Investment Guide Funds offered through the Washington State Investment Board

Transcription

1

2

3 Investment Guide Funds offered through the Washington State Investment Board Investing Overview Asset allocation 2 Two investment approaches 2 Build and Monitor 3 One-Step 3 Diversification 4 Trading restrictions 4 Glossary 5 Resources 7 Fees and Expenses Example 1: Fees and expenses for the funds (per $1,000 investment) 8 Example 2: Fees and expenses for the funds (beginning balance of 9 $36,000 and monthly investment of $100) Fund Fees and Expenses Detail 10

4 Investing Overview This guide is intended to give you an overview of the investment choices available to DCP participants and JRA members. The goals, strategies and risks vary among the funds that are offered. Specific fund information is provided on Fund Fact Sheets available on the DCP website. Fund Fact Sheets are updated quarterly by the fund managers and include information on fund strategies, performance history, and fees. The Department of Retirement Systems (DRS) administers the Deferred Compensation Program (DCP) and contracts with a third party (currently Great-West) for record keeping and other administrative services. The Washington State Investment Board selects and monitors DCP s investment options. Updates to this publication are made annually. We encourage you to seek the advice of your investment advisor when making your decisions. For additional information, please visit the DCP website. By investing in the various funds that are offered, you have the opportunity to create the future you envision. Asset Allocation In deciding how to invest for your future, consider all of your assets, including any retirement savings outside of DCP. No single approach is right for everyone because, among other factors, individuals have different financial goals, different time horizons for meeting their goals, and different tolerances for risk. It is important to periodically review your overall investment portfolio and objectives to help ensure that your retirement savings will meet your retirement goals. Two Approaches to Investing DCP offers you two different approaches to investing and several different fund options. To determine which approach One-Step Investing or Build and Monitor might be right for you, ask yourself these questions: Do I have the desire to select my own mix of individual funds? Am I comfortable deciding how much to invest in each fund? Do I have the time to keep an eye on my investments and make changes as I get closer to retirement? Image Placeholder Answered Yes? You may be interested in a Build and Monitor approach. Answered No? You may be interested in a One-Step Investing approach. See page 3 for details. 2

5 Build and Monitor The Build and Monitor approach allows you to create your investment portfolio by selecting from any or all of these professionally managed funds.* Savings Pool Washington State Bond Fund Socially Responsible Balanced Fund U.S. Large Cap Equity Index Fund Global Equity Index Fund U.S. Small Cap Value Equity Index Fund Emerging Market Index Fund The amount of potential risk and return associated with each fund, as well as your tolerance for risk, is one way to think about which investment(s) you might be interested in. With this in mind, remember diversification is also important. Choosing from the investment funds above means you are responsible for monitoring your portfolio and rebalancing the allocation mix as necessary to maintain your investment objectives. Anytime you choose an investment option you should consider three essential factors: One-Step Investing If you find you don't have the desire, comfort level and/or time to select your own mix of funds, monitor them and make changes, a Retirement Strategy Fund may be right for you. Each Retirement Strategy Fund is a complete, fully-diversified portfolio that automatically adjusts and rebalances as you move closer to your target date. To select the Retirement Strategy Fund that's right for you, pick your target date for retiring or withdrawing your funds. How it Works 1. Calculate your target retirement date. Birth Year + Retirement Age (65) = Target Date 2. Select the Retirement Strategy Fund closest to your target date Retirement Strategy 2005 Retirement Strategy 2010 Retirement Strategy 2015 Retirement Strategy 2020 Retirement Strategy 2025 Retirement Strategy 2030 Retirement Strategy 2035 Retirement Strategy 2040 Retirement Strategy 2045 Retirement Strategy 2050 Retirement Strategy 2055 Retirement Strategy Many investment professionals suggest putting your entire account balance and all future contributions into one strategy fund. If your target date should change, you can always transfer your money to a Retirement Strategy Fund that more closely matches your revised date. 1. How much money will you need for your retirement? 2. How many years do you have before retirement? 3. How much risk are you willing to tolerate? You can use a combination of the two investment approaches to achieve your savings objectives. 3

