Asset Allocation: A Strategy for Life

Transcription

1 Asset Allocation: A Strategy for Life

2 Today s Agenda Why asset allocation can be important Tools for asset allocation Determining your asset allocation Fine-tuning your strategy

3 Why Is Asset Allocation Important? Can help you pursue your investment goals Allows you to potentially maximize returns while helping to minimize risk Asset allocation does not ensure a profit or protect against a loss.

4 The Power of Asset Allocation About 90% of the variability in a portfolio s long-term returns may depend on its asset allocation.1 1 Source: Gary P. Brinson, et al. Determinants of Portfolio Performance, Financial Analysts Journal, May/June 1991.

5 There Are Three Major Asset Classes High Risk/Return Potential Stocks Bonds Low Money Market Instruments Stock investing involves risk, including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.

6 A Closer Look at Risk and Return Risk and Return Over 30 Years Ended December 31, 2016 Sources: DST Systems, Inc.; the Federal Reserve. Stocks represented by the S&P 500 Index. Bonds represented by the Bloomberg Barclays U.S. Aggregate Bond Index. Cash represented by a composite of yields on 3-month Treasury bills and the Bloomberg Barclays 3-Month Treasury Bills Index. Past performance is not a guarantee of future results. Indexes are unmanaged; it is not possible to invest directly in an index. Index performance does not reflect the effects of investing costs and taxes. Actual results would vary from benchmarks and would likely have been lower. 2017, DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions. (CS000137)

7 Mutual Funds Pool investors money Make specific choices for you Involve careful consideration Investment return and principal value will fluctuate so that, when redeemed, shares may be worth more or less than the original cost Investing in mutual funds involves risk, including possible loss of principal. Investments in specialized industry sectors have additional risks, which are outlined in the prospectus.

8 How Do Your Pieces Fit Together?

9 Plot Goals on Your Time Horizon Today 1 Year 5 Years 10 Years Build Emergency Savings Buy New Home Put Kids Through College Save for Retirement

10 Know Your Goals Retirement? Emergency savings? New home? Kids college?

11 Understand Your Risk Tolerance Time horizon is an important factor Risk tolerance may change over time

12 Sample Goals Type of Goal Example Time Frame Accumulation goals: Retirement and college Provide funds in more than 10 years Major short-term purchases: Home, car Provide funds for 2-5 years Wealth preservation: Retirement income Provide income for years Emergency 3-6 months account: Unexpected job loss Immediate 3-6 months of living expenses

13 Accumulation Goals Aggressive Portfolio Sample goals: retirement and college planning; 10+ years away These hypothetical asset allocations show the broad asset-class weights represented in the Morningstar family of [Target Risk Allocation indexes or Lifetime Allocation indexes, as appropriate]. They are presented as illustrations only to help evaluate potential investment strategies and should not be construed as recommendations for any investment approach. Plan participants, IRA owners and beneficiaries should consider their non-plan assets, other investments, and income needs when considering any asset allocation or applying any particular model to their situation. Individual circumstances vary. There may be other solutions that meet your needs. The Morningstar indexes use varying blends of 18 different asset classes and investment styles to create unique portfolios, each with its own level of risk and commensurate potential for return. For more detailed information on the performance and composition of the Morningstar [Target Risk Allocation indexes or Lifetime Allocation indexes, as appropriate], as well as the methodologies used for the indexes construction and maintenance, please go to Asset allocation cannot assure a profit or protect against a loss. It is not possible to invest directly in any index. Index performance does not reflect the effects of investing costs and taxes. Actual results would vary from benchmarks and would likely have been lower. Past performance is not a guarantee of future results. Morningstar [Target Risk Allocation indexes or Lifetime Allocation indexes, as appropriate] are 2017 Morningstar. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

