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Welcome. H.R. Options 401(k) Plan . Agenda. The Importance of Saving for Retirement How Your Plan Works Asset Allocation Investment Options Under the Plan (Building an Investment Portfolio) Smart Investment Behavior. Why Participate in Your 401K?. 100%. • Male • Female

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Welcome l.jpg

Welcome

H.R. Options

401(k) Plan


Agenda l.jpg

Agenda

  • The Importance of Saving for Retirement

  • How Your Plan Works

  • Asset Allocation

  • Investment Options Under the Plan (Building an Investment Portfolio)

  • Smart Investment Behavior


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Why Participate in Your 401K?

100%

• Male

• Female

• At least one spouse

78

81

86

75

Americans Are Living Much Longer!

85

88

91

50

91

93

96

25

0

65 years old

70

75

80

85

90

95

100

105


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Why Participate in Your 401(k)?

Today’s workers(Expected sources of retirement income)

Today’s retirees(Actual sources of income)

20%

36%

14%

43%

66%

20%

• Social Security

• Pension plans

• Personal savings/other


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The Rising Cost of Postage1983-2010

44¢

29¢

18¢

33¢

25¢

15¢

1983 1993 2010

Source: United States Postal Service

The Effects of Inflation


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Advantages of Your 401(k) Plan?

  • Convenience – Automatically Done Through Payroll Deductions

  • Tax Benefits

    • Pre-Tax - Immediately lowers your taxable income. Result: Less Taxes Now!

    • After-Tax (Roth) – Contribution and growth not taxed with qualified withdrawal. Result: No Taxes Later!

    • Tax-Deferred Growth – No Taxes Paid on Growth Until Withdrawal. Result: Faster Growth!

  • Lower Cost

  • Employer Match!!


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H.R. Options 401(k) Plan

How Your Plan Works


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Plan Details

Eligibility:

You must be at least age 21; and,

You must complete 500 hours of service during the Plan Year.

You may enter the plan on January 1st, April 1st, July 1st , or October 1st coinciding with or next following the date you meet this requirement.


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How Your Plan Works

Salary Deferral Contributions

  • The salary deferral limit is up to $16,500.

  • If age 50 or over, you may contribute an

    additional $5,500in catch-up contributions.

  • Your contributions can be Pre-Tax dollars, After-Tax (Roth) dollarsor a Combination of Both(not to exceed the above limits)

  • You may change your deferral election anytime by visiting the recordkeeping website, www.AccountTRAX.com.


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How is a Traditional 401(k) contribution different from the Roth contribution?

Traditional 401(k) contributions are Pre-tax dollars.

Roth 401(k) contributions are After-tax dollars.

Traditional 401(k) Deferrals- Federal income taxes on the deferrals and the earnings to your account are postponed.

You will pay taxes on any distribution (withdrawal) from your standard 401(k) portion of your account.

Roth Deferrals- Contributions are taxed at the time they are contributed.

You will not be subject to taxation on these amounts as well as theearnings provided you receive a qualified distribution from your Roth account.


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Roth vs. Traditional

At a Glance


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Plan Details Continued….

Employer Contribution

HR Options matches the funds you save in your 401(k) account with $.20 (twenty cents) on the dollar, up to 3% of compensation.

This matching contribution will be allocated to your account each pay period so you will be benefitting from dollar cost averaging throughout the year.


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Plan Details Continued….

Vesting

Your 401(k) contributions are always 100% vested.

The employer matching contributions are also 100% vested.

Rollovers

Rollovers from other qualified plans are allowed.


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Plan Details Continued….

Withdrawals

Termination of Employment

Financial Hardship

Attaining age 59 ½

Retirement

Disability

Death

The following may apply: 20% Federal tax withholding and state tax withholding. Additional federal and state taxes may be due. Federal and state penalties may also apply to certain distributions.


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How Your Plan Works (Cont’d)

Accessing your account

Online access at www.AccountTRAX.com

Investor Questionnaire

Links to Morningstar.com

Personalized Rate of Returns

Retirement Calculator

Download Administration Forms & Documents including Summary Plan Description

24 hour Voice Response Unit at 888-401-5629

Quarterly statements will be mailed to your home address. You may also sign up for electronic delivery of this information with our eStatements.


