TrustTalk. Just as many investors are beginning to feel. Can You Combat Inflation? Spring concerning your retirement plan

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1 TrustTalk Spring 2011 Current news concerning your retirement plan Can You Combat Inflation? Just as many investors are beginning to feel cautiously optimistic about the market recovery, a new fear is emerging: inflation. Inflation is the rise in prices of goods and services over time. If your investments do not grow as fast as the rate of inflation, their value is reduced, effectively eroding your portfolio s purchasing power. Inflation is measured by the Consumer Price Index (CPI). CPI has been relatively low for the last three years, at 3.8% for 2008, 0.4% for 2009 and 1.6% for 2010, for an average of 1.7% per year. However, over the last 12 months, several key measures of inflation have shown small increases. Even a relatively low inflation rate can substantially reduce the value of your dollar. This example shows that $50,000 today will be worth only $33,133 in terms of purchasing power in 2035, 25 years down the road, even with the current low 1.7% inflation rate. In other words, in 25 years $50,000 would only buy you $33,133 worth of goods and services in today s dollars. DOLLARS $60,000 $20,000 $10,000 $0 Impact of 1.7% Inflation on $50,000 Over 25 Years $50,000 $50,000 $40,000 $46,686 $43,591 $40,702 $30,000 $38,004 $35,485 $33, YEARS

2 So now you may be asking yourself: will inflation impact me and my retirement savings? Inflation will impact your retirement savings, due to the way inflation eats away at your purchasing power. How inflation affects your portfolio depends on a number of factors, including asset allocation and diversification, along with the amount of debt you have and how much you have saved overall for retirement. However, the good news is that there are things you can do to help protect your nest egg against inflation. Asset Allocation As you determine your investment asset allocation, consider inflation risk along with investment risk the risk of losing money if the value of your investments decline. Higher potential returns usually go hand-inhand with higher risk. Because stocks are generally riskier than bonds, their potential returns are also greater. However, you need to be mindful of the trade-off between investment risk and inflation risk the risk that your less risky investments may not earn enough to keep up with inflation. That means in this case bonds pose a higher inflation risk than stocks. Maintain Diversification A balanced portfolio can help reduce risk and mitigate the negative effects of rising inflation, because one investment type may be in favor when another isn t doing as well. Remember that diversification does not protect against loss in a declining market. To ensure that you ve got the right mix of assets for your personal strategy and investment time horizon, one of the best things you can do is rebalance your account, by going to if you are an active employee (if you are a former employee, go to Also, look into one of Halliburton s Premixed Portfolios. They are designed to provide diversified, self-balancing portfolios, according to their targeted risk and return profiles. See Focus On: Premixed Portfolios on page 3. Manage Your Debt When inflation and interest rates increase, so will the interest you pay on your debt, which includes credit cards, adjustable-rate mortgages and new car loans, so it makes sense to keep debt to a minimum. It s always smart to make your largest payments toward your highest-rate loans to pay them off as quickly as possible, but especially so when interest rates are rising. Take some time to calculate just how much you are spending a month on debt and make adjustments if the numbers say you should. At the end of the year, you may realize you have extra money to invest in the Halliburton retirement plan. Save More for the Future You may need to save more for retirement in order to keep, at a minimum, the same standard of living that you have today. The best approach is to follow the old saying pay yourself first. In other words, take out your savings and investment money soon after you get your paycheck. Halliburton s retirement plan makes this step easy for you by taking your contributions directly from your paycheck. No one can avoid inflation. But you can combat the impact inflation will have on your investments if you diversify, save for the future and manage your debt. 2 Trust Talk is published quarterly by the Halliburton Trust Investments Department. It is designed to provide members of the Halliburton Savings Plan and Halliburton Retirement and Savings Plan (referred to collectively as the retirement plan) with conventional wisdom on saving and investing. The information included in Trust Talk is not intended as financial advice. You may want to consult a financial advisor before making any investment decisions. Suggestions or comments about Trust Talk can be sent to Sharon Parkes or Maria Bacaling, Trust Investments Department, Bellaire Blvd., Houston, Texas

