Morningstar Financial Communications 2010 Image Library

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1 Morningstar Financial Communications 21 Image Library Presentation Title: Page Number: 1. Downturns and Recoveries 1 2. Exchange-Traded Funds 3 3. Global Investing 6 4. Growth and Value Investing 1 5. Investing for Retirement Investing in Commodities Investing in Emerging Markets Investing in Frontier Markets 2 9. Investing in Hedge Funds Investor Behavior Long-Term Investment Performance Mutual Fund Investing Portfolio Diversification Portfolio Performance Principles of Investing Retirement Income Risk and Volatility Role of Immediate Annuities in Retirement Sector Investing Stocks and Bonds Taxes and Investment Performance Understanding Deferred Annuities Morningstar, Inc. All rights reserved. Morningstar and the Morningstar logo are registered trademarks of Morningstar, Inc.

2 21 Morningstar. All Rights Reserved. 3/1/21 Downturns and Recoveries 21 Stock Market Contractions and Expansions Market Downturns and Recoveries Downturns and Recoveries Periods of Consecutive Negative Stock Returns % Return 5 54% Average stock market return from was 9.8% Downturn % Loss Recovery $1 34 months 83.4% 151 months Contraction Sep 1929 Jun 1932 Jul 1932 Jan 1945 Expansion 6 months 21.8% 35 months Stocks Jun 1946 Nov 1946 Dec 1946 Oct months 1.2% 5 months Aug 1956 Feb 1957 Mar 1957 Jul months 15.% 7 months Aug 1957 Dec 1957 Jan 1958 Jul months 22.3% 1 months Jan 1962 Jun 1962 Jul 1962 Apr months 15.6% 6 months 1 Feb 1966 Sep 1966 Oct 1966 Mar months 29.3% 9 months Dec 1968 Jun 197 Jul 197 Mar months 42.6% 21 months Jan 1973 Sep 1974 Oct 1974 Jun months 14.3% 5 months Jan 1977 Feb 1978 Mar 1978 Jul % 2 months 16.5% 3 months 4% Dec 198 Jul 1982 Aug 1982 Oct % 3 months 29.6% 18 months Sep 1987 Nov 1987 Dec 1987 May $1 42.6% 14.3% 16.5% 29.6% 14.7% 15.4% 44.7% % 87.% % 1988 be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Crises and Long-Term Performance Market declines in historical context, Jan 197 Dec 29 Compound annual return 9.9% 1993 Stock market crash 62.6% % 23 The dot-com crash 5.9% % Banking and credit crisis* $ months 2 months 25 months 16 months 14.7% 15.4% 44.7% 5.9% Jun 199 Oct 199 Nov 199 Feb 1991 Jul 1998 Aug 1998 Sep 1998 Nov 1998 Sep 2 Sep 22 Oct 22 Oct 26 Nov 27 Feb 29 TBD be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Stock Performance After Recessions % Return 7 74.% 4 months 3 months 49 months TBD 4 37% % Oil crisis 6 Small stocks Large stocks 2 2% % % 8%.4% 1% 12% 15% 9% 12% % 2 25% 26% 22% 2 2.1% 19.1% 3 $1 $1 $1 $ % % 3.8% 11.4% After 1 month After 6 months After 1 year After 3 years be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 be made directly in an index. Four market crises defined as a drop of 25% or more in the Standard & Poor s 5 index. *The exact length of the recovery has yet to be determined. 21 Morningstar. All Rights Reserved. 3/1/21 Past performance is no guarantee of future results. Cumulative returns of large and small stocks after recessions Note: The recession that began in December 27 is still occurring and is not included in the analysis. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Page 1

3 Downturns and Recoveries 21 History of Interest Rates July 1954 December 29 Bond Yields During Recessions Stock Returns and Monetary Policy Annual returns, % 18% Yield 4% Return Annual stock returns Effective fed funds rate Average return = 9.9% Gray shaded regions denote economic recessions 16 Short-term govt bonds (4/53 12/9) Long-term govt bonds Shaded regions denote economic recessions Average: 5.6% 6.17% 6.64% 5.52% % Current 1-yr government yield IT government yield LT government yield Federal funds Past performance is no guarantee of future results. Each bar shows the range of yield for each bond over the time period July 1954 to December 29. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 U.S. Market Recovery After Financial Crises Cumulative return of all-stock portfolio after various events 1% Return % 58.1% After 1 month After 6 months After 1 year After 3 years After 5 years Portfolio 1% stocks be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 U.S. Market Recovery After Financial Crises Cumulative return of balanced portfolio after various events 1% Return % 59.2% % be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/ % 42.3% % 3.1% After 1 month After 6 months After 1 year After 3 years After 5 years Portfolio 4% bonds 6% stocks 27.3% 27.8% % 34.6% % 5.5% 8.1% 6.2% 5.1% 11.% 1.9% 12.6% 9.8% 2 5.2% 14.3% 2.3% 13.2% 12.3% 11.3% 4.% 1.3% 3.% 5.% 19.6% 1.5% 11.7% 8.2%.4% 4.% 5.% 3.% 3.6% 7.2% 8.5% 4.8%.2% 2.% 2.3% 2.1%.7% 8.9% 7.1%.4% % 21.7% 2.5% % 4 4.9% 4 October 1987: Stock market crash August 1989: U.S. savings and loan crisis September 1998: Long-Term Capital Management s bailout March 2: The dot-com crash September 21: Terrorist attack October 28: Banking and credit crisis October 1987: Stock market crash August 1989: U.S. savings and loan crisis September 1998: Long-Term Capital Management s bailout March 2: The dot-com crash September 21: Terrorist attack October 28: Banking and credit crisis Past performance is no guarantee of future results. Returns reflect the percentage change in the index level from the end of the month in which the event occurred to one month, six months, one year, three years and five years after. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Past performance is no guarantee of future results. Returns reflect the percentage change in the index level from the end of the month in which the event occurred to one month, six months, one year, three years and five years after. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Page 2