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How to Enroll in the Plan

Online Enrollment

Log onto www.AccountTRAX.com.

Input your Social Security# as your initial User ID and the last four digits of your Social Security # as you default Password. The system will immediately prompt you to change these security items after this initial log in.

Verify your Personal Information including home address. Input an e-mail address and answer the Verification Question.

Designate a Beneficiary (both primary and secondary)

Input your salary deferral amount.

Select your investments.

The sooner you enroll, the sooner your are on your way to meeting your financial goals!


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Bonds

Stocks

Cash

What is Asset Allocation?

Asset allocation is theprocess of combining assetclasses in aportfolio to reduce volatility and potentially increase returns.


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1926

1936

1946

1956

1966

1976

1986

1996

2006

Stocks, Bonds, Bills, and Inflation 1926–2009

$12,231

$10,000

$2,592

Compound annual return

• Small stocks

11.9

%

1,000

• Large stocks

9.8

• Government bonds

5.4

• Treasury bills

3.7

3.0

• Inflation

$84

100

$21

$12

10

1

0.10


Potential to reduce risk and or increase return 1970 2009 l.jpg

12%

15%

19%

27%

37%

85%

44%

61%

Potential to Reduce Risk and/or Increase Return1970–2009

Fixed income portfolio

Lower risk portfolio

Higher return portfolio

• Stocks

• Bonds

• Cash

Return:

8.0%

Return:

8.0%

Return:

8.9%

Risk:

7.8%

Risk:

5.8%

Risk:

7.8%

  • Returns above are annualized returns. “Risk” is standard deviation. Roughly 2/3 of the time, returns are within one standard deviation of the return number listed above.


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The Case for Diversifying

50% Return

Compound annual return

• Stocks

8.5%

• 50/50 portfolio

5.8

40

• Bonds

1.9

30

20

10

0

–10

–20

Year 1

2

3

4

5

6

7


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Choosing Your Asset Allocation

What To Consider

  • Personal Need, Willingness and Ability to take Risk

  • Retirement Time Horizon

    • How long until you retire?

    • How long will you be in retirement?

  • Expected Rate of Return

    • Risk Reward Trade-Off


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Building An Investment Portfolio


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Investment Options Under the Plan

Building an Investment Portfolio


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Vanguard Target Retirement 2015

Vanguard Target Retirement 2025

Vanguard Target Retirement 2035

Vanguard Target Retirement 2045

Vanguard Target Retirement 2050

These Vanguard funds invests in other Vanguard mutual funds according to an asset allocation strategy designed for investors planning to retire in or within a few years of the funds indicated year.

Building An Investment Portfolio

Vanguard Target Retirement Funds


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Target Retirement Glide PathAsset Allocation Funds (Age Based)


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Building an Investment Portfolio

Balanced Fund

T. Rowe Price Capital Appreciation

  • Seeks long term capital appreciation.

  • Invests approximately 60% of assets in equities (stocks) and 40% of assets in debt securities (bonds).

  • Suitable for a moderate investor.


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Wells Fargo Galliard Stable Value

Seeks to provide current income while maintaining liquidity and a stable share price of $1.

Invests primarily in high-quality, short-term money market instruments.

Building an Investment Portfolio

Stable Value Fund


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Vanguard Intermediate-Term US Treasury

Seeks to provide a moderate and sustainable level of current income.

Normally invests at least 80% of assets in U.S. Treasury bills, notes and bonds issued by U.S. Treasury.

Building an Investment Portfolio

Bond Funds

Vanguard Inflation Protected Securities

  • Seeks to provide inflation protection.

  • Invests in inflation indexed U.S. government bonds.


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PIMCO Total Return

Seeks total return consistent with preservation of capital.

Normally invests at least 65% of assets in debt securities, including U.S. government securities , corporate bonds, and mortgage-related securities.

Mainstay High Yield Corporate

Seeks total return consistent with preservation of capital.

Normally invests at least 80% of assets in high yield bonds.

