News on Investing for Retirement

Transcription

1 News on Investing for Retirement A Quarterly Newsletter for FRS Investment Plan Participants New FRS Estate Planning Workshops Do you own a home or property? Do you have life insurance or savings? If so, you have an estate. And the first goal of estate planning is to ensure that your property is distributed the way you want it distributed after you die. Here s how all FRS employees can find out more. The FRS Estate Planning Workshop will cover these important issues: living wills, health care proxies, durable power of attorney, life insurance, gifting to loved ones and charities and how Social Security and FRS benefits affect your survivors. Ask yourself: Do I know what I need to do to protect myself and my family? Unfortunately, most people don t make a will because they think they don t have enough assets, or they think it s too expensive, or they just assume their spouse will inherit everything. And, they d be wrong! The fact is, young or old, wealthy or middle-class, you can t afford not to have a plan. Did you know that without a will, all of your assets will end up in probate where your heirs could battle it out with the courts deciding who gets what? Do you have children under the age of eighteen? If you do and you haven t set up a legal guardianship, your children will be placed with people the court decides should raise them. Visit MyFRS.com to review the workshop schedule. Or, contact your human resource representative to inquire about having your agency host an FRS Estate Planning Workshop. It s absolutely free like all FRS workshops offered through the MyFRS Financial Guidance Program. If you can t attend a workshop, get answers on the toll-free MyFRS Financial Guidance Line at MyFRS ( ; or TTY ). Issue Date: APRIL 2004 And, what happens if you get sick? Who will make health care decisions for you? Without a durable power of attorney or a health care proxy, the court system probably will make these important decisions.

2 Please Update Your Beneficiary Info! Just as you visit your family doctor every year for a physical checkup, you also should get an annual financial checkup to be certain you re on track to meet your retirement goals. As an FRS member, you can get a free checkup by calling the toll-free MyFRS Financial Guidance Line and talking with a financial planner from Ernst & Young. These unbiased financial planners are experienced and can answer all your retirement planning questions. Part of your annual financial checkup should include a review of your Investment Plan beneficiaries. Since your enrollment, there have been updates to the Investment Plan Beneficiary Designation Form. These changes may affect how your Investment Plan account is distributed in the event of your death. In particular, if you are married and have designated someone other than your spouse as your primary beneficiary, your spouse is now required to sign the Beneficiary Designation Form. The form is enclosed. Also, it is available on the MyFRS.com website under Forms or by calling The completed form should be mailed to the Investment Plan Administrator who will update your information upon receipt. Having the correct beneficiary designated for your retirement account is a key component of financial planning. Please protect your beneficiaries by taking the time to review your designation and changing it if necessary. What is Unitized Accounting? Some of your fellow Investment Plan members have noticed that the unit prices for the available mutual funds are different from the share prices posted in daily newspapers. The reason is that unitized accounting is used in the Investment Plan for all funds. Unitized accounting is widely used by defined contribution retirement plans to accurately reflect daily market value changes. Sometimes these changes reflect interest, dividends, fee rebates, price changes of the underlying investments, or distributions. Importantly, unitized accounting allows all members to benefit from the investment management fee discounts negotiated by the FRS. You can find more information about this topic on MyFRS.com by clicking the? in the upper right hand corner of the home page and then typing unitized in the Search Knowledge Base box. 2

