Pointers

In this issue
Pointers
• Riding out a volatile market
• Election connection
• Invest your tax refund
• The power to move markets
F O R S AV I N G & I N V E S T I N G
Spring 2008
•
Retirement Strategies
Riding out a Volatile Market
A down turn in the stock market may make it difficult to stay
focused on the future. When the market is on a roller coaster,
many people suffer from a bad case of “statement shock” in
response to daily market changes. In that situation, it’s natural to
want to take measures to protect your portfolio, but that’s when
your most prudent strategy is probably to sit tight. Investing for
the long term typically means for a period of 10 or more years.
In that context, a 10% decline in prices (a market correction)
becomes less significant. So the best way to weather a volatile
market is to ride it out.
If you compare stocks to other investments, you’ll see that
historically stocks perform much better in the long run.*
Whatever the future holds for long term savers, though, the
following strategies make sense:
Know your risk tolerance:
•E
valuate your comfort level with the rise and fall of the market
and invest accordingly.
• Make sure your investments are diversified.
• When the market does decline, don’t obsess about your losses.
Review your portfolio:
•R
eview how your portfolio value has grown and changed over
time. Look at the last two years or five years or ten years—it helps
put market downturns into perspective.
Think before you make changes:
• Don’t respond emotionally to an erratic market.
• T ake your time when making investment decisions—don’t make any
moves based on what the market did yesterday or last week.
You Can’t Predict the Future
Market corrections are nearly impossible to forecast and you
can’t do much to avoid them.
If you’re reeling from a decline in portfolio value, don’t make
the investment changes that you wish you had made last
week. History may repeat itself, but last week’s market return
is no sure-fire predicator of what will happen next.
It’s not wise to invest or decide not to because you expect
some particular behavior from the market in the near future.
The important issue is investing for the long term. When
you keep your portfolio mix fairly constant, avoid selling,
and continue to invest, you can be prepared for a correction
–and stand ready for the next upturn.
*Historical results are not a guarantee of future performance.
You may have heard stories of the investors who got out of the market one day before the market decline in October 1987.
It may sound like they got lucky, but many stayed out too long and missed out when the market recovered. At year-end 1987,
a little more than two months after that decline, a portfolio of stocks purchased on December 31, 1986, would have still
returned about a 5% gain for the year. Source: Fortune Magazine October 24, 1988 issue
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2
The Power to Move Markets
Understanding Economic Indicators
An economic indicator is any statistic that “indicates”
how the economy is performing today and how it may
be trending for the future. Economic indicators have the
power to move financial markets and directly affect
interest rates. The more you know about them, the more
confident you can become as an investor.
Here’s a list of some of the more prominent
economic indicators:
Consumer Confidence Index (CCI): used by the Federal
Reserve when setting interest rates.
Consumer Price Index (CPI): important indicator
of inflation.
Gross Domestic Product (GDP): indicates the pace at
which an economy is growing.
Employment Situation Summary: monitors the rate
of unemployment.
Market Outlook
For recent market commentary furnished by State
Street Global Advisors and Citi SmithBarney,
visit the Quarterly News section of your Plan Web
site’s Resource Center.
Housing Starts: tracks the number of new
single-family homes or buildings built during a
given month.
Retail Sales Index: tracks merchandise sold by
companies ranging from Wal-Mart to the
neighborhood grocery.
The indicators discussed above only scratch the surface
of the type of economic data that is published regularly.
For more detailed information, go to the Featured
Content section of your Plan website.
3
The Election Connection
Exploring the effects of presidential elections on investment performance
Will the outcome of the November election affect your
retirement investments?
During every presidential election, the question of whether
our economy does better under Democrat or Republican
leadership always seems to surface. And the market often
doesn’t perform well in the months leading up to an election,
largely because investors don’t like uncertainty—it’s difficult
to make investment decisions when you don’t know where
you’re going.
So, is there a connection between a presidential election and
investment performance?
Over the long haul, it may not matter which political party
is governing the country. Long-term growth in the financial
markets will always be determined by the ability of individual
companies to increase earnings and the strength of our
industries on the global stage. Economic policy is a responsive
tool. That is, the President, Congress, and the Federal Reserve
(the Fed) all react to larger trends and events with the
collective goal of avoiding recession and keeping the economy
from getting too far off track.
There are many other factors that affect financial markets
more directly than who is in control in Washington,
including corporate earnings, inflation, and economic
and political events around the world. Add to that the
Which Political Party is Better
for the Stock Market?
current social, economic, and political climate here at
home and there are many issues over which the President and
Congress have only limited control. And no single economic
or social concern will be completely resolved before the
election or even soon after, regardless of who wins.
One survey conducted by the CFA Institute and Northern
Illinois University found very little evidence linking market
performance with who is occupying the White House,
referring to the market as “politically neutral.” Rather, the Fed,
monetary policy, and the general direction of interest rates
were deemed much more important.
The best action for long-term retirement investors may be to
simply stay the course. Over long time periods, any marginal
market effects from various presidential elections will tend to
balance out. If you continue to make investment decisions
based on your long-term goals, time horizon, and risk
tolerance, the presidential election should not have much of
an impact on your ultimate retirement income security.
Elect a Change?
If you’re wondering whether or not you should
make adjustments to your overall investment
mix leading up to the election, listen to what
professional investors are saying. “Watch the
Fed, not the voting booth.”
Neither. Patterns in security returns that were previously attributed to changes in the political landscape
are actually the result of monetary policy developments, not systematically related to political gridlock
affects
all president.*
types of living expenses, small and large.
orInflation
the party
of the
WHEN REPUBLICANS
WERE IN OFFICE
• Bond returns were higher.
WHEN DEMOCRATICS
WERE IN OFFICE
• Stock returns were higher.
WHEN IT’S POLITICAL GRIDLOCK
(Different parties control Congress and the White House)
• Large cap stocks perform the same regardless
of gridlock.
• Small cap stocks perform much better when
there is no gridlock.
*Results from 1926–2000
4
Invest Your Tax Refund
If you’re expecting a tax refund this year, do you plan to
invest the money? If you’re like most people, probably
not, but if you invest your refund instead of spending it, it
can be more than just money in your pocket.
One way to invest your refund would be your employersponsored retirement savings plan. While you can’t
deposit it directly into your 401k in one lump, you can
increase your regular contributions to an amount that will
equal your refund over a year’s time. Then instead of
cashing the refund check, put it in the bank to help cover
your expenses throughout the coming year.
Or, if the amount of your increase would exceed the
permissible contribution limits of your plan and you still
have more of your tax return to invest, open an IRA. They
typically give you lots of investment choices.
It’s easy to consider a refund a windfall to be spent—but
wouldn’t it be better to be one of the few Americans who
actually invests that money for the future?
New Web Site Security Added
The security of your personal and account information is a top
priority. To provide better security to your Plan account, some
new safeguards will be added in mid-April:
•You will be prompted to provide a third security question
and answer for alternate access without a PIN.
Consejitos para Ahorrar
Para obtener una copia de este boletín en
español: Este boletín de noticias está situa
do en el Internet en la sección “Trimestral
de las Noticias” del centro del recurso de
su plan.
•If you used your “date of birth” as one of your security
questions, you will need to select a new question instead.
•New security questions have been added that are more
personal, less factual.
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CitiStreet LLC, its affiliates, and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or
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© 2008 CitiStreet LLC. All Rights Reserved.
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