Choosing Investments for Your 401(k)

transcript

CRC780983December 2013

Allen R. Patin, Jr. Financial AdvisorWealth ManagementJune 2014

Why Are We Here Today?

Describe the primary asset classes

Review the risks associated with the primary asset classes

Define what a mutual fund is

Describe the types of mutual funds

Identify benefits and considerations associated with investing in mutual funds

Describe factors you should consider when selecting investments for your 401(k)

Primary Asset Classes

Cash and cash equivalents

Fixed income securities (bonds)

Equities (stocks)

Cash and Cash Equivalents

Provide a stabilizing force to the overall portfolio

Generate a small level of income

Serve as a source of available capital should the portfolio need to be rebalanced

Fixed Income Securities (Bonds)

Provide a long-term base of cash flow

Provide a hedge against the more volatile returns often found in the stock market

May provide long-term and short-term gains or losses resulting from changing interest rates

Equities (Stocks)

Provide the opportunity for long-term growth through capital appreciation

Offer higher long-term returns, which provide a hedge against inflation

Generate income through dividends

Currency Risk

Credit Risk

Business Cycle Risk

Business Risk

Political and Legislative Risk

Interest Rate Risk

Purchasing Power Risk

Market Risk

Fixed Income EquityCash

Risk and Return

The amount of risk associated with an investment is usually evaluated by comparing it to the “risk-free rate of return”

Risk-free rate of return is:

a measurement of the highest possible return available with no assumed risk

commonly represented by the current yield on the 30-Day U.S. Treasury Bill, generally considered to involve minimal risk

As an investor, you want to choose investments with the highest possible return while taking on the least amount of risk

Properly balancing risk and return when selecting investments is imperative

Mutual Funds

Type of investment company

Investors pool money

Portfolio of securities such as stocks and bonds

Managed by a professional portfolio manager

Mutual Fund Prospectus

Investment objective and strategy

Sales charges

Fees and expenses

Performance information

Investors should carefully consider the investment objectives and risks as well as charges and expenses of a mutual fund before investing. To obtain a prospectus, contact your Financial Advisor or visit the fund company’s website. The prospectus contains this and other information about the mutual fund. Read the prospectus carefully before investing.

Types of Mutual Funds

Money market funds

Fixed income funds

Equity funds

Hybrid funds

Money Market Funds

Regular income

Stable share price

Liquid

Low risk/return potential

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

Categories of Money Market Funds

U.S. Treasury

U.S. Government

Tax-Exempt

General

Bond Mutual Funds

Regular income

Moderate volatility

Long-term investment

Moderate risk/return potential

Categories of Bond Mutual Funds

U.S. Government and U.S. Government Agency

Municipal or Tax-Exempt

Corporate

International

Diversified

Equity Mutual Funds

Capital appreciation

Income potential

Long-term investment

High risk/return potential

Inflation hedge

Categories of Equity Mutual Funds

Geographic location

Investment style

Market capitalization

Geographic Location

Domestic or U.S. equity

Global equity

International equity

Emerging market

Regional equity

Investment Style

Growth

Income

Sector

Market Capitalization

Small-cap stocks – Market capitalization of less than $1 billion

Mid-cap stocks – Market capitalization between $1 billion and $5 billion

Large-cap stocks – Market capitalization greater than $5 billion

Mid-Cap StocksSmall-Cap Stocks

Market Capitalization($ billions)

Large-Cap Stocks

5 0 1 +

Hybrid Funds

Asset-allocated portfolio

Simplicity

Suitable for various time horizons

Potential tax efficiency

Fixed Income40%

Cash5%

Equities55%

Categories of Hybrid Funds

Target date funds

Balanced funds

Flexible portfolio funds

Funds of funds

Potential Risk/Return Comparison

Money Market Fund

Short-Term Bond Fund

Municipal Bond Fund

Intermediate-Term Government Bond Fund

Long-Term Corporate Bond Fund

Balanced Fund

Growth & Income Fund

Equity-Income Fund

International Equity Fund

Small-Cap Stock Fund

Aggressive Growth Fund

Emerging Markets Fund

Benefits

Professional management

Diversification

Liquidity

Low minimum investment requirements

Convenience

Considerations

Lack of transparency

Style drift

Selecting the Right Investments

Risk tolerance

Investment objective

Time horizon

Asset allocation

Your Financial Advisor Team at Morgan Stanley

Our Financial Advisors can provide Access to intellectual strength and global resources of Morgan Stanley Financial solutions that address your specific needs and goals

NameAllen R. Patin, Jr.

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in a written agreement with Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

Financial Advisor 615-292-0303 Allen.R.Patin@morganstanley.com

Choosing Investments for Your 401(k)

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