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THE
ECONOMY
AND THE
MARKET
TRSC 3413ECON-0511
.
© 2011 Transamerica Retirement Services Corporation. All rights reserved
FOR EDUCATIONAL USE ONLY
1. The Economy and the Market
2. The 1st Quarter in Review
3. Investment Strategies for the
Long Term
The Economy
and the Market
Our Cyclical Economy
Peak
Expansion
Recession
Trough
4
Economic Indicators
Economic cycles revolve around key measures including:
• Growth rate of gross domestic product (GDP)
• Consumer, business, and government spending
• Strength of the U.S. dollar
• Interest rates
• Jobless claims
• Unemployment
5
The “Fed” and the Economy
Money Supply
During Recession
During Expansion
The Federal
Reserve can
Lower interest rates to
“loosen” money supply
Increase interest rates
to “tighten” money
supply
Intended
Effects
Lower borrowing costs
to encourage spending
by businesses and
individuals
Increase borrowing
costs to keep inflation
in check
6
Investments and the Economy
Stocks
Bonds
During Recession
During Expansion
Typically lose value as
earnings deflate
Typically increase in value
as real or expected
earnings improve
“Bear Market”
“Bull Market”
Typically increase in
value as interest rates
fall
Typically lose value as
interest rates rise
7
The Market and the Economy
• Stock market historically moves in tandem with the
economy
• A review of markets often begins with a look at the economy
• Difficult to explain market activities
until after the fact
• Rallies and plunges can be fueled
by investor emotion
8
What is the “Market”?
Typically, the “market” means the U.S. stock market
Common market gauges include:
• Dow Jones Industrial Average (DJIA)
• S&P 500
• NASDAQ Composite Index
Broad market gauges are not
appropriate measures for specific
market segments or most stock funds
Dow Jones, Standard and Poor’s (“S&P”), and NASDAQ are registered trademarks.
9
Stocks and Stock Funds
Generally categorized by:
Market capitalization
Large-Cap
Growth
Mid-Cap
• Value
• Core
• Growth
Core
Small-Cap
Investment style
Value
Market Capitalization
• Large-Cap
• Mid-Cap
• Small-Cap
Investment Style
10
Drivers of Investment Behavior
Market capitalization and investment style help explain the
investment behavior of stocks:
More
Conservative
Style
Representative Benchmark
Large Value
Russell 1000 Value Index
Large Core
S&P 500 Index
Large Growth
Russell 1000 Growth Index
Small Core
Russell 2000 Index
International
MSCI World Ex-U.S. Index
More
Aggressive
Please see slide 32 for additional disclosures.
11
Bonds and Bond Funds
Several types of bond funds may be offered by your plan
More
Conservative
Style
Representative Benchmark
Bond – Short Term Merrill Lynch 1-3 Yr Treasury Index
Bond – Int. Term
B.C. U.S. Govt./Credit Bond Index
Bond – Long Term B.C. U.S. Aggregate Bond Index
High Yield Bond
Credit Suisse High Yield Index
Int’l/Global Bond
B.C. Global Agg. Bond Index
More
Aggressive
Please see slide 32 for additional disclosures.
12
Quarterly Review
Investment News and Market Updates
Visit the Markets Hub under our Market Video News Feed link at
www.TA-Retirement.com for the latest investment news and market information.
Investing Strategies
for the Long Term
Focus on the Long Term
Market ups and downs may be unsettling, but
consider not reacting emotionally.
Selling out of funds that have under-performed,
may mean “locking in your losses.”
Moving into funds that have outperformed
may mean “buying high.”
Instead, consider using this time to:
• Revisit your long-term asset allocation strategy
• Rebalance your portfolio to under-performing asset
classes
16
Move to Cash During a Crisis?
It may be tempting, but it may not pay off:
Source Indices: S&P 500 Index, Barclays U.S. Aggregate Bond Index, Citigroup 3-Month T-Bill
Index. Please see slide 35 for additional disclosures.
Risk of Stock Market Loss Over Time
13%
13%
68%
Earned less than -10% annually
Earned between 0% and 10% annually
Earned between -10% and 0% annually
Earned more than 10% annually
Source Indices: Stocks (S&P 500 Index). Please see slide 35 for additional disclosures.
Diversification Across Asset Classes
Source Indices: Stocks (S&P 500 Index), Bonds (Barclays Long-Term Government Bond
Index). Please see slide 35 for additional disclosures.
Investing Wisely
• Think about the long term
• Diversify
• Rebalance
• Be aware of risk
• Educate yourself
20
The Transamerica Difference
Convenient services help you manage your account:
Automated Services:
TransDirect® (800) 401-8726
Through the mail:
Quarterly statements and newsletters
On the Web: Transamerica Retirement Services
Online – www.TA-Retirement.com
One-on-one: Service Specialist (800) 401-8726,
available 8 a.m. to 8 p.m., Monday through
Friday, Eastern Time.