3 Quarterly Fund Performance Summary Overview This Performance Summary is organized by asset class. Thinking about asset classes is a very effective way to simplify investing and improve the odds of meeting your retirement goals. Asset classes are groups of similar investments whose values react to changes in the economy in the same basic way. Investing in a mix of asset classes, or diversifying, helps you control your risk. In this Summary, we use five asset classes: money market, inflation-protected securities, bonds, U.S. stocks and foreign stocks. We also have a special category called balanced funds that are a mixture of various asset classes. Balanced Funds These funds are particularly good for one-stop shopping. They seek favorable long-term returns by keeping costs low and investing across multiple asset classes to diversify and control risk. They invest in various investment funds in different proportions to keep their overall level of risk relatively steady over time. The proportions and specific funds included in each Balanced Fund may change over time. Financial Engines, a federally registered investment advisor and fiduciary to the FRS, will periodically provide updated investment fund mixes to the FRS that they believe will provide the best trade-off between expected risk and return. Money Market Funds These funds invest in short-term securities (financial instruments or obligations) that are high quality and can be sold quickly with little loss of value. The funds have limited risk of declining in value, however, over the long term, returns have been modest, basically keeping pace with inflation. Money market funds are not FDIC insured or guaranteed. Inflation-Protected Securities Funds These funds invest in United States Treasury inflation-protected securities or TIPS. TIPS are a relatively new type of investment and provide two types of return. First, there s a fixed interest rate that s been around 2% to 4% since TIPS were first issued in Second, there s a return of principal (the starting amount of your investment) and interest (the additional earnings you get over time) that is protected, or indexed to inflation. As inflation rises, so does the amount of principal and interest you receive. So if the fixed rate is 3% and inflation is 3%, you receive a total interest rate of about 6%. The day-to-day value of inflation-protected securities varies with changes in inflation and interest rates, but these funds offer a promise of keeping up with inflation that is unique to this type of investment. Bond Funds These funds invest primarily in bonds, which are like IOUs a company or government agency borrows money and pays it back with interest to the bondholder (the person making the loan). The quality of a bond is reflected in the credit rating of the company or agency that issues the bond. The short-term risk of bond funds is relatively low. However, over time, the value of a bond is affected by interest rates, inflation and other factors. When inflation or interest rates go up, the value of bonds goes down because they pay a fixed rate of interest (the market sees other investments as being more attractive). Therefore, bonds and bond funds don t always protect the value of your retirement savings against inflation. U.S. Stock Funds These funds invest primarily in equity shares or stocks issued by U.S. companies. The short-term risk of stocks has been much higher than bonds. However, over long periods of time, stocks have generally done better than bonds, one of the main reasons that stocks are typically recommended for retirement investing. Some risk is necessary to achieve long-term investment growth. Foreign Stock Funds These funds invest primarily in equity shares or stocks issued by foreign companies. Compared to U.S. stocks, foreign stocks are affected by additional risk factors such as foreign laws and regulations, differences in accounting practices, political risk (foreign governments are sometimes unstable) and currency risk (differences in the relative value of domestic and foreign money). Over the long term, foreign stocks have not done quite as well as U.S. stocks, but they have provided diversification benefits. Experts say that 90% of your investment success will be based on getting the right mix of investments in your retirement savings. The MyFRS Financial Guidance Program can help guide you to the right mix of investments for your personal situation and minimize unnecessary cost and risk. (See the details at the end of this document.) 3