4 21 Morningstar. All Rights Reserved. 3/1/21 Exchange-Traded Funds 21 What are Exchange-Traded Funds? ETFs are a Fast-Growing Investment Vehicle Assets and number of funds Exchange-Traded Funds Index fund Track one specific index 8 Funds 7 Number of funds Assets $8 bil 7 Buy/sell like stocks 6 6 Price set by underlying index What Kinds of ETFs are Available in the Market? Track a variety of indexes Domestic and global Sectors or industry groups Style-specific such as growth and value Equity and fixed income 21 Morningstar. All Rights Reserved. 3/1/21 Comparison of ETFs and Index Funds Ownership ETFs Purchased as blocks of shares Index funds Purchased directly from the fund 1 $5 bil Morningstar. All Rights Reserved. 3/1/ Assets of ETFs and Index Funds As of December 29 $ Index funds Exchange-traded funds 1 May focus on market capitalization (small-, mid- and large-cap) Pricing Bought and sold throughout the day on an exchange Priced at market close each day 3 May concentrate on characteristic-based diversification (dividend income) Management style Passive management Portfolio changes occur when underlying index changes Passive management Portfolio changes occur when underlying index changes 2 $218.6 $193.3 $145.3 Costs Brokerage and trading costs Ongoing management fees Possible commissions 1 $98.1 $7.9 $94.5 $1.5 $32.4 $36.4 $46.2 $35.9 Large-cap Foreign equity Specialty Bonds Small-cap Mid-cap 21 Morningstar. All Rights Reserved. 3/1/21 21 Morningstar. All Rights Reserved. 3/1/21 21 Morningstar. All Rights Reserved. 3/1/21 Page 3

5 Exchange-Traded Funds 21 Categories of ETFs ETF Market Coverage By assets as of December 29 Expense Ratios of Large-Caps: ETFs, Index Funds, Active Funds As of December 29 Traditional equity 2 Funds Expense ratios of ETFs Traditional fixed income 14% Domestic International Fixed income Specialty 1 Commodity/currency Expense ratios of index funds Fundamentally weighted 15% 43% 4 Funds 2 Quantitatively enhanced Leveraged/short Expense ratios of active funds 15 Funds 1% 21 Morningstar. All Rights Reserved. 3/1/21 Average Turnover Ratio Large-cap ETFs versus index and active funds as of December 29 92% 21 Morningstar. All Rights Reserved. 3/1/21 28% Active Versus Passive Fund Strategies As of December 29 1-Year Value Core Growth 3-Year Value Core Growth Value Core Growth Morningstar. All Rights Reserved. 3/1/ % 55% Small Mid Large Small Mid Large Small Mid Large Year Risk Factors of ETFs Market risk Stocks tracked by an ETF are subject to the same risks as traditional equities Interest rate risk Fixed income ETFs are subject to fluctuations in interest rate environment Currency risk International ETFs are subject to risk of capital loss due to currency fluctuations and a country s economic factors 2 % of active funds outperforming their respective Morningstar style index Credit risk Value and ability of ETF fund is compromised if issuer is unable to make payments of principal and interest Index returns (%) ETFs Index funds Active funds Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. 21 Morningstar. All Rights Reserved. 3/1/21 be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 21 Morningstar. All Rights Reserved. 3/1/21 Page 4

6 Exchange-Traded Funds 21 Pros and Cons of ETFs Pros Cons Tool for implementing asset allocation strategies Passive diversification Transparency of price Tax efficiency Protection against cash drag Brokerage costs Market pricing Relatively new with limited track record Limited selection in certain asset classes. For example: fixed-income ETFs Cost advantages 21 Morningstar. All Rights Reserved. 3/1/21 Page 5