6 Diversification Art Placeholder You can invest in any combination of the investment funds available through this program. With the One-Step Investing approach, your Retirement Strategy portfolio is already well diversified and will automatically adjust as you move closer to your target date. With the Build and Monitor approach to investing, you can diversify by allocating your contributions among the available funds. To help achieve long-term retirement security, your portfolio should include investments in several different objective categories. Spreading your assets among different types of investments may help you achieve a favorable rate of return, while minimizing your overall risk of losing money. Market or other economic conditions that can cause one category of assets, or one particular security, to perform very well can often cause another asset category, or another particular security, to perform poorly. Although diversification is not a guarantee against loss, it is an effective strategy to help you manage investment risk. For information on individual investing and diversification, visit the U.S. Department of Labor website at Trading restrictions Excessive trading (also referred to as "market timing") involves transferring significant amounts of money and/ or making frequent trades between investment options. This practice requires more cash on hand to honor the frequent trades and transfers. Because the excess cash is used to cover potential transfers instead of being invested, long-term returns can be lowered for other participants. Excessive trading may also increase fund management costs. To safeguard participants against the effects of excessive trading, DCP has established trading restrictions. If you transfer more than $1,000 out of a fund you will be required to wait 30 calendar days before transferring money back into that same fund. The 30 day window is based on the last time you made a transfer out of the fund. This restriction will not affect your regular contribution or the ability to separate from state service and withdraw contributions and earnings from DCP. Transfers of $1,000 or less are not impacted by the trading restrictions. DCP periodically reviews trade data to identify excessive trading. If DCP determines that existing restrictions are not sufficiently addressing excessive trade practices DCP, at its discretion, may take additional action. DCP reserves the right to establish additional or revise existing restrictions to comply with federal or state regulations or as circumstances indicate. In addition to the program's trading restrictions described above, DCP will also comply with restrictions put in place by our fund managers. Art Placeholder 4

7 Glossary of Investment Terms Asset: Any tangible or intangible item that has value in an exchange. A bank account, a home, or shares of stock are all examples of assets. Asset Allocation: Asset allocation involves dividing your investments among different categories, such as stocks, bonds, and cash. Asset Classes: Investments that have similar characteristics. The three main asset classes are stocks, bonds, and cash. Stock An instrument that signifies an ownership position (called equity) in a corporation, and a claim on its proportional share in the corporation's assets and profits. Most stock also provides voting rights, which give shareholders a proportional vote in certain corporate decisions, such as the election of corporate directors. Bond A debt security, similar to an IOU. When you buy a bond, you are lending money to an issuer. In return for the loan, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal when it "matures," or comes due. Cash equivalents Short-term investments that are readily convertible into cash, such as money market holdings, short-term government bonds or Treasury bills, marketable securities and commercial paper. Benchmark: The performance objective or standard represented by a model portfolio used to define the return against which another portfolio is to be evaluated. Diversification: Diversification is a strategy that can be neatly summed up as "Don't put all your eggs in one basket." The strategy involves spreading your money among various investments in the hope that if one loses money, the others will make up for those losses. Dividing investments among different kinds of assets, such as stocks and bonds, with different risks and returns, to minimize the potential harm from any one asset. Dollar cost averaging: An investment strategy that involves investing a fixed amount in a particular investment at regular intervals, such as putting $1500 into a particular stock or fund each month. The amount you invest remains constant, so you purchase more shares when the price is lower and fewer shares when the price is higher. Equity: Net ownership of an asset. Since stocks represent ownership of a company, stocks are called equity investments and the stockholder is said to have equity in the company. Index Fund: A type of mutual fund whose investment objective typically is to achieve approximately the same return as a particular market index, such as the Standard & Poor's 500 Index, the Russell 2000 Index, or the Wilshire 5000 Total Market Index. Inflation risk: Sometimes known as purchasing power risk, this refers to the possibility that prices will raise in the economy as a whole, so your ability to purchase goods and services will decline. Institutional Investor: An organization whose primary purpose is to invest its assets or those held in trust by it for others. Includes pension funds, investment companies, universities, and banks. Interest rate risk: Relates to increases or decreases in prevailing interest rates and the resulting price fluctuation of an investment, particularly bonds. Market risk: The possibility that an investment will lose value because of a general decline in financial markets, due to economic, political or other factors. 5