3 Focus On: Premixed Portfolios If you need to brush up on the basics, read the story Three Fundamentals of Investing on page 4. Do you feel out of focus when it comes to investing? Are there too many choices and too much to remember? You don t know where to focus your attention and put your dollars? If this sounds like you, you may be struggling with asset allocation. Asset allocation describes the percentage of total assets invested in different investment categories, also known as asset classes. The most common broad financial asset classes are stocks (like the Aggressive Premixed Portfolio or the Large Cap Value Equity), bonds (such as the Bond Index Fund) and cash (in your personal savings account). So what should you do when you need assistance finding the correct asset allocation that matches your overall investment strategy? This is where Halliburton and the Premixed Portfolios come in. Halliburton offers plan participants four Premixed Portfolios. The Premixed Portfolios are lifestyle funds that base their asset allocation on targeted risk and return profiles: aggressive, moderate, conservative and stable value. So instead of picking multiple funds, you can select the single Premixed Portfolio that fits your needs best. And as you get closer to retirement and/or your goals change, you can move from one Premixed Portfolio to another. Here is an overview of the portfolios and how they differ. These are the asset classes for each of the portfolios: Stable Value Premixed Portfolio Stocks Bonds Stable Value Conservative Premixed Portfolio X X X Moderate Premixed Portfolio X X Aggressive Premixed Portfolio Stable Value Premixed Portfolio: The most conservative option, with a focus on preserving principal, it has a stable rate of return. Conservative Premixed Portfolio: A highly diversified portfolio biased towards stable returns but with potential for growth, due to some stock exposure. Moderate Premixed Portfolio: Aims for a competitive return, while minimizing risk by diversifying across stocks and bonds. Aggressive Premixed Portfolio: With a goal of achieving long-term growth, this portfolio carries the highest risk of all the premixed portfolios because it invests only in stocks. X If you did not elect one or more investments at the time of enrollment, Halliburton automatically enrolls you in the Moderate Premixed Portfolio. You receive a 4% basic contribution automatically, in addition to contributions you make. To review your current retirement plan allocations or to change them, go to com/totalrewards if you are an active employee (if you are a former employee, go to Also, read Investment Highlights for more information about each portfolio. Note that financial advisors typically warn against investing in both premixed portfolios and individual funds, since you run the risk of over-diversifying. X 3

4 Three Fundamentals of Investing Investing may sound like something that only Wall Street professionals do, but you became an investor when you started contributing to the Halliburton retirement plan. How well do you understand investing? Even though the Halliburton plan does a lot of the work for you, you should understand the fundamentals. This in turn will help you make better investment decisions. Here are three fundamentals every investor should know. Fundamental #1: Start As Early As Possible Your first step is to start saving and investing as early as you can. The more time you have (your time horizon; that is, how close you are to retirement), the larger your savings potential will be when you retire. That s because even a small investment, given enough time, can turn into a substantial sum through the power of compounding. Each year you earn a return not just on the money you originally put in, but also on your previous earnings, growing your investment larger and larger over time that s investment compounding. See the You Could Have More If You... Start Saving Today on page 7 for an example of how investment compounding works. Fundamental #2: Understand Risk and Return Remember that everyone wants low-risk investments that offer high returns. But risk and return are related: generally, the higher the reward, the higher the risk and vice-versa. Your risk tolerance how much risk you are comfortable taking depends on your long and short-term goals, your time horizon and/or your personality. Some people are comfortable with the peaks and valleys that more risky investments can bring and others aren t. Always keep in mind that risk is an inherent part of investing. It s just not something you can avoid. Read Investment Highlights for information on the risk level of each fund offered to you and an overview of the returns during the past periods. Fundamental #3: Diversify Though it s almost impossible to avoid risk, you can manage it by diversifying your portfolio. The advantage of a diversified portfolio is that if the value of one of your investments drops, gains in others can help offset your losses. This is how it works: you diversify by investing in different assets classes. You can also diversify by choosing a mix of Large, Mid and Small Cap stocks, or by choosing a mix of domestic or international investments. If you choose one of the Halliburton Premixed Portfolios, this work is done for you (see Focus On: Premixed Portfolios on page 3). The key to diversification is making sure that you avoid concentration in any one asset and have exposure to multiple assets that will do well at different times. FAST FACTS What Do Small and Large Mean? The cap in Large Cap and Small Cap is short for capitalization, which is the total market value of all shares of a company s stock. Though the value ranges vary depending on your source, here are some general guidelines: Small: Market cap of less than $2 billion Mid: Market cap of $2 to $10 billion Large: Market cap of more than $10 billion 4

5 Never forget that while a short-term gain in your portfolio is great, retirement is a long-term prospect. Now That You Know the Fundamentals Never forget that while a short-term gain in your portfolio is great, retirement is a long-term prospect. Review your current portfolio and the Halliburton retirement plan investment options available to you at totalrewards if you are an active employee (if you are a former employee, go to com). Do this at least once a year. Halliburton and Fidelity offer you a variety of tools to help you understand your investments, brush up on the basics and make changes. Terms Every Investor Should Know Equity Ownership in a company. When you own shares of stock in a company you have equity in the company. Stock investments are sometimes called equities. Portfolio All of your investments. Your Halliburton retirement plan is part of your portfolio. Principal The original sum of money invested. Inflation Risk The risk that your investments will not keep up with inflation and your money will lose purchasing power. Investment Risk The extent to which an investment s market value goes up and down. This depends on many factors, including type of investments, market performance and company performance and inflation. Rate of Return The percentage change in an investment s value over a given period. Return can be positive or negative. 5

