A class on basic pricipals of investing. I now do business as Social Thread.

4. Stocks

6. Bonds

8. Cash

13. Reduction of Risk Over Time Copyright © 2004 Ibbotson Associates, Inc. Each bar shows the range of compound annual returns for each asset class over the period 1926–2003. Small Company Stocks—represented by the fifth capitalization quintile of stocks on the NYSE for 1926–1981 and the performance of the Dimensional Fund Advisors, Inc. (DFA) U.S. Micro Cap Portfolio thereafter; Large Company Stocks—Standard & Poor’s 500 ® , which is an unmanaged group of securities and considered to be representative of the stock market in general; Government Bonds—20-year U.S. Government Bond; Treasury Bills—30-day U.S. Treasury Bill. 5-year holding periods 1-year holding periods Small company stocks Large company stocks Government bonds Treasury bills 150% 20-year holding periods 10.4% 12.7% 5.4% 3.7% Compound annual return 1926–2003

14. Risk & Reward

18. The Emotions of Investing This is easy. No problem, this is only temporary. I’m going to wait and see. I knew I should never have invested so much. Greatest Opportunity Hopeful Thrilled Elated Desolate Alarmed Nervous Hopeful Frightened

19. Understanding Risk Risk/Return Potential Bonds High Low Stocks Money Market Instruments

21. Time Horizon: Returns Vary The S&P 500 is an unmanaged index. It does not reflect payment of expenses and cannot be purchased directly by investors. The above data shows the annual returns of the S&P 500 index over a 74-year time period. Few investors would have held an investment for that period. Index performance is shown for illustrative purposes only and does not depict any particular investment. Past performance is not indicative of future results. S&P 500 Annual Returns 1930 1940 1950 1960 1970 1980 1990 2000

22. Staying In for 10 Years 1940 1950 1960 1970 1980 1990 2000 The S&P 500 is an unmanaged index representing the broad stock market. It does not reflect payment of expenses and cannot be purchased directly by investors. The above data shows the annual returns of the S&P 500 index at 10-year intervals. Past performance is not indicative of future results. S&P 500 Annualized Returns: Trailing 10 Years

23. Reduction of Portfolio Risk 0% 2% 4% 6% 8% 10% 12% 14% 1 2 3 4 5 6 7 8 Number of randomly selected assets in portfolio Risk Source: Ibbotson Associates Inc. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Past performance is no guarantee of future results. 3/31/05. Risk is measured by standard deviation.

24. Diversify Understanding Risk and Return, the CAPM, and the Fama-French Three-Factor Model. Tuck School of Business at Dartmouth, Case 03-111. 2003.

25. Asset Class Winners and Losers Annual asset class returns from highest to lowest This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Past performance is no guarantee of future results. March 1, 2005. 2005 Ibbotson Associates, Inc. Large Stocks 28.7% 10.9% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 LT Gov’t Bonds -7.8% 30 Day T-Bills 5.6% LT Gov’t Bonds -0.9% Internat’l Stocks 2.1% Small Stocks -7.3% LT Gov’t Bonds -9.0% International Stocks -14.0% -21.2% Large Stocks -22.1% 30 Day T-Bills 1.0% 1.2% Large Stocks 1.3% Internat’l Stocks 11.6% 30 Day T-Bills 5.2% 5.3% 4.9% 4.7% Large Stocks -9.1% -11.9% Internat’l Stocks -15.7% LT Government Bonds 1.5% 8.5% Small Stocks 3.1% LT Gov’t Bonds 31.7% Internat’l Stocks 6.4% LT Government Bonds 15.9% 13.1% Large Stocks 21.0% Small Stocks -3.6% LT Gov’t Bonds 3.7% Small Stocks -13.3% 30 Day T-Bills 3.9% Small Stocks 34.5% 17.6% 22.8% International Stocks 20.3% 27.3% 30 Day T-Bills 5.9% 3.8% 1.7% Internat’l Stocks 39.2% Small Stocks 18.4% Small Stocks 29.8% LT Gov’t Bonds 21.5% Small Stocks 22.8% LT Gov’t Bonds 17.8% Small Stocks 60.7% Internat’l Stocks 20.7% Internat’l Stocks 8.1% Large Stocks 37.4% 23.1% 33.4% 28.6%

26. Returns Source: Ibottson. Past performance is not a guarantee of future results

27. What to expect?

28. Asset Allocation Overview Fixed income portfolio 1970–2004 Return 8.5% Risk 5.7% Lower risk portfolio Return 8.5% Risk 7.7% Higher return portfolio Return 9.4% Risk 7.7% Risk is measured by standard deviation. Return is the compound annual return. Risk and return are based on annual data over the period 1970–2004. Portfolios presented are based on modern portfolio theory. Source: Ibbotson Associates Inc. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an Index. Past performance is no guarantee of future results. 3/31/05. Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and considered to be representative of the stock market in general; Long-Term Government Bonds—20-year U.S. Government Bond; Intermediate-Term Government Bonds—5-year U.S. Government Bond; Cash—30-day U.S. Treasury Bill. Bonds 85% Cash 15% Bonds 50% Stocks 30% Cash 20% Bonds 37% Stocks 21% Cash 42%

29. How Important Is Asset Allocation? Asset allocation determines 93.6% of the variance in portfolio returns Asset allocation Security selection, market timing, and other factors Source: Ibbotson, Roger G. and Paul D. Kaplan, “Does Asset Allocation Policy Explain 40 Percent, 90 Percent, or 100 Percent of Performance?,” Financial Analysts Journal , January/February 2000.

30. Asset Allocation Conservative

31. Asset Allocation Moderate

32. Asset Allocation Aggressive

33. How much will my savings grow? Investing $100 monthly Investing $500 monthly Investing $1,000 monthly $24,000 $59,295 $120,000 $240,000 $296,474 $592,247 Investment Earnings Total Invested This is a hypothetical illustration and not representative of any specific investment. Assumes 8% annual return over 20-year period. Your situation will vary.

34. The Power of Time* Investor A invested $100/month for 10 years. Investor B started 10 years later and invested $100/month for 30 years. Investor A Investor B Account value at age 65 Total contributions $185,320 $150,030 $12,000 $36,0000 * These are hypothetical investments used for illustrative purposes only and are not an indication or guarantee of the actual return on any investment. Example assumes contributions plus 8% annual return on investments, compounded monthly.

35. You Have the Tools — Get Started! * Example is hypothetical and does not represent the performance of any particular investment vehicle. Assumes an 8% rate of return and contributions in the beginning of each month. An early start can be a strong ally Investor A invested $100/month from age 25 - 35. Total investment $12,000 $150,030* $185,320* Investor B invested $100/month from age 35 - 65. Total investment $36,000

37. Tax-Deferred and Tax-Free Investing

44. Types of Retirement Plans Penalty if taken out before 59½? How do I contribute? When is it taxed? IRA 401k or 403b ROTH IRAs When Withdrawn When Withdrawn Before it goes in From checking from paycheck From checking Yes Yes No for principal Yes for growth