7 21 Morningstar. All Rights Reserved. 3/1/21 Global Investing 21 Why Venture Beyond the U.S? World Stock Market Capitalization Year-end 29 Global Investing Additional investment opportunities Growth potential Diversification benefits Expand efficient range 48% 21% United States International: Other Europe Japan United Kingdom Other Pacific Canada 1% 1% 5% 6% 21 Morningstar. All Rights Reserved. 3/1/21 Capitalization calculated at year-end 29. Total market capitalization is $21.7 trillion. Estimates are not guaranteed. 21 Morningstar. All Rights Reserved. 3/1/21 GDP Growth by Region Global Household Names Global Stock Market Returns Five-year average annual percentage change Highest and lowest historical annual returns for each region Annual ranges of returns Russia Health care Technology Financial services 125% 4.1% Canada United Kingdom Merck & Co (US) Microsoft (US) Citigroup (US) 17.5% 1.3%.8% GlaxoSmithKline (UK) Samsung (Korea) HSBC Holdings (UK) 1 China Novartis (Switzerland) Fujitsu (Japan) Allianz (Germany) 1.5% United States 79.8% Japan 1.1% Roche (Switzerland) Nokia (Finland) Deutsche Bank 75 U.A.E. 69.9%.% 6.2% India Bayer (Germany) LG Electronics (Korea) (Germany) 8.2% 5 Australia 2.5% Brazil 3.4% South Africa 3.3% Automobiles Hyundai (Korea) Ford (US) Honda (Japan) Toyota (Japan) Volkswagen (Germany) Telecoms AT&T (US) Deutsche Telekom (Germany) BT Group (UK) NTT (Japan) Consumer non-durables Procter & Gamble (US) Nestlé (Switzerland) L Oréal (France) Colgate-Palmolive (US) Unilever (UK) % 9.9% Compound annual return 37.% 1.2% 43.1% 1.8% 46.1% 9.8% 36.2% 5 United States International Europe Pacific Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. 21 Morningstar. All Rights Reserved. 3/1/21 21 Morningstar. All Rights Reserved. 3/1/21 Past performance is no guarantee of future results. Each bar shows the range of annual total returns for each region over the period This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Page 6

8 Global Investing 21 Global Investing Growth Through Global Investing Annual returns of top-performing developed global stock markets World Stock Markets Exhibit Different Performance High and low returns 2 29 $1 29 Australia 77% Norway 89% Singapore 74% Sweden 66% United States 26% 1% Norway Compound annual return International stocks 1.2% U.S. stocks 9.9 International bonds 9.6 U.S. bonds 8.6 U.S. inflation 4.5 $48.29 $43.15 $38.71 $ Japan 29% Switzerland 3% United States 37% Spain 4% United States 37% 75 5 New Zealand Greece 28.7% Austria Canada Spain Finland 1 $ Finland 5% Hong Kong 41% Germany 36% Greece 33% United States 5% 25 New Zealand Switzerland Finland 1.9% Finland 15.8% 4.9% 5.5% Japan 26.5% Japan 9.1% 11.9% Ireland 25 U.S. annual return 22.1% Ireland Japan 26 Spain 5% Portugal 48% Ireland 48% Singapore 47% United States 16% Greece Finland Germany 37.% % Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 197. All values in U.S. dollars. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Comparing U.S. and International Stock Performance Average returns over 1-year holding periods U.S. stocks International stocks Past performance is no guarantee of future results. Returns expressed in U.S. dollars. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 The Risks of International Investing Currency risk Economic/political risk Market liquidity risk Differences in accounting standards Costs of investing internationally 5 75 Past performance is no guarantee of future results. Returns expressed in U.S. dollars. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Ireland The Impact of Currency Fluctuation 29 United States Pacific region Return to local investors Currency impact Return to U.S. investors 26.5%.% 26.5% 19.8% 4.6% 24.3% 1 Japan 9.3% 2.9% 6.4% 5 European region 28.6% 8.2% 36.8% United Kingdom International composite 27.7% 15.7% 43.4% 25.4% 7.1% 32.5% Past performance is no guarantee of future results. Based on data from Calculated using rolling 1-year average returns. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 21 Morningstar. All Rights Reserved. 3/1/21 be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Page 7

9 Global Investing 21 Risk Level by Region Annual standard deviation 2 29 Correlations by Region Domestic Versus Global Domestic portfolio Global portfolio 4% Risk 38.5% Asia Pacific Europe U.K. Japan Canada U.S % 32.7% 29.4% 27.9% Asia Pacific U.S. stocks U.S. bonds International stocks % Europe % 4% 46% % U.K % 15 Japan % 1 Canada Asia Pacific Canada Europe U.K. Japan U.S. be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 International Enhances Domestic Portfolios % Return Domestic portfolios Global portfolios U.S. stocks European stocks Canadian stocks U.K. stocks Pacific stocks Japanese stocks U.S Past performance is no guarantee of future results. Correlation ranges from 1 to 1, with 1 indicating that the returns move perfectly opposite to one another, indicating no relationship, and 1 indicating that the asset classes react exactly the same. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Key Differences Between Developed and Emerging Markets Developed countries Established and stable economies with strong consumption activities and ample resources. Ex. Australia, Canada, Japan, Germany, U.K., U.S. Emerging countries Countries that are starting to participate globally by implementing reform programs and undergoing economic improvement. Ex. Brazil, China, Mexico, Thailand, Russia, India. 5% Average return 9.6% Risk 11.4% Average return 9.8% Risk 11.1% Past performance is no guarantee of future results. Risk and return are based on annual data over the period This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Emerging Market Performance Risk and return % 49.% 18.5% 4.6% 3.2% Risk Return 14.% % 8.2% U.S. bonds 9 5% Risk Emerging Europe Emerging Latin America Emerging Asia Emerging Mideast and Africa Past performance is no guarantee of future results. Data expressed in U.S. dollars. Risk and return are based on annual data. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 21 Morningstar. All Rights Reserved. 3/1/21 be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Page 8

