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Spring | Summer 2010

Does your investment portfolio

fit today’s changing circumstances?
After a tumultuous two years in the stock market, it may be
time to take another look at your investment mix
2020 Vision: Strategies for pursuing your
financial health in the next decade and beyond
The future of growth investing

Gregory and Charlie Jordan Brookins regularly invest in son James’

529 college savings plan regardless of stock market volatility.
From the Chairman’s desk
Investing these days may seem more complicated because our recent economic recovery has clearly differed from
previous recoveries. Emerging nations have sparked this recovery, whereas in the past the U.S. consumer led the
charge. Markets in China, Brazil and Southeast Asia have done dramatically better
than developed countries thus far.
Last March, I suggested it was important for individuals to have exposure to
emerging markets because they have become significant players on the global
economic stage. This remains true today, but we should realize that while emerging
market economies have done exceptionally well, they may not do as well in the
At Capital Research and Management Company, we are global investors. We
continue to expand our investment research resources. Our investment analysts
and portfolio counselors travel to all corners of the world to visit companies they
feel provide potential investment opportunity.
In this issue, we talked with three couples to see how they worked with their
financial advisers to reassess their asset allocations. We focused on how they’ve adapted to changing circum-
stances. While most of them didn’t make major modifications they did make subtle, important shifts to help them
achieve their financial goals.
During these turbulent times, I believe it is particularly important to meet with your adviser to develop a well-
diversified portfolio and revisit your long-term investment strategy.


James F. Rothenberg
Capital Research and Management Company,

investment adviser for American Funds

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other
entity, so they may lose value.
Investors should carefully consider the investment objectives, risks, charges and expenses of the American Funds.
This and other important information is contained in each fund’s prospectus, which can be obtained from your
financial professional and should be read carefully before investing.

2 investor
contents Spring | Summer 2010

editor-in-chief: Departments
Linda Molnar Hines
editor: 2 From the Chairman’s desk
Earl Gottschalk A message from Jim Rothenberg,
writer: chairman of Capital Research and
Doug Mehagian
Management Company.
production manager:
Paul Mayeda 4 At the opening
designer: Roth IRA conversion opportunities
Jim DeLouise
offer several benefits; going global
without leaving home; the arithmetic
of loss and recovery.

14 Closing bell
Veteran portfolio counselor and
growth investor Gordon Crawford
For address updates, please include shares his investment philosophy and
your current mailing label and send
discusses where he expects the best
your new information to:
growth opportunities will be over the
American Funds
Attn: Shareholder Services next decade.
P.O. Box 6007
Indianapolis, IN 46206-6007
If you have questions or comments
about this publication, please call
6 Does your investment
800/421-0180, or write to us at: portfolio fit today’s changing

American Funds Investor
333 South Hope Street After a tumultuous two years in the
50th Floor
stock market, many investors have
Los Angeles, CA 90071
found that their investment mix no

This magazine often includes articles

longer accurately reflects their goals
about American Funds shareholders. and risk tolerance. We talk with three
This does not necessarily constitute shareholder families to discover how
an endorsement of the funds by the
individuals or organizations portrayed
they rebalanced their portfolios to keep
in the magazine. their financial objectives on track.

10 2020 Vision: Six ways to

pursue your goals over the
Visit our websites:
next decade What will your financial picture look
for individual investors

like a decade from now? Here are six steps you can take to help achieve
for 401(k) plan participants
your long-term financial goals.

investor 3
at the opening

Roth IRA conversion opportunities offer several benefits

Starting in 2010, anyone regardless of years and reached the age of 59½
their income can convert a traditional IRA (certain other exceptions may apply).
to a Roth IRA. In the past, people whose In addition to income tax-free with-
adjusted gross income was more than drawals, a Roth IRA has several other
$100,000 were unable to take advantage long-term benefits:
of this tax and retirement strategy.
If you elect to convert, you will have ■ With a Roth IRA account, you aren’t
to pay income taxes on any amount con- required to take yearly minimum
verted that hasn’t already been taxed. (For distributions starting at age 70½.
conversions in 2010 only, Congress has That could leave more money for your a mix of tax-free accounts (like a Roth
approved a special rule allowing you to beneficiaries if you don’t need it for IRA) and tax-deferred accounts (such as
treat half of the income from the conver- yourself. The money your beneficiaries a 401(k) or traditional IRA), you’ll have
sion as received in 2011 and the other receive from your Roth IRA will be free greater income flexibility as your need
half in 2012.) Future withdrawals from the from federal income tax. for money changes during retirement.
Roth IRA that include earnings are free
from federal income tax and penalty after ■ A Roth IRA can also provide tax diversi- ■ Besides traditional IRAs, a rollover from
you’ve had the account for at least five fication. Tax experts say that if you have a retirement plan can be converted to
a Roth IRA if you are eligible to take a
distribution from the plan. That could
include a 401(k) plan or a 403(b) plan
once you have reached age 59½.

