Take a. longer-term. view Planning for your future in a volatile market

Transcription

1 Take a longer-term view Planning for your future in a volatile market 1

2 Stay calm. In volatile times, savvy investors tune out the noise and stay focused on their goals... Today s markets can make any investor nervous. But you can take comfort in the fact that the market has been tested before and has proven resilient. Let s take a look at how the market has performed in similar periods of volatility and what you can do to potentially stay on track toward your financial goals. Here s what we ll talk about: See the big picture Look to the past for perspective Don t panic The risk of safe investing Why you may need to invest in the market What a portfolio needs to break even Balancing risk and return How asset allocation can help Ease your way back into the market Dollar cost averaging offers low-cost investment opportunities Revisit your investment plan Ideas you and your investment professional can discuss Choose Nationwide a company you can trust Some information about our financial strength and offerings Not a deposit Not FDIC or NCUSIF insured Not guaranteed by the institution Not insured by any federal government agency May lose value 2 3

3 See the big picture In spite of the downturns, the market has averaged more than a 10% annual growth rate during the past 60 years. $ $90.00 $80.00 $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $1.00 Korean War armistice signed Growth of $1 invested in the S&P 500 Index from January 1950 to December 2010 Dow Jones Industrial Average closes above 1929 peak for the first time Sputnik launched John F. Kennedy assassinated U.S. astronauts land on the moon Martin Luther King Jr. assassinated 1973 Arab oil crisis Nixon resigns Iranian hostage crisis IBM introduces first personal computer Black Monday: biggest one-day drop for the U.S. stock market Space Shuttle Challenger accident Iraqi invasion of Kuwait Russian financial crisis 1950s 1960s 1970s 1980s 1990s 2000s With 2008 and 2009 behind us, it looks like the market is finally on the road to recovery. Now it s time to focus on the future and the past can help us gain a little perspective. Downturns are a natural part of the market, and chances are we ll experience another one at some point. Historically, the market has grown in spite of these downturns, so the key to planning for the future is not to avoid volatility, but to have a plan in place for when it occurs. Downturns are a natural occurrence of the market and are generally brief Since 1950, the S&P 500 Index has gained an average of more than 10% annually, even with the nine bear markets that have occurred during this period The Standard & Poor s (S&P) 500 Index is an unmanaged, market capitalization-weighted index of 500 widely held stocks of large-cap U.S. companies that gives a broad look at how the stock prices of those companies have performed. It doesn t incur the fees and expenses that an actual portfolio would incur, which would reduce performance if included. You can t invest directly in any market index. Past performance of an index is not an indicator of future results. 4 *Source for index data: Commodity Systems, Inc. 5 Oklahoma City bombing World Trade Center bombed in New York Dot-com stock bubble bursts September 11 terrorist attacks U.S. real estate bubble U.S. invasion of Iraq 2010s $75.49

4 Don t panic The risk of safe investing Many investors respond to volatility by choosing less-risky, low-yield options. What they don t realize is that some low-yield investments, such as certificates of deposit* (CDs), actually may hurt their portfolio potentially delivering negative returns because their relatively low yields can be consumed by taxes and inflation. In fact, in eight of the past 10 years, real returns on 12-month CDs have been negative. Year 12-month CD Rate (%) Less Top Federal Tax Rate (%) Less Inflation (%) Real Return After Taxes and Inflation (%) Sources of data: Bloomberg LP; Internal Revenue Service; Nationwide. 12-month CD rate is represented by the Bloomberg CD 12-month Index. Rates of inflation are calculated using the current Consumer Price Index published monthly by the Bureau of Labor Statistics (BLS). Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses have been reflected. Individuals cannot invest directly in an index. Data is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. * Certificates of Deposit are generally considered liquid assets and are used for short-term durations. CDs are insured by the FDIC for the timely payment of interest, and if held to maturity, provide a guaranteed return of principal and interest. Why you may need to invest in the market To meet your retirement objectives, you re probably going to need some level of market exposure. If a portfolio decreases a certain percentage, it s not enough for it to just increase by that same percentage. It actually has to earn a higher rate to get back to where it started. is down Years to break even if your portfolio returns: Total return to break even 3% 5% 8% 10% 12% 10% 11% % 25% % 43% % 67% % 100% % 150% % 233% % 400% % 900% Source of data: Nationwide Funds Group. For example, a portfolio that s down 30% has to earn 43% just to break even. And that would take more than 12 years if in safer investments such as CDs or money markets and earning 3% annually. Of course, investing involves risk, including the possible loss of principal, and there is no guarantee that investment objectives will be achieved. Please consult with your investment professional before making any investment decisions. 6 7

