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Choosing Investments for Your 401(k)
CRC780983December 2013
Expires: January 2015© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.
Allen R. Patin, Jr. Financial AdvisorWealth ManagementJune 2014
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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)
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Primary Asset Classes
Cash and cash equivalents
Fixed income securities (bonds)
Equities (stocks)
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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
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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
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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
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Risks
Currency Risk
Credit Risk
Business Cycle Risk
Business Risk
Political and Legislative Risk
Interest Rate Risk
Purchasing Power Risk
Market Risk
Fixed Income EquityCash
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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
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Mutual Funds
Type of investment company
Investors pool money
Portfolio of securities such as stocks and bonds
Managed by a professional portfolio manager
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Mutual Fund Prospectus
Investment objective and strategy
Sales charges
Fees and expenses
Risks
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.
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Types of Mutual Funds
Money market funds
Fixed income funds
Equity funds
Hybrid funds
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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.
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Categories of Money Market Funds
U.S. Treasury
U.S. Government
Tax-Exempt
General
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Bond Mutual Funds
Regular income
Moderate volatility
Long-term investment
Moderate risk/return potential
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Categories of Bond Mutual Funds
U.S. Government and U.S. Government Agency
Municipal or Tax-Exempt
Corporate
International
Diversified
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Equity Mutual Funds
Capital appreciation
Income potential
Long-term investment
High risk/return potential
Inflation hedge
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Categories of Equity Mutual Funds
Geographic location
Investment style
Market capitalization
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Geographic Location
Domestic or U.S. equity
Global equity
International equity
Emerging market
Regional equity
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Investment Style
Value
Growth
Income
Sector
Index
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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 +
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Hybrid Funds
Asset-allocated portfolio
Simplicity
Suitable for various time horizons
Potential tax efficiency
Fixed Income40%
Cash5%
Equities55%
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Categories of Hybrid Funds
Target date funds
Balanced funds
Flexible portfolio funds
Funds of funds
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Potential Risk/Return Comparison
Risk
Ret
urn
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
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Benefits
Professional management
Diversification
Liquidity
Low minimum investment requirements
Convenience
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Considerations
Costs
Lack of transparency
Style drift
Taxes
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Selecting the Right Investments
Risk tolerance
Investment objective
Time horizon
Asset allocation
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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 [email protected]