While Congress removed the income

limits on conversions to Roth IRAs, the
income limits on contributions to Roth
IRAs remain. Thus a higher income inves-
tor still cannot contribute directly to a Roth
IRA. However, a higher income investor
could contribute each year to a nondeduct-
ible traditional IRA, which has no income
© 2010 Wally Schwadron. All rights reserved.

limits, and then convert the account to a

Roth IRA.
Your individual circumstances are most
important. IRA conversion rules and tax
calculations can be complicated, espe-
cially if you own more than one traditional
IRA. There may be other ancillary benefits
(or detriments) to doing a conversion, so
it is important that you meet with your
financial adviser and tax consultant before
“Do you realize you’re not earning any interest on that?”
making any decisions. ■

4 investor

Going global without leaving home

Investors seeking global diversification The lesson? Achieving global diver- latitude to invest in high-quality, globally
often believe they need to invest in a port- sification goes beyond regional or diverse companies provide an opportunity
folio full of international names. Yet that’s country-specific investments. While to benefit from economic growth wherever
not necessarily the case. From the United risks still exist, mutual funds with the it may occur. ■
States to South Korea, many of the world’s Percentage of sales and operations outside home economy
leading companies, such as Coca-Cola
Nestlé (Switzerland) 87%
and Samsung, generate significant revenue
Vodafone (U.K.) 87%
outside their home markets. Nokia (Finland) 84%
“As the world has become more inter- Cemex (Mexico) 82%
connected, where a company has its Honda (Japan) 82%
headquarters is becoming less relevant Roche (Switzerland) 80%
all the time,” explains American Funds Acer (Taiwan) 77%

portfolio counselor Jody Jonsson. “It’s Coca-Cola (U.S.) 72%

Siemens (Germany) 72%
where that company does business that
ExxonMobil (U.S.) 68%
Procter & Gamble (U.S.) 61%
Indeed, as you can see in the table Europe
Sony (Japan) 61% Japan
at right, many iconic corporations with Hewlett-Packard (U.S.) 59% U.S.
identities strongly linked to particular Emerging markets
Lenovo (China) 47%
countries have the majority of their opera- Samsung (South Korea) 47%
tions and derive the lion’s share of their 0% 20% 40% 60% 80% 100%
Source: United Nations Conference on Trade and Development, World Investment Report 2009.
revenues beyond their home base.

Market savvy

The arithmetic of loss and recovery

From its high in October 2007 through drops to $500. In order for the investment double. Based on this
its low in March 2009, the unmanaged to return to the $1,000 level, that $500 hard mathematical
Standard & Poor’s 500 Composite Index, must do more than gain 50% (which reality, for the S&P 500 to return to its
a broad measure of U.S. stocks, fell would only bring it to $750); it needs to October 2007 high, it would have to real-
nearly 57%. Since then, the S&P 500 and Back in the black ize an increase of over 131%.
global markets in general have rebounded If your investment To get back to break-even,
The arithmetic of loss and recovery
sharply. In fact, as of December 31, 2009, declines … you’ll need a gain of … highlights the importance of making down-
the index had risen almost 65% off its –10% 11.1% side protection a criterion when selecting
March low. But, thanks to something investments. Mutual funds with histori-
–20 25.0
known as the arithmetic of loss and cally low relative volatility may not be at
recovery, that sharp gain doesn’t mean –30 42.9 the forefront in bull markets, but they
the recovery is complete. –40 66.7 can outpace the competition over longer
Consider the following example: If a time periods by ceding less ground during
–50 100.0
$1,000 investment loses 50%, its value downturns. ■

investor 5
Does your investment
portfolio fit today’s changing
Shareholders reveal how they adjusted their asset
allocations to meet important life goals.