10 Global Investing 21 Emerging Markets Experience a Wider Range of Returns Undeveloped Opportunities Developed markets 15% Return Emerging markets 1% Returns as of December % Emerging markets United States * compound annual return % %.4% 1.1% 1.6% 8.2% % * 9.5% 8.2% 22.% 7.2% 6.4% 19.7% 1 year 5 year 1 year.9% 2 year Growth of $1k.5% $1k $74,68 $48, Australia U.S. U.K. Japan Mexico Korea Taiwan Chile Past performance is no guarantee of future results. All values are expressed in U.S. dollars. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/ be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/ Page 9

11 21 Morningstar. All Rights Reserved. 3/1/21 Growth and Value Investing 21 Equity Investment Classification What are Growth and Value Stocks? Growth and Value Investing Large-cap 9,7 Mutual funds 247 Stocks Mid-cap 2,263 Mutual funds Growth stocks High growth rate of earnings, sales Low book-to-price, high price-toearnings ratios Paying lower or no dividends Value stocks Slower growth of earnings and sales High book-to-price, low price-toearnings ratios Higher dividend yields Turnaround opportunities 636 Stocks Small-cap 1,775 Mutual funds 4,326 Stocks Risks Future growth does not occur as expected Book-to-price ratios rise unexpectedly, price-to-earnings ratios decline unexpectedly Risks Evaluation of stocks as good value is misread Difficult to stick to value policy when prices are beaten down 14 Risk and Return by Size and Style Growth and value stocks % Compound annual return Mid value Small value 21 Morningstar. All Rights Reserved. 3/1/21 Range of Annual Returns Growth and value stocks % Return 4 21 Morningstar. All Rights Reserved. 3/1/ % 4.1% 52.5% 61.4% 6.5% 58.4% $5 1 Growth and Value Investing Compound annual return Small value Large value Small growth Large growth 14.7% $24.93 Compound annual return: 7.5% 1.4% 8.9% 13.2% 8.3% 14.7% $51.61 $24.43 $17.79 Large value 1 1 Mid growth Small growth % 35.9% 31.7% 8 Large growth % 46.3% 41.1% % Standard deviation 6 Large growth Large value Mid growth Mid value Small growth Small value be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Past performance is no guarantee of future results. Each bar shows the range of compound annual returns for each asset class over the period This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 197. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Page 1

12 Growth and Value Investing 21 One-Year Growth and Value Cycles Three-Year Growth and Value Cycles Growth and Value Performance After Recessions Performance differential Large growth Large value Performance differential Large growth Large value Large stocks Growth Value 6% 3% 4% 4.1% % % 2.6% 4.4% 9.6% 8.5% 12.7% 5 12-month rolling returns 36-month rolling returns 8% Small stocks 82.9% 6% 5% Jan Dec 197 Jan Dec 1975 Jan Dec 198 Jan Dec 1985 Jan Dec Jan Dec Jan Dec Past performance is no guarantee of future results. Performance differential measures the outperformance of each asset class over one another on a 12-month rolling basis. Each 12-month rolling return represents the annualized return over the prior 12 months. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Blending Growth and Value Balance growth investments with those that produce income Invest in both large and small companies, as well as a mix of well established and new companies Consider investments that are currently out of favor but have potential to increase in value Jan Dec Highest returns Jan 197 Dec Past performance is no guarantee of future results. Performance differential measures the outperformance of each asset class over one another on a 36-month rolling basis. Each 36-month rolling return represents the annualized return over the prior 36 months. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Style Winners and Losers % MV 18.7 SV 5.7 LV.4 DP 18.6 SV 5.1 MV 3.4 LV 7. DP 8.2 SV 1. MV 15. LV 23.1 DP 52.6 SG 48.9 SV 4. MG 39. DP 24.3 MV 24. SV 15.5 MG 15.2 DP 16.3 MG 11.5 MV 8.2 DP 7. LV LV 2. SV 18.8 MV 15. DP MG 12.3 LG 11.1 SG 4.5 DP SV 35.9 MV 36.1 LV 38.5 DP 44.4 LG 42. MG 4.3 SV 36. MV Small Mid Large 4.5% 4.1% After 1 month 15.5% 17.1% 18.8% 27.2% 48.1% After 6 months After 1 year After 3 years be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Morningstar Market Barometer Value Core Growth % Return < > Blending effectively may cushion against the many ups and downs in the market 11.1 MG 12.9 SG 32.5 MG 35.9 MV 14. LV 5.8 SG 1. SG.4 LV 39.9 SG 34.7 DP Morningstar US Market Index Daily Values 12.1 SG 21.6 MG 33.2 LG 3.6 LG 13.5 SG 5.1 SV 9.6 MG 5.5 MV 41.9 LG 33. SG 5, +6.5% Annual return +15.7% +5.9% 37.% +28.4% Lowest returns 33.5 LG 29.1 LG 36.9 SG 26.3 LV.2 LG 3.4 LG 5.7 LG 8.1 SV 46.3 MG 11.4 LV 3,5 Large growth Large value Mid growth Mid value Small growth Small value Diversified portfolio (LG) (LV) (MG) (MV) (SG) (SV) (DP) 2, Jan Dec Jan Dec Jan Dec Jan Dec Jan Dec 21 Morningstar. All Rights Reserved. 3/1/21 be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Page 11