21
The Transamerica Difference
Convenient services help you manage your account:
Automated Services:
TransDirect® (888) 637-8726
Through the mail:
Quarterly statements and newsletters
On the Web: Transamerica Retirement Services
Online – www.TA-Retirement.com
One-on-one: Service Specialist (888) 637- 8726,
available 8 a.m. to 8 p.m., Monday through
Friday, Eastern Time.
22
The Transamerica Difference
Convenient services help you manage your account:
Automated Services:
TransDirect® (877) 234-9293
Through the mail:
Quarterly statements and newsletters
On the Web: Transamerica Retirement Services
Online – www.TA-Retirement.com
One-on-one: Service Specialist (877) 234-9293
available 8 a.m. to 9 p.m., Monday through
Friday, Eastern Time.
23
Your Successful Retirement is our Mutual Goal
• Experience – Over 70 years1
helping participants with
retirement planning
• Sole focus on retirement
plans
• Tools and guidance for all life
stages
• Servicing billions of dollars in
retirement plan assets
1. As of December 31, 2010.
Transamerica or Transamerica Retirement Services refers to Transamerica Retirement Services Corp., which is headquartered in Los
Angeles, CA.
24
Disclosures
Transamerica or Transamerica Retirement Services refers to Transamerica Retirement Services
Corp., which is headquartered in Los Angeles, CA.
Transamerica Retirement Services and its representatives do not give ERISA, tax, or legal advice.
This material is provided for informational purposes only based on our understanding of material
provided and should not be construed as ERISA, tax, or legal advice. Clients and other interested
parties must consult and rely solely upon their own independent advisors regarding their particular
situation and the concepts presented here. Although care has been taken in preparing this material
and presenting it accurately, Transamerica Retirement Services disclaims any express or implied
warranty as to the accuracy of any material contained herein and any liability with respect to it.
Asset allocation and diversification do not assure or guarantee better performance and cannot
eliminate the risk of investment losses.
Transamerica Retirement Services does not provide investment advice. Clients and other interested
parties must consult and rely solely upon their own independent advisors regarding their particular
situation. Transamerica Retirement Services does not act as a fiduciary.
Transamerica Retirement Services Corporation is an affiliate of Diversified Investors Securities Corp.
(DISC). Securities are offered by DISC, 440 Mamaroneck Avenue, Harrison, NY 10528.
25
Disclosures
Slide 11: Drivers of Investment Behavior
Russell Investments’ Russell 1000® Value Index is comprised of the 500 most value-oriented stock companies in the
Russell 1000® Index. The Russell 1000® Growth Index is comprised of the 500 most growth-oriented stock companies in
the Russell 1000® Index, and the Russell 2000® Index is comprised of 2,000 small company stocks. Standard & Poor’s
S&P 500 stock market index is comprised of 500 leading companies in leading industries of the U.S. economy. The
Morgan Stanley Capital International (MSCI) World Ex-U.S. Index is a free float-adjusted, market capitalization index
that is designed to measure international market equity performance. Transamerica Retirement Services is not affiliated
with Russell Investments, Standard & Poor's, or Morgan Stanley Capital International.
An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund,
so performance may differ. It is not possible to invest directly in an index. There is no guarantee that any asset class will
achieve a certain rate of return or outperform another asset class.
Slide 12: Bonds and Bond Funds
The Merrill Lynch 1-3 Year Treasury Index is comprised of Treasury notes and bonds with maturities of 1-3 years. The
Barclays Capital U.S. Government/Credit Bond Index measures performance of U.S. dollar denominated U.S.
Treasuries, government-related, and investment grade U.S. corporate securities that have a remaining maturity of greater
than or equal to 1 year. In addition, the securities have $250 million or more of outstanding face value, and must be fixed
rate and non-convertible. The Barclays Capital U.S. Aggregate Bond Index is an unmanaged, market-value-weighted
index of taxable investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage
backed securities, with maturities of one year or more. The Credit Suisse First Boston Global High Yield Index is
comprised of issues rated BB and below by S&P or Moody’s with par amounts greater than $75 million. The Barclays
Capital Global Aggregate Bond Index measures a wide spectrum of global government, government-related agencies,
corporate and securitized fixed-income investments, all with maturities greater than one year. Transamerica Retirement
Services is not affiliated with Merrill Lynch, Barclays Capital, or Credit Suisse First Boston.
An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund,
so performance may differ. It is not possible to invest directly in an index. There is no guarantee that any asset class will
achieve a certain rate of return or outperform another asset class.
26
Disclosures
Slide 17: Stock Index Returns
Source: Morningstar Direct. Data as of March 31, 2011. Indices used to represent each investment style: Large Cap,
S&P 500 Index; Mid Cap, Russell Mid Cap Index; Small Cap, Russell 2000 Index; International, MSCI World Ex USA
Index. economy. The Russell Midcap Index is a weighted index representing the smallest 800 companies in the Russell
1000 Index. The average Russell Mid Cap Index member has a market cap of $8 billion to $10 billion, with a median value
of $4 billion to $5 billion. The Russell 2000® Index is comprised of 2,000 small company stocks. The Morgan Stanley
Capital International (MSCI) World Ex-U.S. Index is a free float-adjusted, market capitalization index that is designed to
measure international market equity performance. Transamerica Retirement Services is not affiliated with Morningstar
Direct, Standard and Poor's, Russell Investments, or Morgan Stanley Capital International.