After a tumultuous two years in the stock The portfolio’s asset allocation, if not
market, it may be time to take another rebalanced during that period, would have
look at your investment portfolio. What you automatically reversed to 61% bonds and
“We’re pleased with these
learn may surprise you. You may find that 39% stocks because of the decline in
your investment mix no longer accurately market values.
shifts in our portfolio and
reflects your financial situation, goals and With these numbers in mind, the big believe we’re in a good place
time horizon (i.e., number of years before question today is: Are your investments for the coming years.”
you will begin to withdraw the money). properly allocated to meet some of life’s
Surveys of 401(k) plan holders conducted most basic goals, such as funding a
by Hewitt Associates, a human resources child’s college education and preparing — Dave Kleve
consulting firm, have shown that many for retirement?
investors have not readjusted their port- We talked with three couples to see
folios to reflect changing circumstances. how they worked with their financial
Whether or not that is your situation, it is advisers to reassess their asset allocations. in nearby Chico, California. The couple
vitally important to meet with your financial Our focus was how they adapted to moved from Los Angeles to the scenic
adviser to carefully consider your long-term changing circumstances to meet their rural community of Redding to escape
strategy. individual goals. As you will see, most of Southern California’s high real estate
According to Pam Hess, director of them didn’t make large-scale modifications prices and to allow one of them to remain
retirement research at Hewitt, “While but they did make subtle yet important at home.
participants in 401(k) plans continued shifts to keep their long-term investment For Dave and Molly, having ample funds
to save during the past several months, strategies on track. in 529 college savings plans for their
investments in stocks dropped to 50% at daughters is extremely important. When
the end of 2008. That’s down from 68% Creating a portfolio to meet two invest- Dave was an undergraduate science major
at the end of 2007, thanks to lower share ment challenges — college education at UCLA, he worked 20 hours weekly to
values and the movement out of equities.” and retirement: David Kleve and Molly pay for his education. “It was a disadvan-
She adds, “Even with no action on their Schneider of Redding, California tage because I couldn’t dedicate the time
parts, many investors’ asset allocations Dave Kleve, 46, is a stay-at-home father needed for some of the tougher courses,”
have changed dramatically.” caring for the couple’s two daughters, he admits. By contrast, Molly had loans
Let’s consider what would have Katherine, 10, and Karen, 6. He maintains and grants that made it possible for her
happened had an investor made no adjust- their home on the Sacramento River in to focus solely on her medical studies
ments to a hypothetical $100,000 portfolio Redding, as well as manages their ranch at Northwestern University. Through the
consisting of 60% stocks and 40% bonds nearby, where his mother, Mary Jeanne, stock market’s ups and downs, Dave and
from the market’s high on October 9, resides. His wife Molly Schneider, 44, is Molly have continued to invest monthly
2007, through its low on March 9, 2009. an emergency room physician at a hospital in their daughters’ 529 plans. Katherine

6 investor
Left to right: Dave Kleve, daughter Katherine, mother Mary Jeanne Kleve, daughter
Karen, and wife Molly Schneider at their California ranch. Insets: Dr. Molly
Schneider in the emergency room; mother and daughter at elementary school.

will begin college in eight years; her sister Why? The adviser believed the new Preparing for semi-retirement with a
Karen will follow four years later. allocation was more in tune with the couple’s balanced portfolio: Evan and Susan
Retirement funding is also a vital con- ages, financial situation and time horizon. Williams of Rochester, Michigan
cern for the couple. Molly has a physically Now Dave and Molly also have a larger By all accounts, Evan “Big Cat” Williams,
and mentally challenging job. With the exposure to companies that pay dividends, 62, has had a storied career. More than
emergency room open 24 hours a day, as well as to those that do business in 30 years ago, Evan won the National Long
her schedule is never set. “The older you places such as China, Brazil, India and Asia, Driving Championship of golf in both 1976
become, the harder it is to work 10- to where growth is expected to be greater and 1977. In 1977, he hit a record 353
14-hour days,” she says. For many ER than in the U.S. over the next decade. yards, which stood until 1995 when it was
doctors, early retirement is an understand- “We’re pleased with these shifts in our broken by Sean “The Beast” Fister. Sports
able goal. portfolio and believe we’re in a good place Illustrated described him in action: When
Prior to the market’s steep dive in 2008 for the coming years,” Dave says. The cou- Evan Williams drives a golf ball off the tee,
and early 2009, Dave and Molly’s portfolio ple meets with their financial adviser twice “caddies cower, Jack Nicklaus sticks his
held an overall mix of 60% growth funds, a year to keep track of their progress. fingers in his ears and owners of property
36% growth-and-income funds and 4% Investment lesson: It’s good to meet anywhere near the fairways get nervous
money market funds. In late 2008, when with your adviser regularly to monitor about their picture windows.”
the market’s woes began to take a toll on your progress toward retirement and col- Evan says he recognized right away that
their investments, their financial adviser lege funding goals, and to take advantage “hitting a golf ball farther than anyone
recommended that they shift some of their of new investment opportunities. Dave else was something I could market.” He
assets from pure growth mutual funds to and Molly feel they’ve benefited from this went to a sports agent, who booked him
growth-and-income mutual funds that pay approach. Keep in mind that investing out- for teaching exhibitions and corporate golf
dividends. The adviser also suggested they side the United States involves additional outings in the United States, Japan and
move a portion of their daughters’ 529 risks, such as currency fluctuations, peri- elsewhere around the world. He even met
plans from pure growth funds into interna- ods of illiquidity and price volatility. These his wife, Susan, at a golfing exhibition. The
tional dividend-paying growth-and-income risks may be heightened with investments only drawback was that he spent an aver-
funds. in developing countries. age of 160 nights on the road each year.