13 21 Morningstar. All Rights Reserved. 3/1/21 Investing for Retirement 21 Advantages of 41(k) Investing Sources of Retirement Income Investing for Retirement Participant control Amount invested Asset mix Ownership of assets 21% 2% Earned income Pension Social Security Investment income Other Pre-tax investing Tax deferral 41% Tailored investment plan 18% 14% Most Americans Are Not Saving Enough for Retirement Personal savings rate $6, 21 Morningstar. All Rights Reserved. 3/1/21 The Earlier You Start Investing, the Easier It Is to Reach Your Goals Monthly savings needed to accumulate $1 million by age 65 $5,778 Pension includes all defined benefit and defined contribution plans. Estimates are not guaranteed. 21 Morningstar. All Rights Reserved. 3/1/21 Enhancing Your Wealth: Employer Match Hypothetical value of $1 invested each month % , 8 $1k Stocks with 5% employer match Stocks $7,975 4, 8 6 3, $47, , $1,92 2 1, $82 2 $ year-old 35-year-old 45-year-old 55-year-old Morningstar. All Rights Reserved. 3/1/21 This is for illustrative purposes only and not indicative of any investment. 21 Morningstar. All Rights Reserved. 3/1/21 Past performance is no guarantee of future results. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Page 12

14 Investing for Retirement 21 Employers Are Cutting Defined Benefit Pension Plans Number of defined benefit plans Ibbotson SBBI Stocks, Bonds, Bills, and Inflation Ibbotson SBBI After Taxes k $1, $12,231 $1, Compound annual return $ , Compound annual return Small stocks 11.9% Large stocks 9.8 Government bonds 5.4 Treasury bills 3.7 Inflation 3. $2,592 1 Stocks 7.7% Municipal bonds 4.4 Government bonds 3.4 Inflation 3. Treasury bills 2.3 $ $84 $15.96 $ $21 $12 1 $ % Morningstar. All Rights Reserved. 3/1/21 Taxes Significantly Reduce Returns %.1 $25k Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Benefits of Deferring Taxes Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1926, with taxes paid monthly. No capital gains taxes are assumed for municipal bonds. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Assumes reinvestment of income and no transaction costs. 21 Morningstar. All Rights Reserved. 3/1/21 Reduction of Risk Over Time Small stocks Large stocks Government bonds Treasury bills Value of taxable account Value of tax-deferred account 8 7.7% % % 4 3.4% 3.7% 3.% 1 3 Compound annual return: 11.9% 9.8% 5.4% 3.7% 2 2.3% 5 3 Stocks Stocks after taxes Bonds Bonds after Cash Cash after taxes taxes Inflation 5 years to retirement 6 1-year Holding period 5-year 2-year 1-year 5-year 2-year 1-year 5-year 2-year 1-year 5-year 2-year be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Hypothetical value of $1, invested in stocks. This example is for an investor in the 28% bracket using the 29 tax code. Assumes an 8% annual total return. Estimates are not guaranteed. This is for illustrative purposes only and not indicative of any investment. 21 Morningstar. All Rights Reserved. 3/1/21 Past performance is no guarantee of future results. Each bar shows the range of compound annual returns for each asset class over the period This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Page 13

15 Investing for Retirement 21 Potential to Reduce Risk or Increase Return Diversified Portfolios in Various Market Conditions Performance during and after select bear markets Potential Shortfall: The Risk of High Withdrawal Rates Annual inflation-adjusted withdrawal as a % of initial portfolio wealth Fixed income portfolio Lower risk portfolio Higher return portfolio Mid-197s recession (Jan 1973 Jun 1976) 28 bear market (Nov 27 Mar 29) $1,25 $5k 15% 37% 19% 12% 27% Stocks Bonds Cash 1, Stocks Diversified portfolio $1,15 $1,14 4 $ % 44% 61% 75 2 Return: 8.% Risk: 7.8% Return: 8.% Risk: 5.8% Return: 8.9% Risk: 7.8% 5 $491 1 Past performance is no guarantee of future results. Risk and return are measured by standard deviation and compound annual return, respectively. They are based on annual data over the period This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 25 Jan 1973 Jan 1974 Jan 1975 Jan 1976 Past performance is no guarantee of future results. Diversified portfolio: 35% stocks, 4% bonds, 25% Treasury bills. Hypothetical value of $1, invested at the beginning of January 1973 and Nov 27, respectively. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Nov 27 Mar 28 Jul 28 Nov 28 Mar 29 Withdrawal rate: 9% 8% Past performance is no guarantee of future results. Hypothetical value of $5, invested at the beginning of Portfolio: 5% large stocks/5% intermediate-term bonds. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 7% 6% 5% Page 14

