Post on 16-Nov-2014
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Ameriprise Financial is the umbrella marketing name used by two separate and distinct broker-dealers of Ameriprise Financial, Inc.: Ameriprise Advisor Services, Inc. and Ameriprise Financial Services, Inc. Investments and financial advisory services are offered through Ameriprise Advisor Services, Inc., member NYSE/FINRA/SIPC, which is not affiliated with H&R Block, Inc. or any of its affiliates. Investments and financial planning services are offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC. Some products and services described may not be available in all jurisdictions or to all clients. © 2009 Ameriprise Financial, Inc. All rights reserved.
Actions You Can Take in a Volatile MarketNow more than ever, you need a plan
Bruce Gillen, CFP®
6/21/2010
Today’s agenda
How we arrived where we are today
Putting today’s markets in historical perspective
Fundamental investment strategies to help you deal with and even find opportunity in volatile markets
Managing emotions as part of the investment process
Steps to consider taking now
Ameriprise Financial
What we learned in our 115-year history
More people come to Ameriprise Financial for financial planning than any other company*
Ameriprise is America’s largest financial planning company*
* Based on the number of financial plans annually disclosed in Form ADV, Part 1A, Item 5, available at adviserinfo.sec.gov as of December 31, 2007, and the number of CFP® professionals documented by the Certified Financial Planner Board of Standards, Inc.
Our four cornerstones
What’s been driving recent market volatility?
An oversupply of lending which drove up home values and resulted in the eventual collapse of the U.S. housing market
Repercussions from the subprime mortgage crisis which spread to global capital markets
The residual impact of the current credit crisis and the follow-on effect it has had on the global economy
I read the news today
> Real estate prices collapse
> Largest one-day loss in the Dow Jones Industrial Average
> Sub-prime bond market collapses, real estate continues to decline, credit dries up, savings institutions weaken
> Government bailout is enacted. Billions of taxpayer dollars spent to deal with failing lending institutions
> Recession sets in leading to another stock market decline
1987-1991
The “flaw” of averages
S&P 500 Annual Returns 1926-2009
Source: Ibbotson for 1926 to 1969; Standard & Poor’s, 1970 to present.
Measuring volatility
S&P 500 stock index 1979-2009:
• Average return is about 11%
• Standard deviation (volatility) has been about 15%
• Range of returns is about 41% to -19%
• Probability range is 95% — returns can be worse (or better) than those shown here
11%
26%
41%
-4%
-19%
Source: S&P 500. The S&P 500 Index is an unmanaged index commonly used to measure stock performance. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.
The stock market has delivered over the long term
From 1970 through 2009, the S&P 500 has returned an average of 9.87% per year
Returns in a given calendar year ranged from -37% to +37%
Below -20% -20% – -10% -10% – 0% 0% – +10% +10% – +20% Over +20%
2008 2001 2000 2007 2006 2003 1983
2002 1973 1990 2005 2004 1999 1982
1974 1981 1994 1988 1998 1980
1977 1993 1986 1997 1975
1992 1979 1996 2009
1987 1976 1995
1984 1972 1991
1978 1971 1989
1970 1985
Source: Standard & Poor’s 500 Index. Standard & Poor’s 500 Index. It is not possible to invest directly in an index. Standard & Poor's 500 Index (S&P 500 Index) is an unmanaged list of common stocks which includes 500 large companies, and is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in the market prices, but excludes brokerage commissions or other fees. Past performance is not a guarantee of future results.
Historical range of returns of S&P 500: 1970-2009
1 year 5 years 10 years 20 years
61
30 19 18
7
-2-7
-43
Source: Standard and Poor’s 500 Index. The Standard & Poor’s 500 Market Index (S&P 500) is an unmanaged list of common stocks frequently used as a measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. The highest return is represented by the top of each bar and the lowest annual return is shown at the bottom. The rolling 5-,10- and 20-year ranges are also shown. Over time, lower performing years will be offset by higher performing years and vice versa. Therefore the range of the historical returns over the entire period is narrower than the range of returns in any single year. Returns over 1 year in length are annualized. It is not possible to invest directly in an index. Past performance is no guarantee of future results.
Returns by decade
Source: Standard & Poor’s 500 Index (S&P 500). S&P 500 Index returns assume reinvestment of all dividends and capital gains. The S&P 500 Index is an unmanaged index commonly used to measure stock market performance. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.
Decade# of years
down # of years up 0–18% # of years up 18%+Average annual return for
decade
1920s 3 2 5 8.77%
1930s 6 0 4 -0.05%
1940s 3 2 5 9.17%
1950s 2 2 6 19.35%
1960s 3 4 3 7.81%
1970s 3 3 4 5.86%
1980s 1 3 6 17.55%
1990s 1 3 6 18.20%
2000-2009 4 42 -0.94%
Average 2.9 2.64.6 9.52%
Where we stand in the current decade
-9%
30
25
20
15
10
5
0
-5
-10
-15
-20
-25
-30
-35
-40
-12%
-23%
28%
11%
5%
16%
5%
26%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Standard and Poor’s 500 Index. Annual Returns of S&P 500 Index, 2000-2008, assuming reinvestment of dividends. The S&P 500 Index is an unmanaged index commonly used to measure stock market performance. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.