14 Major Purchase Goals Moderate Portfolio Sample goals: purchase home or car; 2 to 5 years away These hypothetical asset allocations show the broad asset-class weights represented in the Morningstar family of [Target Risk Allocation indexes or Lifetime Allocation indexes, as appropriate]. They are presented as illustrations only to help evaluate potential investment strategies and should not be construed as recommendations for any investment approach. Plan participants, IRA owners and beneficiaries should consider their non-plan assets, other investments, and income needs when considering any asset allocation or applying any particular model to their situation. Individual circumstances vary. There may be other solutions that meet your needs. The Morningstar indexes use varying blends of 18 different asset classes and investment styles to create unique portfolios, each with its own level of risk and commensurate potential for return. For more detailed information on the performance and composition of the Morningstar [Target Risk Allocation indexes or Lifetime Allocation indexes, as appropriate], as well as the methodologies used for the indexes construction and maintenance, please go to Asset allocation cannot assure a profit or protect against a loss. It is not possible to invest directly in any index. Index performance does not reflect the effects of investing costs and taxes. Actual results would vary from benchmarks and would likely have been lower. Past performance is not a guarantee of future results. Morningstar [Target Risk Allocation indexes or Lifetime Allocation indexes, as appropriate] are 2017 Morningstar. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

15 Wealth Preservation Conservative Portfolio Sample goals: living on retirement income, preserving wealth for 20 to 30 years These hypothetical asset allocations show the broad asset-class weights represented in the Morningstar family of [Target Risk Allocation indexes or Lifetime Allocation indexes, as appropriate]. They are presented as illustrations only to help evaluate potential investment strategies and should not be construed as recommendations for any investment approach. Plan participants, IRA owners and beneficiaries should consider their non-plan assets, other investments, and income needs when considering any asset allocation or applying any particular model to their situation. Individual circumstances vary. There may be other solutions that meet your needs. The Morningstar indexes use varying blends of 18 different asset classes and investment styles to create unique portfolios, each with its own level of risk and commensurate potential for return. For more detailed information on the performance and composition of the Morningstar [Target Risk Allocation indexes or Lifetime Allocation indexes, as appropriate], as well as the methodologies used for the indexes construction and maintenance, please go to Asset allocation cannot assure a profit or protect against a loss. It is not possible to invest directly in any index. Index performance does not reflect the effects of investing costs and taxes. Actual results would vary from benchmarks and would likely have been lower. Past performance is not a guarantee of future results. Morningstar [Target Risk Allocation indexes or Lifetime Allocation indexes, as appropriate] are 2017 Morningstar. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

16 Manage Risk Stock Portfolio Asset Allocation Portfolio Sample goals: retirement and college planning Cash Average 12-month return (30 years): 10.16% Risk level: 15.01% Average 12-month return (30 years): 8.63% Risk level: 9.19% Source: DST Systems, Inc. The mixed portfolio is comprised of 60% stocks, 30% bonds, and 10% cash. Stocks are represented by the S&P 500 Index, bonds by Bloomberg Barclays U.S. Aggregate Bond Index, and cash by a composite of yields on 3-month Treasury bills and the Bloomberg Barclays 3Month Treasury Bills Index. For the 30-year period ended December 31, Risk is measured using standard deviation, which indicates how likely an investment is to fluctuate widely in value, given its historic performance. Indexes are unmanaged. Investors cannot invest directly in any index. Index performance does not reflect the effects of investing costs and taxes. Actual results would vary from benchmarks and would likely have been lower. 2017, DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions. Past performance cannot guarantee future results. Asset allocation does not assure a profit or protect against a loss. These examples are hypothetical and used for illustrative purposes only. (CS000131)

17 When Should Your Allocation Change? After major life changes (new job, marriage, new child) As your investment time frame changes After major market changes Rebalancing strategies may involve tax consequences.

18 Help Is Available Consider working with a financial professional Evaluate your goals Recommend potential asset allocation and investments

19 Resources at Your Fingertips Your investment representative or financial consultant Professional and business groups Software, Internet, library

20 Put Your Strategy to Work!