Building an Investment Portfolio

Bond Funds- Cont.


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Building an Investment Portfolio

Domestic Large Company Funds

Vanguard Windsor II

Seeks long-term capital appreciation and income.

Invests mainly in mid- and large-capitalization companies whose stocks are considered by an advisor to be undervalued.

Vanguard 500 Index

Seeks results corresponding with the total return of common stocks represented by the SP 500 index.

Normally invests at least 80% of assets in equity securities of companies included in the index.


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Building an Investment Portfolio

Domestic Large Company Funds cont’d

American Funds Growth Fund of America

  • Seeks to provide long-term growth of capital through a diversified portfolio of common stocks.

  • Invests primarily in common stocks, convertibles, preferred stocks, U.S. government securities, bonds and cash.

  • May invest up to 10% of assets in debt securities rated below investment grade.


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Building an Investment Portfolio

Domestic Mid-Sized Company Funds

Janus Perkins Mid-Cap Value

Seeks long-term growth of capital and income

Invests mainly in the stocks of medium size U.S. companies, choosing stocks considered to be undervalued and trading at prices that the advisor feels are below average.

Vanguard Mid-Cap Index

Seeks to track the performance of a benchmark index that measures the investment return of mid-capitalization stocks.

It attempts to replicate the target index by investing all, or substantially all, of assets in the stocks that make up the index.


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Building an Investment Portfolio

Domestic Mid-Sized Company Funds-Cont.

Baron Asset

Seeks capital appreciation.

Invests in common stocks of middle sized growth oriented companies.


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Building an Investment Portfolio

Domestic Small-Sized Company Funds

Royce Pennsylvania Mutual

Seeks long-term growth of capital.

Invests at least 65% of assets in the equities of small- and micro-cap companies.

T. Rowe Price New Horizons

Seeks long term capital growth.

Invests in a diversified group of small, emerging growth companies.


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Building an Investment Portfolio

International Funds

American Funds EuroPacific Growth

Seeks long-term growth of capital.

Primarily invests in securities of issuers located in Europe and the Pacific Basin.

Designed for investors seeking capital appreciation and diversification through investments in stocks of issuers based outside the United States.


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Building an Investment Portfolio

International Funds – Cont.

Columbia Acorn International Select

Seeks long term capital appreciation.

Invests in middle to small sized companies outside the U.S. that are considered growth oriented.


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Building An Investment Portfolio

Sample Portfolio – Moderately Aggressive

  • Cash 5%: Wells Fargo Galliard Stable Return

  • Bonds 15%: PIMCO Total Return

  • Large Company Stocks 35%: Vanguard 500 Index

  • Mid-Small Company Stocks 20%: Vanguard Mid-Cap Index(10%), T. Rowe Price New Horizons(10%)

  • International Stocks 25%: American Funds EuroPacific Growth (20%), Columbia Acorn Intl Select (5%)


Building an investment portfolio38 l.jpg

Equity portfolio A

Equity portfolio B

Deep-value

Core-value

Blend

Core-growth

High-growth

Deep-value

Core-value

Blend

Core-growth

High-growth

Giant

Giant

Large

Large

Mid

Mid

Small

Small

Micro

Micro

Building An Investment Portfolio

More Funds Does Not Always Mean Greater Diversification!


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Dos and Don'ts of Smart Investing

  • Don’t Try to Time the Market

  • Don’t Be Too Conservative

  • Diversify, Diversify

  • Contribute Regularly

  • Re-Balance

  • Navigate the Noise


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Smart Investment Behavior:Don’t Try to Time the Market!