8 Glossary of Investment Terms (continued) Operating Expenses: The costs a fund incurs in running the fund, including management fees, and other expenses. Portfolio: The combined holdings of stock, bond, commodity, real estate and other investments by an individual or institutional investor. Rebalancing: Rebalancing brings a portfolio back to its original asset allocation mix. This is necessary because over time, some investments will grow faster than others, and holdings may become out of alignment with investment goals. Risk: In finance, risk refers to the degree of uncertainty about the rate of return on an asset and the potential harm that could arise when financial returns are not what the investor expected. In general, as investment risks rise, investors seek higher returns to compensate them for taking on such risks. Risk Tolerance: An investor's ability and willingness to lose some or all of an investment in exchange for greater potential returns. Rule of 72: Gives you a fast benchmark to determine how good (or not so good) a potential investment is likely to be. The rule says that to find the number of years required to double your money at a given interest rate, you divide the interest rate into 72. For example, if you want to know how long it will take to double your money at eight percent interest, divide 8 into 72 and get 9 years (this assumes the interest is annually compounded). Target Date Fund: A diversified mutual fund that automatically shifts towards a more conservative mix of investments as it approaches a particular year in the future, known as its "target date." A target date fund investor picks a fund with the right target date based on his or her particular investment goal. The managers of the fund then make all decisions about asset allocation, diversification, and rebalancing. Target date funds also are known as lifecycle funds. Time Horizon: Your time horizon is the number of months, years, or decades you need to invest to achieve your financial goal. Art Placeholder 6

9 Resource List Financial Industry Regulatory Authority (FINRA) FINRA is the largest non-governmental regulator for all securities firms doing business in the United States. Financial Literacy & Education Commission 888-MyMoney The MyMoney.gov website is an online point of access to financial information from the 21 Federal agencies, departments and bureaus that comprise the Financial Literacy & Education Commission. Visitors will be able to find information about how to plan for a host of life events that have financial implications, such as birth or adoption of a child, home ownership, or retirement. U.S. Department of Labor (DOL) USA-DOL The Pension Protection Act of 2006 directed the Department of Labor to provide plan participants and beneficiaries sources of information on investing and diversification. U.S. Investor Securities & Exchange Commission (SEC) (800) The SEC's Office of Investor Education and Advocacy is dedicated to serving the needs of individual investors. U.S. Securities & Exchange Commission (SEC) 888-SEC The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets and facilitate capital formation. Washington State Department of Financial Institutions (DFI) TTY: DFI provides regulatory oversight for our state s financial service providers. Washington State Investment Board (WSIB) WSIB closely monitors the performance of all DCP investment options. Safeguarding and maximizing your retirement dollars is one of the investment board s highest priorities. Trustees of the WSIB have fiduciary responsibility to act only for the benefit of the participants. Art Placeholder 7

10 Fees and Expenses The DCP administrative fee is percent annually. This fee covers record keeping, communications, customer services and the Washington State Investment Board (WSIB) expenses. Administrative fees are posted at the end of each quarter and are shown on the quarterly statement. Investment management fees and expenses, which pay for fund management, research and transaction expenses, vary with each investment option and are deducted from each fund s earnings. Other expenses include the operating costs associated with portfolio management, manager searches, proxy voting recommendations and items such as custodial fees, audit fees and transfer agent fees. They are usually fixed costs and decrease in percentage as the fund grows. Example 1 Fees and expenses for the funds (per $1,000 investment) The example below illustrates the management fees and expenses you would pay on a hypothetical $1,000 investment in each of the funds over various time periods, assuming: (1) continuation of the current fees into future years; (2) an eight percent annual return; and (3) redemption at the end of each year. This example should not be considered a representation of past or future expenses. Actual expenses may be greater or less than shown, depending upon factors such as actual fund performance. Fees and expenses reflect the percent plan administration fee. Fund expenses as of 7/1/2013 Fund Fee in percentage 1 year 3 years 5 years 10 years Savings Pool % $1 $4 $8 $20 Washington State Bond Fund % $1 $5 $8 $20 Socially Responsible Balanced Fund % $5 $17 $30 $74 US Large Cap Equity % $1 $5 $8 $20 Global Equity % $2 $7 $12 $30 US Small Cap Value Equity % $2 $5 $10 $24 Emerging Market Equity % $3 $11 $20 $ Retirement Strategy % $4 $12 $21 $ Retirement Strategy % $4 $12 $22 $ Retirement Strategy % $4 $13 $23 $ Retirement Strategy % $4 $13 $24 $ Retirement Strategy % $4 $14 $25 $ Retirement Strategy % $4 $14 $26 $ Retirement Strategy % $5 $15 $26 $ Retirement Strategy % $5 $15 $26 $ Retirement Strategy % $5 $15 $26 $ Retirement Strategy % $5 $15 $26 $ Retirement Strategy % $5 $15 $26 $ Retirement Strategy % $5 $15 $26 $65 8

