Listed Property Securities: S&P/ASX200 Property Accumulation Index (Listed Property Trust, Accumulation Index prior to July 2000), Cash: UBS Warburg Australia Bank Bill Index (RBA 13 Week Treasury Notes prior to April 1987). Strategic balanced portfolio constructed using the following asset allocation weightings: Aus Shares = 37%, Glob shares=24%, Aust Bonds: 31%, Listed Property Securities = 8%, Cash = 0% Slide 20 – Get expert help Source: Dalbar inc, Quantitative Analysis of Investor Behaviour (2007)