Quote of the Month

"The problem is not that there are problems. The problem is expecting otherwise and thinking that having problems is a problem." Theodore Rubin

RSG welcomes you to the December 2002 edition of The Retirement Strategist. We hope you enjoy our actionable ideas for implementing a better retirement stategy. Remember that time can be your greatest friend; the sooner you implement excellent retirement savings ideas, the better.

1. Questions From Members
2. Timely Investment Tip$: Simplified Employee Pension IRA Plan
3. Fiscal Therapy: The Importance of Asset Allocation
4. Retirement Strategies Group Service Highlight: How We Can Help You

QUESTIONS FROM MEMBERS

Q.	Can I decide how to invest all of the money in my retirement account at work, including employer contributions?
A.	Possibly not. It depends on the rules of your particular plan. In some plans, participants decide how their own contributions will be invested, but the company decides how to invest the matching contributions. In other plans, employer-matching contributions are invested in the same proportions as the participant contributions. And, in some plans, all matching contributions are made in the form of company stock. You should check with your company's human resources or benefits representative regarding your specific plan.
Q.	I am interested in starting a retirement portfolio, but am unsure if I should be using stocks or mutual funds?
A.	At some point a combination of the two is highly recommended. However, this past year made a case of why you should use mutual funds. When you own shares of a company's stock you are 100% tied to the performance of that stock. Last year we saw individual stocks lose as much as 90% of their value in some cases. In other words, all of the risk you are willing to take depends solely on how that individual stock performs. This leads to the real benefit of using mutual funds - you can diversify your investment in multiple stocks, all at the same time. Your investment gets pooled together with other investors, which increases the average person's purchasing power. By spreading out your investment over several stocks you help lower the risk in your overall portfolio. This concept is known as portfolio diversification. Inherently, the broader your diversification, the less risk you are exposed to. Mutual funds are a good way for the average person to invest in a wide range of investments, and with less money than it would take to accomplish the same level of diversification with stocks.

TIMELY INVESTMENT TIP$

Simplified Employee Pension IRA Plan

A Retirement Solution for the Self-Employed and Small Businesses

If you are like many small business owners or self-employed persons, you are probably interested in a retirement plan that is not too costly, complex, or time-consuming. The Simplified Employee Pension (SEP) IRA makes it easier than ever to build retirement savings for you and establish a valuable benefit for your employees.

What is a SEP?

Small business owners and self-employed persons who are

• wanting to invest for retirement,
• trying to close the gap between Social Security income and retirement expenses,
• looking to reduce tax bills,
• seeking a retirement plan that increases tax-deferred compounding of earnings, and
• looking for a way to attract and retain valuable employees.

Why a SEP IRA Might Be Right for You and Your Business:

1. Take advantage of generous contribution limits. You decide each year the percentage you wish to contribute, up to the lesser of 15% of compensation or $25,500 for tax year 2000 (compensation limited to $170,000 for tax year 2000).



2. Shelter income from taxes. . All contributions up to the above noted contribution limits are tax-deductible; earnings are tax-deferred.



3. Ensure cost flexibility. There are no requirements on the frequency or amount of contributions. Plus, you are only obligated to contribute for eligible employees.



4. Attract and reward long-term employees. You are only required to contribute for employees who are age 21 and over, earned at least $450 during tax year 2000, and have worked for you three of the last five years. You may designate less restrictive requirements at your discretion.

The Importance of Asset Allocation

An orchestra composed entirely of trombones probably wouldn't make very interesting music, nor would an orchestra of only violins or trumpets. But when you blend the right elements together in an orchestra, you create optimal performance that can't be achieved in any other way. Performance - in music and in investing - means finding the right balance. Likewise, you can optimize your portfolio by selecting the right mix of investments. Studies of investment strategies show the most important factor in investing success is not choosing individual securities or timing the market, but asset allocation - how you divide assets among different investments. In fact, studies have concluded that over 90% of investment risk and performance can be explained by the asset allocation decision. Very little, 10% or less, is due to other parts of the investment planning process, such as security selection and market timing.

Asset allocation is the craft of aligning your investments with your investment goals. Start by defining what you want from your portfolio based on your investing personality and your financial goals. Asset allocation seeks to limit the risk inherent in one investment by spreading your money into different investments that historically have worked together - creating a performance harmony with your financial objectives.

Why Should You Put Your Eggs in More Than One Basket?

Historically, the markets have moved in cycles, with investments performing differently at various times. This is because factors impacting the markets - the economy, interest rates, inflation, investor sentiment, etc. - typically affect asset classes in different ways. That's why it makes sense to spread your assets among several investments. With a well-diversified portfolio, you have less chance of being negatively impacted if one type of investment does poorly. Similarly, you have greater opportunity to reap rewards from investments which may be doing well.

The two primary reasons for asset allocation are:

• To enhance the return potential of your portfolio.
• To manage the risk in your portfolio.

How to properly allocate your portfolio among asset classes - This is accomplished by reviewing your goals, while taking into account your tolerance for risk. The objective of asset allocation is to maximize portfolio performance while taking on a minimal amount of risk. Correlating your investment portfolio among markets that work in your portfolio's favor is the best way to achieve this. When you compare a non-diversified portfolio against a portfolio with simple asset allocation you see that allocation helped reduce risk while providing respectable returns.

*Past performance is no guarantee of future results.

You have already taken the first step in requesting to receive our monthly e-bulletin. If you would like additional information including a free review of your current portfolio, information on brokerage services, mutual funds, tax-deferred annuities, or have a question on a specific financial program, please contact Retirement Strategies Group.