5 Balancing risk and return Find a comfortable balance between potential returns and potential risk with an asset allocation strategy. Higher Annual Returns % 8.4% 4.1% 2.5% -0.6% -4.0% -11.9% -21.4% 10.3% 6.2% 1.7% -10.7% -14.5% -15.9% -20.5% -22.1% 47.2% 38.6% 35.6% 28.7% 18.1% 4.1% 2.9% 1.1% 20.3% 18.3% 16.5% 10.9% 7.9% 4.3% 1.3% 1.2% 13.5% 12.6% 4.9% 4.5% 4.0% 3.0% 2.4% 1.8% 26.3% 18.4% 15.8% 11.2% 10.3% US TreasuryBills 4.8% 4.3% 4.3% 11.2% 8.0% 7.0% 6.8% 5.8% 5.5% 4.7% -1.6% 5.2% 5.0% 1.8% -22.1% -33.8% -36.2% -37.0% -43.4% 37.4% 31.8% 27.2% 26.5% 17.5% 5.9% 3.8% 0.2% 26.9% Mid Cap Stocks 26.6% 15.1% 7.8% 6.8% 6.7% 2.8% 0.1% If you need higher returns than what you re getting now, that probably means investing in the financial markets again. An asset allocation strategy may be worth considering. Splitting your investments into different asset classes can help you: Manage and often reduce your portfolio s risk and volatility Increase your portfolio s potential return Strike a balance between risk and return LOWer Source for index data: Zephyr StyleADVISOR. The asset class categories above are represented by the following market indexes: : The Standard & Poor s 500 Index, an unmanaged, market capitalizationweighted index of 500 widely held stocks of large U.S. companies that gives a broad look at how the stock prices of those companies have performed : The Standard & Poor s MidCap 400 Index, an unmanaged index that measures the performance of 400 stocks of medium-sized U.S. companies : The Russell 2000 Index, an unmanaged index that measures the performance of the stocks of small-capitalization U.S. companies; includes the smallest 2,000 U.S. companies in the Russell 3000 Index, which measures the performance of the stocks of the largest 3,000 U.S. companies, based on market capitalization : MSCI EAFE Index, an unmanaged, free float-adjusted, market capitalizationweighted index that is designed to measure the performance of stocks in developed markets outside the United States and Canada Investment-grade Bonds: The Barclays Capital (BARCAP) U.S. Aggregate Bond Index, an unmanaged, market value-weighted index of investment-grade, fixed-rate debt issues (including government, corporate, asset-backed, and mortgage-backed securities with maturities of one year or more) that is generally representative of the bond market as a whole : The Citigroup Government/Corporate 1 3 Year Index, an unmanaged index comprising governmentsponsored and corporate bonds with maturities of one to three years U.S. Treasury Bills: The Citigroup 3-Month Treasury Bill (T-Bill) Index, an unmanaged index that is generally representative of 3-month Treasury bills; consists of an average of the last 3-month Treasury bill issues (excluding the current month-end bill) The composite benchmark consists of a blend of the following indexes: 60% Standard & Poor s 500 (S&P 500) Index, 25% Barclays Capital (BARCAP) U.S. Aggregate Bond Index, 15% Citigroup 3-Month Treasury Bill (T-Bill) Index Market index performance is provided by a third-party source Nationwide Funds Group deems to be reliable. Indexes are unmanaged and have been provided for comparison purposes only. Individuals cannot invest directly in an index. Past performance of an index is not an indicator of future results. The use of diversification as part of an overall investment strategy does not assure a profit or guarantee against loss in a declining market. 8 9