16 21 Morningstar. All Rights Reserved. 3/1/21 Investing in Commodities 21 Different Commodity Categories Exist Commodities Versus Commodity Futures Investing in Commodities Energy Crude oil Natural gas Heating oil Agriculture Corn Soybeans Wheat Coffee Commodity Physical article of trade such as oil, wheat, gold, etc. Commodity futures contract Industrial metals Copper Aluminum Zinc Nickel Livestock Live cattle Feeder cattle Lean hogs An agreement to buy (or sell) a specified quantity of a commodity at a pre-agreed future date and price Standardized contract that trades on an exchange Ways to Gain Exposure to Commodities Buying physical commodities Not practical for most investors to buy and hold bushels of corn or barrels of oil Investing in stocks of companies that produce commodities Returns from commodity-producing companies depend both on the commodity prices and the stock market $4 1 Precious metals Gold Silver Platinum The information, data, analyses, and opinions contained herein do not constitute investment advice offered by Morningstar and are provided solely for informational purposes. 21 Morningstar. All Rights Reserved. 3/1/21 Stocks, Bonds, Bills, REITs, and Commodities Compound annual return REITs 11.8% Stocks 11.2 Bonds 9.7 Commodities 7. Treasury bills 5.5 Inflation 3.5 $28.15 $24.4 $15.98 $7.57 The information, data, analyses, and opinions contained herein do not constitute investment advice offered by Morningstar and are provided solely for informational purposes. 21 Morningstar. All Rights Reserved. 3/1/21 Asset-Class Correlations Large stocks Small stocks Bonds Large stocks Small stocks Bonds Treasury bills REITs Commodities Inflation Investing in commodity futures through managed futures or index funds Economic exposure to a basket of commodities via futures Face value of futures contract is collateralized by T-bills Ease of investing via traditional investing product structures managed account, commodity pools, mutual funds, ETFs, etc. $4.97 $2.81 Treasury bills REITs Commodities Inflation The information, data, analyses, and opinions contained herein do not constitute investment advice offered by Morningstar and are provided solely for informational purposes. 21 Morningstar. All Rights Reserved. 3/1/21 be made directly in an index. The information, data, analyses, and opinions contained herein do not constitute investment advice offered by Morningstar and are provided solely for informational purposes. 21 Morningstar. All Rights Reserved. 3/1/21 be made directly in an index. The information, data, analyses, and opinions contained herein do not constitute investment advice offered by Morningstar and are provided solely for informational purposes. 21 Morningstar. All Rights Reserved. 3/1/21 Page 15

17 Investing in Commodities 21 Benefits of Including Commodities in a Portfolio Lower risk and higher return, Commodities Serve as a Hedge Against Inflation Individual Commodity Returns Domestic portfolio 4% Return 8.2% Risk 11.7% 6% Domestic portfolio with commodities Return 8.5% Risk 8.7% be made directly in an index. The information, data, analyses, and opinions contained herein do not constitute investment advice offered by Morningstar and are provided solely for informational purposes. 21 Morningstar. All Rights Reserved. 3/1/ % % % % Stocks Bonds Commodities Year Stocks Bonds Commodities *Highlighted rows depict increase in inflation with commodities as the top performer be made directly in an index. The information, data, analyses, and opinions contained herein do not constitute investment advice offered by Morningstar and are provided solely for informational purposes. 21 Morningstar. All Rights Reserved. 3/1/21 % Change in Inflation 49.8% 5.3% 5.2% 2.7% 5.1% 3.9% 48.8% 5.3% 66.5% 26.2% 54.2% 53.2% 2.9% 73.2% 4.9% 25.6% 6.6% 97.8% % 4% Return % 5 Range of returns 32% 76% Natural Gas 131% 54% 12% 53% Percentage of positive/negative returns 47% 42% 37% 55% 53% 46% 38% 58% 24% 24% Positive period Negative period Copper Crude Oil Wheat Soybeans Corn Gold Live Cattle be made directly in an index. The information, data, analyses, and opinions contained herein do not constitute investment advice offered by Morningstar and are provided solely for informational purposes. 21 Morningstar. All Rights Reserved. 3/1/21 37% 47% 3% 74% 24% 53% 23% 42% Highest returns Commodity Performance Over the Past 1 Years Conclusions Low correlations Low to negative correlations with assets such as stocks, bonds, and real estate Low to negative correlations between individual commodities Attractive historical returns Long-term returns similar to stocks Moderately higher risk levels compared to stocks Risk reduction through portfolio diversification Including commodity allocation in a traditional stock/bond portfolio can reduce volatility and improve diversification Acts as an inflation hedge Commodities typically tend to benefit from rising inflation Lowest returns Commodities Small stocks Large stocks Bonds Treasury bills REITs be made directly in an index. The information, data, analyses, and opinions contained herein do not constitute investment advice offered by Morningstar and are provided solely for informational purposes. 21 Morningstar. All Rights Reserved. 3/1/21 The information, data, analyses, and opinions contained herein do not constitute investment advice offered by Morningstar and are provided solely for informational purposes. 21 Morningstar. All Rights Reserved. 3/1/21 Page 16

18 21 Morningstar. All Rights Reserved. 3/1/21 Investing in Emerging Markets 21 Emerging Markets Defined Emerging-Market Constituents Regional and country breakdown Investing in Emerging Markets The term emerging markets was coined by the World Bank s International Finance Corporation in the early 198s. Typically, emerging markets are countries in the process of industrialization, with lower gross domestic product (GDP) per capita than more developed countries. Generally, emerging markets are described by a growing population experiencing a substantial increase in living standards and income, rapid economic growth, and a relatively stable currency. Asia China Philippines India Taiwan Indonesia Thailand Korea Malaysia Europe, Middle East & Africa Czech Republic Morocco Egypt Poland Hungary Russia Israel South Africa Turkey Latin America Brazil Mexico Chile Peru Colombia GDP by Country Five-year average annual percentage change Russia 4.1% China 1.5% United States 1.1% Turkey 2.9% $6 bil Morningstar. All Rights Reserved. 3/1/21 Financial Flows to Emerging Markets Equity flows in billions of dollars East Asia and Pacific Sub-Saharan Africa Latin America and the Caribbean Europe and Central Asia South Asia Middle East and North Africa $1k Source: Morgan Stanley Capital International. 21 Morningstar. All Rights Reserved. 3/1/21 Regional Performance Growth of $1, from $82,86 India 8.2% Thailand 2.8% Malaysia 3.7% Mexico 1.1% Compound annual return Latin America Emerging Europe U.S. Emerging Asia Emerging Far East Int l developed stocks 22.2% Brazil 3 2 1k $8,474 $7,437 $6,38 $5,485 Chile 3.3% 3.4% South Africa 3.3% 1 $3,382 1k Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. 21 Morningstar. All Rights Reserved. 3/1/21 Past performance is no guarantee of future results. All values are expressed in U.S. dollars. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Page 17