11 Example 2 Fees and expenses for the funds (beginning balance of $36,000 and monthly investment of $100) The example below illustrates the fees and expenses you would pay on a hypothetical $36,000 beginning balance investment in the funds over various time periods, assuming: (1) continuation of the total fees and expenses into future years; (2) monthly contribution of $100, deposited at the beginning of each month; (3) an eight percent annual compounded monthly return; and (4) fund expenses redeemed quarterly. This example should not be considered a representation of past or future expenses. Actual expenses may be greater or less than shown. Fees and account balances reflect the percent plan administration fee. Fund expenses in dollars as of 7/1/2013* 1 year 3 years 5 years 10 years Fund Fees Account balance Fees Account balance Fees Account balance Fees Account balance Savings Pool $50 $40,191 $167 $49,629 $311 $60,670 $819 $97,196 Washington State Bond Fund $51 $40,190 $172 $49,624 $320 $60,660 $841 $97,165 Socially Responsible Balanced Fund $189 $40,049 $630 $49,115 $1,167 $59,646 $3,043 $94,030 US Large Cap Equity $51 $40,190 $172 $49,624 $320 $60,660 $843 $97,162 Global Equity $77 $40,164 $257 $49,529 $478 $60,470 $1,257 $96,574 US Small Cap Value Equity $61 $40,180 $206 $49,586 $383 $60,585 $1,007 $96,930 Emerging Market Equity $127 $40,112 $425 $49,343 $788 $60,099 $2,065 $95, Retirement Strategy $135 $40,104 $450 $49,314 $836 $60,043 $2,188 $95, Retirement Strategy $138 $40,100 $463 $49,300 $860 $60,014 $2,249 $95, Retirement Strategy $142 $40,096 $476 $49,286 $883 $59,986 $2,311 $95, Retirement Strategy $150 $40,088 $501 $49,257 $931 $59,929 $2,434 $94, Retirement Strategy $158 $40,080 $527 $49,229 $978 $59,872 $2,556 $95, Retirement Strategy $162 $40,076 $540 $49,215 $1,002 $59,844 $2,617 $94, Retirement Strategy $165 $40,072 $553 $49,200 $1,026 $59,816 $2,678 $94, Retirement Strategy $165 $40,072 $553 $49,200 $1,026 $59,816 $2,678 $94, Retirement Strategy $165 $40,072 $553 $49,200 $1,026 $59,816 $2,678 $94, Retirement Strategy $165 $40,072 $553 $49,200 $1,026 $59,816 $2,678 $94, Retirement Strategy $165 $40,072 $553 $49,200 $1,026 $59,816 $2,678 $94, Retirement Strategy $165 $40,072 $553 $49,200 $1,026 $59,816 $2,678 $94,551 *The actual historical performance is listed in each fund's fact sheet. Returns may be higher (or lower) than this example because the fund expenses listed above reflect a percentage of the fund balance, thereby increasing (or decreasing) the amount of the fee. 9

12 Fund Fees and Expenses Detail The DCP Administrative fee is percent annually. This fee covers record keeping, communications, customer services and the WSIB expenses. Administrative fees are posted at the end of each quarter and are shown on the quarterly statements. The DCP quarterly fee is percent. Fee detail as of 7/1/2013 Total fund manager fees DCP administrative fee Fund name Management fee Manager administrative fee WSIB fee Record keeper fee DRS fee Total fees Savings Pool 0.00% % % % % % Washington State Bond 0.00% % % % % % Socially Responsible Balanced Fund % % % % % % US Large Cap Equity % % % % % % US Small Cap Value Equity % % % % % % Global Equity % % % % % % Emerging Market Equity % % % % % % 2000 Retirement Strategy Fund % 0.00% % % % % 2005 Retirement Strategy Fund % 0.00% % % % % 2010 Retirement Strategy Fund % 0.00% % % % % 2015 Retirement Strategy Fund % 0.00% % % % % 2020 Retirement Strategy Fund % 0.00% % % % % 2025 Retirement Strategy Fund % 0.00% % % % % 2030 Retirement Strategy Fund % 0.00% % % % % 2035 Retirement Strategy Fund % 0.00% % % % % 2040 Retirement Strategy Fund % 0.00% % % % % 2045 Retirement Strategy Fund % 0.00% % % % % 2050 Retirement Strategy Fund % 0.00% % % % % 2055 Retirement Strategy Fund % 0.00% % % % % 10

13 NOTES

14

15

16 Deferred Compensation Program Washington State Department of Retirement Systems PO Box Olympia, WA DCPI - July 2013