4 What s in the Summary Below you ll find a brief description of the information in the Performance Summary. Core Funds invest in a very broad portion of an asset class and can help you form the core of your portfolio. Specialty Funds invest in a portion of an asset class and can help you fine-tune your portfolio. Annual Fees are the current fees the fund charges to cover its management, operating and marketing expenses. The tables show the fees that would apply to a $10,000 account (divide the annual fees shown by 10,000 to put them on a percentage basis). Actual fees are proportional to the amount you invest in that fund. For example, if the annual fee for a $10,000 investment in a fund is $2 but you only invest $1,000, you would be charged ($1,000 $10,000) x $2, or 20 cents for a year. Fees may change in the future. Long-Term Fees are the value in Today s Dollars of the total fees that would be charged over 30 years, assuming a $10,000 initial investment. PB stands for performance benchmark. It allows you to see how well the fund is doing relative to the performance of the market sector it is trying to beat. Note that index funds are only trying to approximate the returns of their benchmarks. Benchmarks do not have costs. Performance Summary as of March 31, 2004 Fees Per $10,000 Account Annual Average Investment Returns After Deducting Fees Annual Long-Term Previous Previous Previous Previous Fees Fees Quarter* Year 5 Years 10 Years BALANCED FUNDS Core Balanced Funds FRS Select Conservative Balanced Fund $13 $ % 13.33% 4.73% PB: Conservative Balanced Aggregate Index 2.35% 11.72% 2.98% 6.67% FRS Select Moderate Balanced Fund $12 $ % 28.16% 5.46% PB: Moderate Balanced Aggregate Index 3.03% 28.09% 2.95% 1.34% FRS Select Aggressive Balanced Fund $19 $ % 36.54% 3.77% PB: Aggressive Balanced Aggregate Index 2.80% 37.31% 1.40% 10.24% MONEY MARKET FUNDS Core Money Market Funds FRS Select Yield Plus Money Market Active Fund $7 $ % 1.12% 3.65% PB: imoneynet Total Institutions-Taxable Index 0.30% 1.21% 3.62% 4.57% Fidelity Retirement Money Market Portfolio $17 $ % 1.08% 3.57% PB: imoneynet Total Institutions-Taxable Index 0.30% 1.21% 3.62% 4.57% INFLATION-PROTECTED SECURITIES FUNDS Core Inflation-Protected Securities Funds FRS Select U.S. Treasury Inflation-Protected Securities Index Fund $2 $ % 10.73% PB: Lehman Brothers TIPS Index 5.14% 10.84% 10.57% BOND FUNDS Core Bond Funds FRS Select U.S. Bond Index Fund $2 $ % 5.42% 7.24% PB: Lehman Brothers Aggregate Bond Index 2.65% 5.40% 7.29% 7.54% Prudential US Fixed Income Enhanced Index Fund $8 $ % 5.56% 7.32% 7.58% PB: Lehman Brothers Aggregate Bond Index 2.65% 5.40% 7.29% 7.54% Pimco Total Return Fund $66 $2, % 5.95% 7.56% 7.85% PB: Lehman Brothers Aggregate Bond Index 2.65% 5.40% 7.29% 7.54% 4

5 Fees Per $10,000 Account Annual Average Investment Returns After Deducting Fees Annual Long-Term Previous Previous Previous Previous Fees Fees Quarter* Year 5 Years 10 Years Specialty Bond Funds Prudential Stable Value Fund** $19 $ % 4.53% 6.02% 6.70% PB: Hueler Pooled Fund Monthly Index 1.03% 4.54% 5.75% 6.07% Fidelity Intermediate Duration Pool Fund $20 $ % 5.56% 7.37% 7.13% PB: Lehman Brothers Intermediate Gvt/Credit Index 2.48% 5.31% 7.21% 7.10% Pimco High Yield Fund $50 $1, % 17.06% 5.47% 8.30% PB: Lehman Brothers Intermediate Ba U.S. High Yield Index 2.41% 19.04% 7.52% 8.58% U.S. STOCK FUNDS Core U.S. Stock Funds FRS Select U.S. Stock Market Index Fund $2 $ % 38.05% 0.39% 11.44% PB: Russell 3000 Index (Wilshire 5000 Index pre 7/1999) 2.23% 38.19% 0.16% 11.28% Pioneer Fund $70 $2, % 33.82% 1.00% 11.62% PB: S&P 500 Index 1.69% 35.12% -1.20% 11.68% Specialty U.S. Stock Funds FRS Select U.S. Large Growth Stock Active Fund $15 $ % 24.68% -4.56% PB: Russell 1000 Growth Index 0.79% 32.18% -6.13% 9.79% American Funds Investment Company of America Fund $35 $1, % 34.48% 4.81% 13.04% PB: S&P 500 Index 1.69% 35.12% -1.20% 11.68% Fidelity Mid-Cap Stock Fund $44 $1, % 41.62% 10.08% PB: S&P MidCap 400 Index 5.06% 49.11% 11.79% 14.93% MFS Massachusetts Investors Growth Stock Fund $57 $1, % 26.74% -3.16% 11.56% PB: Russell 1000 Growth Index (S&P 500 Index pre 4/2001) 0.79% 19.04% 7.52% 8.58% Davis New York Venture Fund $59 $1, % 46.34% 5.48% 14.24% PB: S&P 500 Index 1.69% 35.12% -1.20% 11.68% Fidelity Growth Company Fund $60 $1, % 46.48% 2.34% 11.84% PB: Russell 3000 Growth Index 2.23% 38.19% 0.16% 11.28% Fidelity Low-Priced Stock Fund $78 $2, % 59.05% 19.04% 16.83% PB: Russell 2000 Index 6.26% 63.83% 9.66% 10.44% Franklin Small-Mid Cap Growth Fund $79 $2, % 44.65% 7.00% 12.71% PB: Russell 2500 Growth Index 5.50% 59.47% 5.17% 8.94% T. Rowe Price Small Cap Stock Fund $96 $3, % 45.69% 13.04% 13.42% PB: Russell 2000 Index 6.26% 63.83% 9.66% 10.44% 5