19 Investing in Emerging Markets 21 Undeveloped Opportunities Emerging Markets Experience a Wider Range of Returns Global Market Downturns and Recoveries Periods of turbulence, Returns as of December 29 1% 79.% 8 6 Emerging markets United States Developed markets 15% Return 125 * compound annual return 1 Emerging markets Emerging markets Asia Number of downturns 3 Greatest decline 73% Average decline 57% Average decline duration in months 25 Average recovery duration in months* % 75 Europe 5 75% 53% % 1.1% 1.6%.4% 1 year 5 year 1 year.9% 2 year Growth of $1k 8.2% % * 9.5% 8.2% 22.% 7.2% 6.4% 19.7% Far East 3 76% 58% $1k $74,68.5% Latin America 7 61% 37% 5 19 $48, be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Downturns and Recoveries Emerging-market performance during and after a U.S. bear market 18% Return 12 6 Asia Europe Far East Latin America U.S Australia U.S. U.K. Japan Mexico Korea Taiwan Chile Past performance is no guarantee of future results. All values are expressed in U.S. dollars. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Correlations by Region 2 29 Developed markets International stocks 3 56% 45% be made directly in an index. *Calculations do not include recovery from the downturn, as the recovery duration is still unknown. 21 Morningstar. All Rights Reserved. 3/1/21 Downturn period (Nov 27 Feb 29) Emerging Asia Emerging Asia Europe Far East 1. Latin America Developed U.S. stocks International stocks Emerging Markets Can Improve Developed Portfolios % Return 16 Developed portfolios Developed portfolios with emerging-market stocks Emerging markets Recovery period (Mar 29 Dec 29)* Europe Small stocks 6 12 Far East Large stocks $2 1 Growth of $1 $.95 $.76 $.74 $.74 $.61 Developed Latin America U.S. stocks International stocks Cash Bonds Int l developed stocks.1 4 Nov 27 Nov 28 Nov be made directly in an index. *The exact length of the recovery period is yet to be determined. 21 Morningstar. All Rights Reserved. 3/1/21 Past performance is no guarantee of future results. Correlation ranges from 1 to 1, with 1 indicating that the returns move perfectly opposite to one another, indicating no relationship, and 1 indicating that the asset classes react exactly the same. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Page 18

20 14.9 Investing in Emerging Markets 21 Global Winners and Losers The Risks of Emerging Markets The Impact of Exchange Rates Highest 9.1% returns 37. Currency 4% Return Return in local currency Political and social Return in U.S. dollars Liquidity 32.9% Investor restrictions Taxes 23.9% 26.4% 22.1% % 19.2% 17.6% 13.1% 12.9% % 1.5% Lowest returns Russia U.S. Latin America India China be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 An Introduction to Emerging-Market Debt Emerging-market debt comprises a broad range of fixed income instruments issued primarily by sovereign borrowers in middle- or low-income developing countries Most often, emerging-market issuers are located in Latin America, Eastern Europe, Asia, the Middle East and Africa Emerging-market debt is not confined by credit ratings and therefore can be comprised of securities that range from double A all the way down to assets that are in default Emerging-market debt can carry significant risks 5% % be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 The Case for Emerging-Market Bonds 2 29 Returns Last 1 year Last 3 years Last 5 years Last 1 years Rolling 12-month standard deviation U.S. stocks Long-term government bonds High-yield bonds Emerging-market bonds Brazil Egypt Morocco Czech Republic Thailand Malaysia be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 7.1% Past performance is no guarantee of future results. 21 Morningstar. All Rights Reserved. 3/1/21 be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Page 19

