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Mutual Funds Made Simple
Mutual Funds Made Simple
Mutual Funds Made Simple
11.80
12%
10
7.56
8
6
5.97
5.91
5.13
4.07
4
2
0 Six-month Bonds Stocks
CD
10 Years
$100,000
80,000
60,000
36,610
40,000
20,000
23,163
7,721
11,589
15,442
0
10 Years
20 Years
Income with dividends taken as cash
Income with dividends reinvested
30 Years
1 Please note that mutual funds have the potential to lose value.
2 Please consult your tax advisor for information about capital gains
and dividends.
2. Diversication
Diversication may help protect you from market
highs and lows because youre not too heavily
invested in one company or industry. In other words,
all of your eggs arent in one basket. Mutual funds
allow you to spread out, or diversify, your assets
among a variety of investments so you can take
advantage of strong areas of the market and
minimize your risk when other areas of the
market perform poorly.
Because there is no way for anyone to predict which
companies and industries will perform well, diversication is the best way to balance your portfolio and
is a key component of nancial success.
Establish Your
Financial Goals
Before you enter the world of mutual funds, its
crucial that you meet with a nancial advisor to
discuss your nancial goals. Your advisor uses
these goals to help you create a plan for building
wealth. Periodic meetings with your advisor
especially when your nancial goals or
circumstances change help ensure that your
investment strategy meets your needs.
As you prepare to meet with your nancial advisor,
ask yourself the following questions:
Asset Allocation:
A Key Component of
Portfolio Performance
Spreading your mutual fund investments across
different asset classes such as stock, bond and
money market funds is called asset allocation.
This strategy is an important part of investing
because it helps balance the risk and return of
your portfolio to meet your nancial goals.
Your risk tolerance and time horizon or when you
will need your money help determine how you
should allocate your assets. For example, if your
goal is to save for a down payment on a house in
three years, you would invest your money differently than if your goal is retirement in 15 years.
Your nancial advisor can help you determine
the best asset allocation plan for you.
The charts on the next page illustrate hypothetical
allocations for conservative, moderate and
growth investors.
10
Conservative Portfolio
The conservative investor is typically interested in
preservation of capital, receiving steady investment
income and beating ination over the long term. This
investor has a low risk tolerance and is particularly
sensitive to short-term volatility.
Cash
10.0%
Large-Cap Blend
15.0%
Investment
Grade Bonds
(Tax Free)
17.5%
Mid-Cap Blend
10.0%
IntermediateTerm Investment
Grade Bonds (Taxable)
7.5%
Short-Term
Investment
Grade Bonds
(Taxable)
40.0%
Moderate Portfolio
The moderate investor is less sensitive to short-term
volatility than the conservative investor and is interested
in receiving steady investment income and preserving
capital.
Noninvestment Grade
Bonds (Tax Free)
10.0%
Investment Grade
Bonds (Tax Free)
15.0%
Short-Term
Investment Grade
Bonds (Taxable)
5.0%
Intermediate-Term
Investment Grade
Bonds (Taxable)
10.0%
Large-Cap Blend
17.5%
Mid-Cap Blend
10.0%
Small Cap
10.0%
International/
Global Blend
17.5%
Commodities
5.0%
Growth Portfolio
The growth investor is typically seeking higher relative
return. Because he or she usually has a relatively long
time horizon and high risk tolerance, the growth investor
is not as concerned about short-term volatility.
Commodities
5.0%
International/
Global Blend
25.0%
Large-Cap
Blend
35.0%
Mid-Cap Blend
5.0%
Small Cap
25.0%
11
Noninvestment
Grade Bonds
(Tax Free)
5.0%
12
GDE-BRO-1 03/08