6 Ease your way back into the market Dollar cost averaging can help you take advantage of low-cost investment opportunities Performance of hypothetical investment, January to December 2002 (Value = 1/100 of the S&P 500 Index) Take your investment strategy a step Cost per share ($) Monthly purchase interval Daily value Average cost: $9.92 further with dollar cost averaging. Instead of putting a large sum of money to work in the market right away, this gradual approach investing smaller portions of money every month or quarter can help you lower your average purchase price over a longer period of time Dollar cost averaging enables you to: 8.50 Purchase more shares when prices are low, fewer when prices are high 8.00 Receive a lower average cost per share over time JAN FEB MAR APR MAY JUN JLY AUG SEP OCT NOV DEC Dollar cost averaging does not assure a profit and does not guarantee against loss in a declining market. 10 This example does not represent the performance of an actual investment. Expenses and fees associated with an actual investment were not included in this hypothetical example. Dollar cost averaging does not ensure a profit or guarantee against loss in a declining market. The Standard & Poor s (S&P) 500 Index is an unmanaged, market capitalization-weighted index of 500 widely held stocks of large-cap U.S. companies that gives a broad look at how the stock prices of those companies have performed. You cannot invest directly in an index. Past performance of an index is not an indicator of future results. Source for chart data: Commodity Systems, Inc. 11

7 Revisit your investment plan Choose Nationwide a company you can trust Talk with your Nationwide Retirement Specialist today If you re reading this, you ve already done the right thing you re talking to your retirement specialist. And while we hope the general concepts in this brochure lend some measure of comfort to you during the ups and downs of the market, we strongly encourage you to work closely with your retirement specialist to tailor any specific actions you take with regard to your investments. Some things you might want to discuss with your retirement specialist: Are you still on track with your strategic investment plan? Does he or she see the need to make any tactical adjustments to your plan in light of current market conditions? Is your portfolio properly diversified or should you think about reallocating your account assets? How closely (and how often) should you monitor your account? Remember these tips: Look to history for perspective Don t let your emotions get the best of you Stay focused on your long-term plans Talk with your retirement specialist or call If you decide that investing fits with your overall plans, there are many companies who can help you reach for your financial goals. We hope you ll consider Nationwide first. Our financial strength and risk management strategies help make Nationwide unique in a crowded marketplace. Here are just a few of the reasons why: Nationwide has a diversified investment portfolio Nationwide has a quality, diversified general account investment portfolio of $40 billion. 1 In addition, the businesses we re in, from individual life insurance and property casualty insurance to corporate life insurance and group pensions, help us to be naturally diverse. Risk management is one of Nationwide s strengths As an insurance company, we have a core competency in risk management. As one of the first insurance companies to establish risk management and hedging strategies, we know how to manage risk. And, unlike companies who outsource this function, we have the people and resources in place to monitor any changes and stay on top of trends. In fact, our risk management capabilities have been rated as strong by third-party rating agency Standard & Poor s, placing us in the top 14% of insurers. 2 There are many reasons you can continue to have confidence in Nationwide Nationwide, one of the largest providers of financial services in the United States, is ranked No. 118 on the Fortune 500 list. 3 We have been in business for more than 80 years, helping customers prepare for and enjoy retirement through the ups and downs of the market. The diversity of our businesses and breadth of our distribution network provide Nationwide with multiple sources of earnings and cash flows. Because of our success over the years, we are fortunate to have a strong balance sheet and a long history of maintaining a high-quality investment portfolio, governed by a sound and disciplined investment policy. Count on us to help you reach for your financial goals. 1. As of December 31, RatingsDirect report, Nationwide Mutual Insurance Co. Intercompany Pool, Standard & Poor s, October 8, As of May 4,

8 About us At Nationwide, we trace our roots back to 1925, when we began as a Midwestern auto insurer protecting farmers. And, while we ve grown into one of the largest financial services companies in the United States, we clearly haven t forgotten our roots. Whether you know Nationwide through an agent, an investment professional, a call center representative or someone from our executive suite, you ll sense our brand of hardworking commitment to service. We call it being On Your Side, and it s what drives us to serve our customers and strategic partners with a goal of always exceeding expectations. Today, the Nationwide family has grown beyond providing auto insurance to include offerings such as homeowners insurance, life insurance and retirement investments, pension plans and asset management. In short, we help protect families, their futures and the things that are important to them

9 Investing involves risk, including possible loss of principal. Retirement specialists are Registered Representatives of Nationwide Investment Services Corporation: Member FINRA. In MI only, Nationwide Investment Svcs. Corporation. Nationwide Retirement Solutions and Nationwide Life Insurance Company (collectively Nationwide ) have endorsement relationshipswith the National Association of Counties, The United States Conference of Mayors, and the International Association of Fire Fighters-Financial Corporation. More information about the endorsement relationships may be found online at Nationwide, the Nationwide framemark and On Your Side are service marks of Nationwide Mutual Insurance Company Nationwide Retirement Solutions. All rights reserved. NRM-5444AO.3 (06/11) 16