6 Your Evolving Investment Style Trying to figure out how to invest can sometimes be tricky, especially because as you age, your investment style may change. There are three main factors that make up your investment style: How close you are to retirement (time horizon) How comfortable you are with taking risks (risk tolerance) Your investment goals Your risk tolerance and goals are greatly influenced by your time horizon. Let s take a look at John and how his investment style evolves through the years, because the closer he gets to retirement, his risk tolerance and goals change. Getting Started in His 20s John is in his late twenties, recently married and is contributing 6% to the retirement plan. The company matches dollar for dollar on the first 4% John contributes and $0.50 for each dollar on the next 2% that John contributes, for a total of 5% company match. He does not know too much about investing, but is comfortable with taking more risks since he feels he has more than enough time to save before retirement. John elects to invest in the Aggressive Premixed Portfolio when he joins Halliburton. This allows him to start investing, without having to manage his own asset allocation. Hitting His Stride in His 40s John is now in his mid-forties and now has two school-age children. He has done research on investing through the years and enjoys learning more about the Halliburton fund options available to him. He still makes the most of the company match, and now he s contributing 10%. His risk tolerance has also changed through the years; he prefers a moderate risk investment approach as he begins to think about retirement and his family. Because he has gotten more comfortable with his investment knowledge, John moves his assets out of the Aggressive Premixed Portfolio and into several of the Single Focus Funds. He watches the funds performance carefully and reallocates his contributions when necessary. Ready to Retire in His 60s In his sixties and within five years of retirement, John is looking forward to enjoying his retirement with his wife and wants to make sure his funds are stable and secure. Now that he has grandchildren, he s thinking about leaving them a legacy. 6

7 A few years back, John adopted a more conservative approach to investing because he doesn t want to risk the funds he has saved for his retirement. John changed his contributions and moved the balances of his Single Focus Funds into the Conservative Premixed Portfolio. Remember there is no investment style that is one size fits all. It s important to review your investments periodically to ensure they are still the best choice for your current stage in life. It s also a good idea to discuss any major changes you want to make in your portfolio with your financial advisor. FAST FACTS You Could Have More If You... Start Saving Today It sounds obvious. The sooner you start saving, the more you ll have. But take a look at this chart it demonstrates how much more you will have when you are 65, if you start saving at 25 vs. 35, thanks to investment compounding. Here s how it works. At age 25 Jason invests $5,000 per year for 10 years, for a total of $50,000. He ll have $728,867 at age 65, assuming annualized gains of 8%. If Linda begins investing $5,000 per year at age 35 for the remainder of her career, for a total of $150,000, she ll have $566,416 at age 65, assuming the same return of 8%. Jason - Starts at Age 25 Linda - Starts at Age 35 Annual Investment Number of Years Total Contribution Value of Savings at Age 65 (8% return) $5, $50,000 $728,867 $5, $150,000 $566,416 There is no investment style that is one size fits all. Review your investments periodically. It s never too late to start. If you haven t started saving yet for your retirement, today is the day to do it. Halliburton makes it easy. Go to totalrewards. 7

