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2.  Define asset allocation.  List the asset classes and subcategories an investor can select from.  Explain how asset allocation can maximize return and reduce risk.  Explain rebalancing.  Evaluate the asset allocation of a portfolio. 2

3.  Most investors hold a well-diversified portfolio.  Humans were meant to stock pick.  Investing will always be partly a guessing game. 3

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8. 8 The key is having two investments which aren’t correlated.

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20.  Calpers is the California pension system. Check out their 2007 to 2008 target asset allocation (available on their Web site www.calpers.ca.gov under Investments). What differences do you see? What does their target allocation suggest? 20

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24. Adjusting portfolio based on asset allocation goals 9/12/0724

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26.  Determine what your asset allocation will be. For example: ◦ 60% stocks ◦ 40% bonds  Adjust your portfolio when your allocation exceeds 5% difference from your target so that you keep your asset allocation goals, that is 60% stocks and 40% bonds 9/12/0726

27.  If you didn’t rebalance your portfolio, the allocation of stocks would grow to 73% and the allocation of bonds would shrink to 27% 9/12/0727 YearBondStock 1992 40%60% 1993 40%60% 1994 39%61% 1995 35%65% 1996 32%68% 1997 27%73% 1998 24%76% 1999 21%79% 2000 24%76% 2001 28%72% 2002 36%64% 2003 31%69% 2004 30%70% 2005 29%71% 2006 27%73%

28.  Rebalancing naturally sells high and buys low  You end up with more gains  It reduces the lows. 9/12/0728

29. 9/12/0729 Protect your wealth.

30.  Safeguard all your financial information  Keep good records and reconcile all your accounts  Check your credit report  If you feel that you have been a victim of fraud, file a complaint with the DFI at 1-877- RING-DFI or at their website www.dfi.wa.gov.www.dfi.wa.gov 9/12/0730

31.  Take time to pick an investment advisor who is appropriate for you. Look at Certified Financial Planner website for tips on how: http://www.cfp.net/  Immunize yourself against investment fraud – check out all advisors and investments – google them and check with www.dfi.wa.gov www.dfi.wa.gov 9/12/0731

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33. 9/12/0733 Roth IRATraditional IRA Who is eligible Anyone who had income from working and his or her nonworking spouse. There are income limits. Anyone up with age 70 ½ with income from working and his or her nonworking spouse. There are no income limits. Maximum you can contribute You cannot contribution more than you earn in compensation. Up to $8000 ($4000 each) combined contribution or $10,000 ($5000 each) for those 50 and over. The maximum will go up $1000 in 2008. You cannot contribute more than you earn in compensation. Up to $8000 ($4000 each) combined contribution or $10,000 ($5000 each) for those 50 and over. The maximum will go up $1000 in 2008. Tax status of contributions Contributions must be after-tax.Contributions may be pretax up to certain income limits. Tax status of earnings Earnings are tax free.Earnings are tax deferred. You pay ordinary income tax when you take the money out therefore missing out on lower capital gains tax. Withdrawals Contributions may be withdrawn without penalty. Earnings can be withdrawn without penalty for some expenses. Withdrawals made before age 59 ½ will be subject to a penalty of 10% in addition to tax. Mandatory age for withdrawals None70 1/2 Check www.irs.gov Publication 590 for more information.www.irs.gov

34.  529 Plans – after-tax contributions, tax exempt distributions if used for qualified educational expenses ◦ College savings plan ◦ Prepaid college tuition plan (Washington GET www.get.wa.gov)  Coverdell – after-tax contributions, tax exempt distributions. Some restrictions. 9/12/0734

35. 1. Set goals and develop a life-long saving plan. 2. Learn about returns and risk. 3. Evaluate your investments. 4. Asset allocate. 5. Protect your wealth. 6. Use tax-advantaged saving. 9/12/0735