An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund,
so performance may differ. It is not possible to invest directly in an index. There is no guarantee that any asset class will
achieve a certain rate of return or outperform another asset class.
Slide 18: Annual Stock Returns vs. Long-Term Average
Source: Morningstar Direct. Data as of December 31, 2010. The long-term performance quoted for stocks is based on
the 20-year average annual return of the S&P 500 Index from 1990-2010. The annual stock market returns shown are
represented by the S&P 500 Index and are for the 20-year period from 1989-2009. Standard & Poor’s S&P 500 stock
market index is comprised of 500 leading companies in leading industries of the U.S. economy. Transamerica Retirement
Services is not affiliated with Morningstar Direct, or Standard & Poor’s.
An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund,
so performance may differ. It is not possible to invest directly in an index. There is no guarantee that any asset class will
achieve a certain rate of return or outperform another asset class.
27
Disclosures
Slide 19: Bond Index Returns
Source: Morningstar Direct. Data as of March 31, 2011. Indices used to represent each investment style are as follows:
Total Bond, BC Aggregate Bond Index; Governments, BC Government; Corporates, BC Corporates; High Yield, Bank of
America/ML U.S. High Yield Master II Index. Barclays Capital Aggregate Bond Index is comprised of securities from
Barclays Capital Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities
Index. The Barclays Capital Intermediate Government Bond Index is comprised of all bonds covered by the Barclays
Capital Government Bond Index with maturities between one and 9.99 years. The Barclays Capital 1-5 Year Credit Index
is an unmanaged index of dollar-denominated, non-convertible U.S. corporate fixed income securities. The Merrill Lynch
U.S. High Yield Master II Index is a broad-based index consisting of all U.S. dollar-denominated high-yield bonds with a
minimum outstanding amount of $100 and maturing over one year. Transamerica Retirement Services is not affiliated with
Morningstar Direct, Barclays Capital, and Merrill Lynch.
An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund,
so performance may differ. It is not possible to invest directly in an index. There is no guarantee that any asset class will
achieve a certain rate of return or outperform another asset class.
Slide 20: Annual Bond Index Returns vs. Long-Term Average
Source: Morningstar Direct. Data as of December 31, 2010. The long-term performance quoted for bonds is based on the
20-year average annual return of the Barclays Capital Aggregate Bond Index from 1990-2010. The annual bond market
returns shown are represented by the Barclays Capital Aggregate Bond Index and are for the 20-year period from 19902010. Barclays Capital Aggregate Bond Index is comprised of securities from Barclays Capital Government/Corporate
Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. Transamerica Retirement
Services is not affiliated with Morningstar Direct or Barclays Capital.
An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund,
so performance may differ. It is not possible to invest directly in an index. Past performance does not guarantee future
results.
28
Disclosures
Slide 23: Move to Cash During a Crisis?
Source: Morningstar Direct, January 1, 1980 to December 31, 2010. Domestic stocks are represented by the total returns
of S&P 500 Index. Bonds are represented by the total returns of the Barclays U.S. Aggregate Bond index. Cash is
represented by the Citigroup 3-Month T-Bill Index. Note that prior to November 2008, the Barclays indexes were calculated
by Lehman Brothers. Past performance is not a guarantee of future results. An index is unmanaged and does not take into
account the fees and expenses associated with an actively managed fund, so performance may differ. It is not possible to
invest directly in an index. There is no guarantee that any asset class will achieve a certain rate of return or outperform
another asset class.
Slide 24: Risk of Stock Market Loss Over Time
Source: Morningstar Direct, December 31, 1926 to December 31, 2010. Stocks are represented by the S&P 500. An index
is unmanaged and does not take into account the fees and expenses associated with an actively managed fund, so
performance may differ. It is not possible to invest directly in an index. There is no guarantee that any asset class will
achieve a certain rate of return or outperform another asset class.
Slide 25: Diversification Across Asset Classes
Source: Morningstar Direct. Data as of December 31, 2010. Domestic stocks are represented by the total returns of
Standard & Poor’s Composite Index of 500 stocks. Bonds are represented by a composite of the total returns of long-term
U.S. Government bonds from yield published by the Federal Reserve and the Barclays Long-Term Government Bond
Index. Transamerica Retirement Services is not affiliated with Morningstar Direct, Standard & Poor’s, and Barclays
Capital.
An index is unmanaged and does not take into account the fees and expenses associated with an actively managed fund
so performance may differ. It is not possible to invest directly in an index. There is no guarantee that any asset class will
achieve a certain rate or return or outperform another asset class. Diversification does not guarantee a profit or prevent a
loss.
29
THE
ECONOMY
AND
THE MARKET
TRSC 3413ECON-0511
© 2011 Transamerica Corporation. All rights reserved.
FOR EDUCATIONAL PURPOSES ONLY