8 Newsstand Market Update U.S. Markets Rise Amid International Disruptions In the first quarter of 2011, the investment markets faced opposing forces, as political unrest in Africa, rising oil prices and the devastating tsunami and earthquakes in Japan met with improving employment numbers in America and signs of debt relief in Europe. Positive news dominated in the U.S. The U.S. economy is estimated to have grown at a 2.6% annual rate in the first quarter, a slight decrease from the 2.8% 4Q10 report. The U.S. unemployment rate decreased from 9.4% in December 2010 to 8.8% in March The Federal Reserve continued to keep interest rates at near zero levels, generating growing concerns that inflation might increase in the future. These inflationary concerns drove yields on the 10 year U.S. Treasury bond higher, ending at 3.47%. U.S. stocks performed positively across all market caps (large, mid and small) and investment styles (value, core and growth). Large-cap, value-oriented stocks outpaced their growth counterparts and small-cap stocks continued to outperform large-cap stocks during the quarter. All of the ten sectors of the Russell 1000 Index reported positive returns for the quarter led by the energy sector, which continued its strong performance as oil prices climbed to above $100 per barrel (partially due to the political unrest in Egypt and Libya). The financial and consumer staples sectors reported the weakest returns, overall. For non-u.s. equity markets, the earthquake and tsunami in Japan, as well as the turmoil in the Middle East, negatively impacted stock market returns. The developed country MSCI EAFE gained a gross 3.5% in Q1. The weakening of the U.S. dollar continued to assist U.S. investors abroad, as the dollar declined. The best performing countries were Greece (15.2% return), Spain (13.8% return) and Italy (13.8% return), as all bounced back from the sovereign debt woes they experienced throughout Japan and Israel were the worst two performing countries, returning -4.9% and -4.1%, respectively. Performance from the energy, telecommunication services and industrial sectors led the way, while results in the information technology and consumer discretionary lagged behind the benchmark during Q1. The emerging markets rose slightly more than 2% for the quarter after a strong March. The best performing emerging markets countries for the quarter were Hungary, the Czech Republic and Russia. Bond markets produced positive though modest results during the quarter. The Barclays Capital U.S. Aggregate Index gained 0.4% for the quarter led by the commercial mortgage securities (+2.1%) and corporate sector (+1.4%). They were helped by limited supply of these types of bonds and increased demand for yield. Furthermore, treasuries lagged (-0.2% return), as yields rose for the quarter, with continued signs of economic growth and rising commodity prices. High yield bonds gained 3.9% in the first quarter, as higher yielding assets generally outperformed other fixed income securities. 8

9 Newsstand Retiree Corner Big Risks in Retirement Fantasizing about retirement is fun: snooze in the hammock or play tennis with friends? Take trips to see family or stay put in your rustic cabin? However, planning your retirement isn t always as fun. You have to think about protecting what you ve saved and help ensure that your retirement income meets your needs so you can enjoy your well-deserved permanent vacation. One key success is to identify and ensure against the risks that could knock your retirement plans off track. Here are two risks that could impact your retirement savings and ways to keep these risks at bay. Rising Health Care Costs Health care costs are on the rise for everyone and they pose an especially high risk to retirees. Medicare does not cover all retiree medical costs, and out-of pocket expenses can create a critical challenge in your retirement. You should consider earmarking a portion of your retirement savings for health care. Why? According to Fidelity s annual Retiree Health Care Costs Estimate, a 65-year-old couple who retired in 2010 will need more than $250,000 to cover health care costs during their retirement or roughly $6,250 per person per year. That s an average: you may have even higher health care costs, depending on how long you live and your overall health before and during retirement. Since Fidelity started the annual estimate in 2002, estimated costs have risen by 56%. Outliving Your Money The United States Census Bureau projects the average American s life expectancy to be 78.3 years, the highest it s ever been. And your life expectancy increases as you get older because you ve already beat the odds. At age 65, your average life expectancy is 17.2 more years (to age 82) if you re male, and 19.9 more years (to age 84.9) if you re female, according to the Centers for Disease Control. Those are simply averages; if you re above average you may live 30 or more years after you retire. So you need to have enough assets to support yourself and your spouse for many years. Of course, without a crystal ball it is impossible to know exactly how long you will live, and how much money you will need to comfortably retire. However, there are steps you can take. Take a hard look at how much you truly need to live comfortably. While taking a cruise to a sun-soaked destination each year is ideal, can you manage doing it every other year? Can you defer taking Social Security another year or two? If there seems to be a lot to think about before retirement, you re right. Planning your financial future takes work. But with careful planning and consideration, it s possible to achieve financial independence, security and best of all, enjoyment in your later years. 9