-37%
Comparing this decade to others
Annualized performance of the S&P 500
20
15
10
5
0
-5
Source: Standard and Poor’s 500 Index. S&P 500 Index returns assume reinvestment of all dividends and capital gains. The S&P 500 Index is an unmanaged index commonly used to measure stock market performance. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.
19%
20s 30s 40s 50s 60s 70s 80s 90s 00s(1925 – 1929) (2000 – 2009)
9%
-0.05%
9%8%
6%
18%
-1%
18%
Long-term investing strategies
Diversify to manage business, market, and interest rate risk
Rebalance your portfolio if it is appropriate
Consider the current and future tax ramifications of your actions
Dollar-cost average to keep your investment strategy on track
Manage your emotions by following a disciplined plan based on solid fundamentals, not emotion
Dollar-cost averaging involves continuous investment in securities, regardless of fluctuating price levels. Investors should consider their ability to continue purchases through periods of low price levels. Diversification and asset allocation help spread risk throughout your portfolio, so that investments that do poorly may be balanced by others that do relatively better. Dollar-cost averaging, diversification and asset allocation do not guarantee overall portfolio profit or protect against loss in declining markets. Neither Ameriprise Financial nor its representatives or affiliates provide tax or legal advice. Consult with your tax advisor or attorney regarding specific issues.
Historic volatility by standard deviation
S&P 500 Stock Index1976-2009 11%
26%
41%
-4%
-19%
Barclays Capital Aggregate Bond Index (formerly Lehman Aggregate Bond Index) 1976-2009
Stocks
Bonds20%
14%
8%
3%
-3%
Source: PAG. Past performance is not a guarantee of future results. Barclays Capital Aggregate Bond Index (formerly Lehman Brothers Aggregate Bond Index), an unmanaged index, is made up of a representative list of government, corporate, asset-backed and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. Standard & Poor's 500 Index (S&P 500 Index), an unmanaged list of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. You can not invest directly in an index.
Diversification options
Asset classes (stocks, bonds, cash, real estate, etc.)
Investment products (e.g. mutual funds, annuities, ETFs)
Tax characteristics (taxable, tax-deferred, tax-free)
Diversification helps you spread risk throughout your portfolio, so that investments that do poorly may be balanced by others that do relatively better. Diversification and asset allocation do not guarantee overall portfolio profit or protection against loss.
Barclays Capital Aggregate Bond Index (formerly Lehman Brothers Aggregate Bond Index)
Diversification can temper market volatility
Performance of Stocks, Bonds and 50/50 Mix 1990 to 2009
1990 1999
S&P 500 Index 50/50 Mix
2009
Source: Standard and Poor’s, Barclay’s Capital. Combined returns based on calculation of 50% of S&P 500 return, 50% of Barclays Capital Aggregate Bond Index return. Past performance does not guarantee future results. These examples do not reflect sales charges, taxes or other costs associated with investing. Barclays Capital Aggregate Bond Index (formerly Lehman Brothers Aggregate Bond Index), an unmanaged index, is made up of a representative list of government, corporate, asset-backed and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. Standard & Poor's 500 Index (S&P 500 Index), an unmanaged list of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. You can not invest directly in an index.
Rebalancing can keep you on plan
Initial allocation Rebalance backOne year later
50% Bonds
50% Stocks
50% Stocks
50% Bonds
40% Bonds
60% Stocks
Diversification helps you spread risk throughout your portfolio, so that investments that do poorly may be balanced by others that do relatively better. Diversification and asset allocation do not guarantee overall portfolio profit or protection against loss.
Dollar-cost averaging – price rises
Average price: $15.00 Average cost: $14.19
Invested amount: $6,000.00Ending value: $8,456.40
Dollar-cost averaging does not guarantee a profit or protect against losses in a declining market. Investors should consider their ability to continue investing during periods of low markets. This illustration is hypothetical and is not a forecast or guarantee of specific investment results.
$25
$20
$15
$10
$5
$01 2 3 4 5 6
Dollar-cost averaging – market down, then recovers
Average price: $15.00 Average cost: $13.85
Invested amount: $6,000.00Ending value: $8,666.80
Dollar-cost averaging does not guarantee a profit or protect against losses in a declining market. Investors should consider their ability to continue investing during periods of low markets. This illustration is hypothetical and is not a forecast or guarantee of specific investment results.