$6

$4.84

Hypothetical value of $1 invested from 1990–2009

$4

$2.12

$2.04

$2

$0

S&P 500

S&P 500 minus best 10 months

Treasury bills


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1926

1936

1946

1956

1966

1976

1986

1996

2006

Smart Investment Behavior: Don’t Be Too Conservative! (After Taxes)

$1,000

Compound Annual Return

$510.68

• Stocks

7.7

%

• Municipal bonds

4.4

• Government bonds

3.4

• Inflation

3.0

• Treasury bills

100

2.3

$36.22

$15.96

$12.05

10

$6.51

1

0.10


Asset class winners and losers l.jpg

Highest

Return

Lowest

Return

Asset-Class Winners and Losers

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

L/TGovt. Bonds

LargeStocks

LargeStocks

Small Stocks

L/T Govt. Bonds

Small Stocks

Intl

Stocks

Intl

Stocks

Intl

Stocks

Intl

Stocks

L/T Govt. Bonds

Intl

Stocks

Large Stocks

Small Stocks

Large Stocks

37.6%

23.0

33.4

28.6

29.8

21.5

22.8

17.8

60.7

20.7

14.0

26.9

11.6

25.9

32.5

Small Stocks

Small Stocks

Small Stocks

Intl

Stocks

Intl

Stocks

T-Bills

T-Bills

T-Bills

Intl

Stocks

Small Stocks

L/T Govt. Bonds

SmallStocks

L/T Govt. Bonds

T-Bills

Small Stocks

34.5

17.6

22.8

20.3

27.3

5.9

3.8

1.6

39.2

18.4

7.8

16.2

9.9

1.6

28.1

L/T Govt. Bonds

Diversified Portfolio

Diversified Portfolio

L/T Govt. Bonds

Large Stocks

Diversified Portfolio

L/T Govt. Bonds

Diversified Portfolio

Large Stocks

Diversified Portfolio

Diversified Portfolio

Large Stocks

Large Stocks

Diversified Portfolio

Large Stocks

31.7

10.3

15.9

13.1

21.0

0.6

3.7

–6.5

28.7

12.0

7.3

15.8

5.5

–20.7

26.5

Diversified Portfolio

Intl

Stocks

L/T Govt. Bonds

Diversified Portfolio

Diversified Portfolio

Small Stocks

Diversified Portfolio

Small Stocks

Diversified Portfolio

Large Stocks

Small Stocks

Diversified Portfolio

Diversified Portfolio

Small Stocks

Diversified Portfolio

23.8

6.4

15.9

12.2

14.3

–3.6

–0.8

–13.3

24.8

10.9

5.7

12.9

5.4

–36.7

14.0

Intl

Stocks

T-Bills

T-Bills

T-Bills

T-Bills

Large Stocks

Large Stocks

Intl

Stocks

L/T Govt. Bonds

L/T Govt. Bonds

Large Stocks

T-Bills

T-Bills

Large Stocks

T-Bills

11.6

5.2

5.3

4.9

4.7

–9.1

–11.9

–15.7

1.4

8.5

4.9

4.8

4.7

–37.0

0.1

L/Term Govt. Bonds

T-Bills

L/T Govt. Bonds

Intl

Stocks

Small Stocks

L/T Govt. Bonds

Intl

Stocks

Intl

Stocks

Large Stocks

T-Bills

T-Bills

T-Bills

L/T Govt. Bonds

Small Stocks

Intl

Stocks

5.6

–0.9

2.1

–7.3

–9.0

–14.0

–21.2

–22.1

1.0

1.2

3.0

1.2

–5.2

–43.1

–14.9


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Smart Investment Behavior:Re-Balance

  • Some investments will grow faster than others

  • Rebalance is inherently contrarian

    • “Buy Low” and “Sell High”

    • Sell assets that have appreciated

    • Purchase assets that have underperformed

  • Returns portfolio to a comfortable level of risk


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Importance of Rebalancing1988–2009

70%

• Stock allocation

•Bond allocation

70%

69%

60

63%

50

50%

53%

50%

47%

40

37%

30

30%

31%

20

10

0

Year End

2009

1994

1999

2004

1989


Feeling panicky 4 reasons not to overreact l.jpg

Feeling Panicky? 4 Reasons Not to Overreact

  • Market Timing is a losing strategy

    • Risk of selling low and buying high; you have to be right twice

  • Investors have been rewarded for taking risk

    • Risk isn’t always rewarded in the short term

  • Playing it “safe” can lead to a shortfall

    • Cash may be safe in the short term, but is risky in the long run

  • Emotional decisions often lead to regrets

    • Staying calm can help you avoid making moves you later regret


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