21 21 Morningstar. All Rights Reserved. 3/1/21 Investing in Fontier Markets 21 What are Frontier Markets? Frontier-Market Constituents Regional and country breakdown Investing in Frontier Markets Central & Eastern Europe & the Commonwealth of Independent States The term frontier markets was first proposed by the International Finance Corporation in 1992 Bulgaria Romania Croatia Serbia Frontier markets are countries with small, unstable and underdeveloped economies undergoing multiple economic changes Estonia Kazakhstan Lithuania Slovenia Ukraine Most frontier markets still experience significant problems and have lower Middle East & Africa levels of economic indicators than emerging markets Bahrain Kenya These markets tend to be very risky and illiquid because of their general Jordan Mauritius political and economic instability Kuwait Nigeria Lebanon Tunisia Oman Qatar United Arab Emirates Asia & The Americas Pakistan Argentina Sri Lanka Trinidad & Tobago Vietnam 21 Morningstar. All Rights Reserved. 3/1/21 Source: Morgan Stanley Capital International. 21 Morningstar. All Rights Reserved. 3/1/21 The Opportunities and Risks of Frontier Markets Frontier-Market Performance Frontier Markets Experience a Wider Range of Returns Growth of $1 and annual returns Growth of $1 Emerging markets Frontier markets International developed markets U.S. market Developed markets Frontier markets 191.5% $6 2% Opportunities Risks Return $35 Young economies Currency $ Strong demand for foreign Political and social instability $168 investment $ % Illiquidity 97.% 9.1% 1 Potential for industrial and % Investor restrictions 73.9% business growth % Potential for consumer growth Sector-specific opportunities More options available for indirect investment Taxes Poor information flow Poor corporate governance Corruption (political and corporate) 8% 4 4 June 5 June 6 June 7 June 8 June 2 June 3 June 4 June 9 Annual returns % 5.% * 28.7% 5.5% 37.% 18.4% 45.2% *compound annual return 43.4% 8.6% 48.3% 36.2% 6.2% 29.1% 13.3% 57.7% 1.1% 74.% 25.8% 54.4% 13.% 34.7% 18.4% 59.4% Australia U.S. Canada U.K. Japan Nigeria Pakistan Argentina Jordan Sri Lanka 21 Morningstar. All Rights Reserved. 3/1/21 be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Past performance is no guarantee of future results. Returns expressed in U.S. dollars. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Page 2

22 Investing in Fontier Markets 21 The Best and Worst of Frontier Markets Annual returns compared to the U.S. Frontier Markets: Ups and Downs Returns in recent favorable and unfavorable environments Total Portfolio Investment Assets Geographic breakdown: Central & Eastern Europe, CIS, and the Americas st 2nd 3rd Last Sri Lanka 191% Pakistan 9% Argentina 64% Bahrain 32% Qatar 26% Jordan 35% United States 37% Pakistan 74% United States 26% 6th United States 37% 8% July 25 October % 46.2%.3% 26.5%.2% 5.5% 2.3% 14.6% 31.1% 8.8% 14.1% 14.% Central & Eastern Europe & CIS $15 bil 1 5 Ukraine Slovenia Croatia Kazakhstan Romania Lithuania Estonia Bulgaria Serbia 27 Nigeria 97% Oman 6% Qatar 54% Sri Lanka 13% 3rd United States 5% 2 1 November 27 December 29 8.% $4 bil The Americas Argentina Trinidad and Tobago 26 Argentina 67% Nigeria 49% Sri Lanka 46% UAE 47% Past performance is no guarantee of future results. Returns expressed in U.S. dollars. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Total Portfolio Investment Assets Geographic breakdown: Middle East, Africa and Asia 9th United States 16% 4th % 36.4% 38.9% 17.% 28.4% 9.5% 9.7% 34.2% 29.2% Argentina Nigeria Bahrain Jordan Kuwait Oman Qatar United Pakistan Sri Lanka Aggregate U.S. Arab Frontier Market Emirates Markets Past performance is no guarantee of future results. Returns expressed in U.S. dollars. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. 21 Morningstar. All Rights Reserved. 3/1/21 Historical and Estimated GDP by Country Six-year average annual percentage change Middle East & Africa United Arab Emirates Historical (23 28) Estimated (29 214) $25 bil Bahrain Qatar 2 Mauritius Tunisia Estonia 15 Kuwait 6.3%.8% Nigeria Lithuania Lebanon 1 Jordan 7.5% 1.3% Oman Ukraine 5 Kenya Kazakhstan Romania 6.9% 1.5% 8.6% 4.1% 6.5% 2.5% Slovenia Bulgaria Asia Vietnam 4.6% 1.6% 6.1% 1.2% $5 bil Pakistan Argentina Sri Lanka 8.5% 1.7% 4 Pakistan 5.6% 4.% % 12.% Argentina Bulgaria Estonia Year-end Past performance is no guarantee of future results. Based on year-end data (in USD) from the International Monetary Fund. As of January 21, the last year with available data was 28. This is for illustrative purposes only and not indicative of any investment. 21 Morningstar. All Rights Reserved. 3/1/21 Historical and Estimated Inflation by Country Six-year average annual percentage change Kazakhstan Lithuania 1.1% 1.% 2.6% 3.9% 5.1% 5.% 6.9% 9.3% 9.6% Historical (23 28) Estimated (29 214) Pakistan 7.4% 9.3% Romania 3.8% 9.2% Slovenia 2.1% 3.9% Sri Lanka 8.3% 12.9% 6.3% 2 Vietnam 7.7% 6.1% Ukraine 8.3% 12.5% 1 Year-end Sri Lanka 6.3% 5.2% Vietnam 7.1% % % Past performance is no guarantee of future results. Based on year-end data (in USD) from the International Monetary Fund. As of January 21, the last year with available data was 28. This is for illustrative purposes only and not indicative of any investment. 21 Morningstar. All Rights Reserved. 3/1/21 Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. U.S. historical and estimated average GDP growth rates are 2.4% and 1.5%, respectively. 21 Morningstar. All Rights Reserved. 3/1/21 Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. U.S. historical and estimated average inflation rates are 3.% and 1.6%, respectively. 21 Morningstar. All Rights Reserved. 3/1/21 Page 21