$25
$20
$15
$10
$5
$01 2 3 4 5 6
Dollar-cost averaging – market down, partial rebound
Average price: $10.83 Average cost: $9.73
Invested amount: $6,000.00Ending value: $7,166.70
Dollar-cost averaging does not guarantee a profit or protect against losses in a declining market. Investors should consider their ability to continue investing during periods of low markets. This illustration is hypothetical and is not a forecast or guarantee of specific investment results.
$25
$20
$15
$10
$5
$01 2 3 4 5 6
Three different markets — three positive results
Total invested – $6,000 in monthly $1,000 increments
Dollar-cost averaging does not guarantee a profit or protect against losses in a declining market. Investors should consider their ability to continue investing during periods of low markets. This illustration is hypothetical and is not a forecast or guarantee of specific investment results.
$10,000
$7,500
$5,000 Market goes up
$8,456
Market down:full recovery
$8,667
Market down:partial recovery
$7,167
Understanding emotional investing
Optimism
Relief
Hope“Things may be turning around.”
Excitement
Thrill
Optimism
“Wow, I ammaking money.I feel good about this investment.”
Euphoria A high point of financial risk
Fear
Denial“This is just a temporary setback.”
Desperation
Anxiety
PanicCapitulation
Despondency“I think I need to sell.”
Depression
A low point of financial opportunity
Source: Radarwire.com. A product of Simon Economic Systems, Ltd.
The average equity investor lags the market
Equity market returns v. equity mutual fund investors’ returns
0%
4%
8%
12%
16%
Source: Dalbar, Inc., 2009 Quantitative Analysis of Investor Behavior for the period (1988 - 2008). Benchmark returns represented by total returns of the S&P 500. The Standard & Poor’s 500 Stock Market Index (S&P 500) is an unmanaged list of common stocks frequently used as a measure of market performance. You can not invest directly in an index.
S&P 500 Index
8.4%
1.9%2.9%
Average equityFund investor
Inflation
Benefits of a personalized financial plan
Focuses on your goals, not short-term market conditions
Assesses your risk tolerance
Employs time-tested disciplines to dampen market volatility, such as rebalancing, dollar-cost averaging and opportunity purchases
Takes taxes into consideration
Helps you neutralize the inclination to make emotional investment decisions
Provides for review and rebalancing on a regular basis
A financial plan can help you feel more on track during market turmoil**The Financial Planning Association® (FPA®) and Ameriprise® Value of Financial Planning Study, was conducted by Harris Interactive in June/July, 2008 among 3,022 adults. While market volatility was significant during the study period, subsequent financial developments, which may have affected attitudes and behaviors, had not yet occurred. No estimates of theoretical sampling error can be calculated; a full methodology is available.Dollar-cost averaging involves continuous investment in securities, regardless of fluctuating price levels. Investors should consider their ability to continue purchases through periods of low price levels. Diversification and asset allocation help spread risk throughout your portfolio, so that investments that do poorly may be balanced by others that do relatively better. Dollar-cost averaging, diversification and asset allocation do not guarantee overall portfolio profit or protect against loss in declining markets. Neither Ameriprise Financial nor its representatives or affiliates provide tax or legal advice. Consult with your tax advisor or attorney regarding specific issues.
Steps you can take
Six steps to consider taking now
1. Diversify, diversify, diversify
2. Rebalance or review your asset allocation
3. Dollar-cost average
4. Avoid market timing, but prepare for opportunities
5. Don’t let your emotions affect your financial future
6. Get or review your financial plan
Dollar-cost averaging involves continuous investment in securities, regardless of fluctuating price levels. Investors should consider their ability to continue purchases through periods of low price levels. Diversification and asset allocation help spread risk throughout your portfolio, so that investments that do poorly may be balanced by others that do relatively better. Dollar-cost averaging, diversification and asset allocation do not guarantee overall portfolio profit or protect against loss in declining markets. Neither Ameriprise Financial nor its representatives or affiliates provide tax or legal advice. Consult with your tax advisor or attorney regarding specific issues.
Six steps to consider taking now
1. Diversify, diversify, diversify
2. Rebalance or review your asset allocation
3. Dollar-cost average
4. Avoid market timing, but prepare for opportunities
5. Don’t let your emotions affect your financial future
Dollar-cost averaging involves continuous investment in securities, regardless of fluctuating price levels. Investors should consider their ability to continue purchases through periods of low price levels. Diversification and asset allocation help spread risk throughout your portfolio, so that investments that do poorly may be balanced by others that do relatively better. Dollar-cost averaging, diversification and asset allocation do not guarantee overall portfolio profit or protect against loss in declining markets. Neither Ameriprise Financial nor its representatives or affiliates provide tax or legal advice. Consult with your tax advisor or attorney regarding specific issues.
Next steps
Let’s get started.
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© 2008-2009 Ameriprise Financial, Inc. All rights reserved.
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