10 Fund Performance Update Halliburton Company Employee Benefit Master Trust for the period ended March 31, 2011 Performance 10 Years* 5 Years* 3 Years* 1 Year 1st Quarter PREMIXED PORTFOLIOS Stable Value Premixed Portfolio 5.0% 4.7% 4.2% 3.6% 0.9% Hueler Stable Value Pooled Fund Index 4.5% 4.0% 3.4% 3.1% 0.7% Conservative Premixed Portfolio (CPP) *** n/a 5.5% 5.4% 9.6% 2.2% CPP Index Composite n/a 4.1% 3.2% 7.9% 2.3% Moderate Premixed Portfolio (MPP) 6.7% 5.9% 5.8% 14.6% 3.8% MPP Index Composite 6.0% 4.9% 4.3% 12.7% 3.7% Aggressive Premixed Portfolio (APP) 5.9% 4.2% 3.4% 18.0% 5.1% APP Index Composite 5.5% 3.3% 2.2% 16.0% 5.4% SINGLE FOCUS FUNDS Bond Index Fund 5.5% 6.0% 5.3% 5.0% 0.4% Lehman Aggregate Bond Index 5.6% 6.0% 5.3% 5.1% 0.4% Balanced Fund 6.7% 5.8% 4.5% 11.3% 4.1% Balanced Fund Index Composite 4.4% 4.2% 3.9% 12.3% 4.0% Large Cap Value Equity Fund 5.0% 2.1% 2.2% 16.8% 7.0% Russell 1000 Value Index 4.5% 1.4% 0.6% 15.2% 6.5% S&P 500 Index Fund 3.2% 2.6% 2.3% 15.5% 5.9% S&P 500 Index 3.3% 2.6% 2.4% 15.6% 5.9% Large Cap Growth Equity Fund 1.5% 2.2% 1.7% 16.6% 4.5% Russell 1000 Growth Index 3.0% 4.3% 5.2% 18.3% 6.0% Non-U.S. Equity Fund 7.9% 5.0% 0.3% 15.5% 3.4% MSCI ACWI ex U.S. ** 6.9% 3.6% -0.8% 13.1% 3.4% Mid Cap Equity Index Fund *** n/a 5.9% 9.8% 26.7% 9.3% S&P MidCap 400 Index n/a 6.1% 10.0% 27.0% 9.4% Small Cap Equity Fund 6.4% 4.3% 12.3% 26.9% 8.8% Russell 2000 Index 7.9% 3.3% 8.6% 25.8% 7.9% * Annualized. ** Returns prior to January 1, 2005, include MSCI EAFE Index, the previous fund benchmark. *** Mid Cap Equity Index Fund was not in existence until January 1, The Conservative Premixed Portfolio was not in existence until January 1, General Investment Policy Index (Benchmark) Composite Balanced Aggressive Moderate Conservative U.S. stocks Russell 3000 Index 70.0% 43.0% 26.0% S&P 500 Index 65.0% Non-U.S. stocks MSCI ACWI ex. U.S. 30.0% 19.0% 12.0% U.S. broad market bonds Barclays Capital U.S. Aggregate Bond Index 35.0% 33.0% 20.0% U.S. high yield bonds Bank of America Merrill Lynch High Yield Bond Index 5.0% 4.0% Hueler Stable Value Pooled Fund Index 38.0% 10

11 Performance Notes To help you better understand how your funds are performing, the funds are compared with appropriate indices or with composite index returns. The composites are created by blending together index returns in proportion to the investment policy of each fund (see the chart General Investment Policy Index (Benchmark) Composite on the bottom of page 10). Performance data represents past performance; no assurance can be made regarding future results. For account information, go to totalrewards if you are an active employee (if you are a former employee, go to or call the Halliburton Benefits Center automated telephone system at (866) Index Definitions* Bank of America Merrill Lynch High Yield Bond Index is an index of U.S. corporate bonds that are rated less than investment grade but are not in default. Barclays Capital U.S. Aggregate Bond Index is an index of U.S. bonds, including government, corporate, mortgagebacked and asset-backed securities. Hueler Stable Value Pooled Fund Index is an index of stable value pooled funds available to investors through employer-sponsored retirement plans. MSCI (Morgan Stanley Capital International) All Country World Index (ACWI) ex. U.S. is an index of non-u.s. stock securities listed on the stock exchanges of developed and emerging markets. Russell 1000 Growth Index focuses on the 1,000 largest companies in the Russell 3000 Index that have lower dividend yields and above-average growth rates. Russell 1000 Value Index focuses on the 1,000 largest companies in the Russell 3000 Index that have higher dividend yields and below-average growth rates. Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. It is used as a general measure of U.S. stock market performance. Standard & Poor s 500 Index is a popular standard for measuring large-cap U.S. stock market performance. The index includes a representative sample of 500 leading companies in prominent industries. Standard & Poor s MidCap 400 Index is a popular standard for measuring mid-cap U.S. stock market performance. The index includes a representative sample of 400 leading companies in prominent industries with a market capitalization of approximately $1 $4 billion. * You cannot invest in any of these indices. Fund holdings will differ from index holdings. 11

12 Spring 2011TrustTalk Bellaire Blvd. Houston, TX PRSRT STD U.S. POSTAGE PAID ADDISON, TX PERMIT NO. 6 We encourage you to call the Trust Investments Department at (281) with any suggestions or comments regarding Trust Talk. You can expect the next issue in August What's Inside Can You Combat Inflation? Focus On: Premixed Portfolios Three Fundamentals of Investing Your Evolving Investment Style