6 Fees Per $10,000 Account Annual Average Investment Returns After Deducting Fees Annual Long-Term Previous Previous Previous Previous Fees Fees Quarter* Year 5 Years 10 Years FOREIGN STOCK FUNDS Core Foreign Stock Funds FRS Select Foreign Stock Index Fund** $2 $ % 51.85% 4.11% PB: MSCI World ex U.S. Index 4.24% 57.16% 0.97% 4.84% Putnam International Equity Fund** $89 $3, % 45.40% 4.48% 9.88% PB: MSCI EAFE Index 4.34% 57.54% 0.52% 4.55% American Funds EuroPacific Growth Fund** $90 $3, % 57.11% 5.20% 8.99% PB: MSCI EAFE Index 4.34% 57.54% 0.52% 4.55% Fidelity Diversified International Fund** $99 $3, % 61.62% 9.76% 11.69% PB: MSCI EAFE Index 4.34% 57.54% 0.52% 4.55% Global Stock Funds American Funds New Perspective Fund** $59 $1, % 54.14% 6.26% 12.26% PB: MSCI World Index 2.62% 43.87% -0.95% 7.35% * Not annualized. ** These funds may have restrictions on your ability to trade. Please also review the excessive fund trading policy. Prior to July 2002, actual historical performance data has been adjusted for fees and/or designs for multiple manager designs specific to the FRS. BEFORE YOU CHANGE YOUR INVESTMENT PLAN FUNDS, get professional guidance. Find out which funds fit your needs and risk tolerance. Remember, past performance of a fund does not guarantee future results! CALL the MyFRS Financial Guidance Line at MyFRS ( ; TTY ), or VISIT for: Free guidance and in-depth information on all investment funds offered under the FRS Investment Plan, including Financial Engines Fund Score Cards and the Fund Profiles, Fund Details and Investment Fund Summary, which are updated regularly. These reports discuss the fees, investment strategies and other factors that may significantly affect the fund s performance. A status of all the funds under the SBA s investment manager monitoring guidelines. Daily account transfers or withdrawals, if the fund does not have transfer restrictions. This Performance Summary is intended for use in connection with the FRS Investment Plan, pursuant to Florida law, and is not intended for use by other investors. Sections (8)(b)4 and (15)(b), Florida Statutes, incorporates the federal law concept of participant control, established by regulations of the U.S. Department of Labor under section 404(c) of the Employee Retirement Income Security Act of If you exercise control over the assets in your Investment Plan account, pursuant to section 404(c) regulations and all applicable laws governing the operation of the Investment Plan, no program fiduciary shall be liable for any loss to your account which results from your exercise of control. FL1Q MyFRS Financial Guidance Program all rights reserved. 6