investor 7
Susan and Evan Williams shopping for vegetables at
a Michigan grocery store. Insets: Evan relaxing in his
study and on the golf course.

“I always want to have a

significant equity exposure.
I believe in the long-term
future of the stock market.”

— Evan Williams Despite his success, he realized early

on that long ball hitters don’t get better
with age and that his career could end at
any time. Thus, he and Susan saved and
Why diversification and asset allocation can still work invested money regularly. They paid for
everything up front, including their home in
With all the volatility we’ve experienced in the past few years, 2010 is a good time to take
Rochester, located a short 50-minute drive
a hard look at your investment approach. Some investors concluded that being diversified
from the Detroit airport. Susan worked as
didn’t really work in 2008 and 2009, when all stock markets — U.S., international and
emerging — declined simultaneously. The majority of bond prices also fell, offering only a teacher, and the couple raised two boys.
limited protection against the market collapse. During his spare time on the road, Evan
The fact is that diversification did work as it typically has, even if during extreme times it became a student of the stock market. He
hasn’t been able to entirely prevent losses. For example, from December 31, 2007, through still follows the market closely but relies
December 31, 2009, a portfolio composed of 60% stocks and 40% bonds would have on his adviser for overall financial strategy
realized a drop of 7.6%. During that same period, a 100% U.S. stock index portfolio would and to keep an eye on his asset allocation,
have lost 20.3%, nearly three times as much as the diversified investment.* so it doesn’t “get out of whack” with the
With that in mind, how can you position your investments for the rest of 2010 and beyond? couple’s future retirement income needs.
■ First, work with your financial adviser to set up an appropriate allocation, or investment Susan has gone back to work as a recep-
mix, for your portfolio. Take into consideration your time horizon (the number of years, for tionist for a dental practice.
instance, before you might need money for a child’s college tuition, the down Recently, Evan has given some thought
payment on a home or your eventual retirement), your financial situation and your to semi-retirement, focusing more on com-
tolerance for risk. peting in state tournaments and teaching.
■ Second, invest regularly in a diversified portfolio of stock, bond and money market funds. He and Susan sit down with their financial
By dollar cost averaging — depositing money in one of these three categories on an adviser twice annually to strategize and
automatic basis — you can help reduce your risk if one type of fund doesn’t do as well be certain their investment mix is where
as another. Stock, bond and money market fund investments all have varying degrees of they want it to be. After the 2008–2009
risk and respond differently to changes in the financial markets. Keep in mind that regular market decline, their financial adviser
investing does not ensure a profit or protect against loss, and investors should consider
convinced them to reduce their portfolio’s
their willingness to keep investing when share prices are declining.
stock market volatility. They have begun
■ Third, rebalance your portfolio if your asset mix is thrown off kilter by volatility or to shift assets out of growth funds into
market surprises. This might mean forcing yourself to buy stocks when they’re down and more income-oriented funds. At one time
sell them when they’re up. Doing so may allow you to take advantage of irrational “herd”
their portfolio held 75% in growth funds
mentality, rather than being the investor who falls victim to it.
and 25% in income funds. Now they have
* Stocks are represented by the unmanaged Standard & Poor’s 500 Composite Index, a widely used measure of large
U.S. stocks. Bonds are represented by Barclay’s Capital U.S. Aggregate Index, a respected measure of U.S. bonds.
moved to a 60% growth fund/40% income
All returns are cumulative as of December 31, 2009. fund mix, and their adviser would like them

8 investor
to shift even further to a 50% growth 44, is vice president of programming money go down month after month.
fund/50% income fund mix. The couple’s operations for Black Entertainment Everyone has the urge to get out of the
income fund mix includes bond funds, Television, the cable television channel. market, but our financial adviser came out
equity-income funds and a small amount “Our focus is long-term growth,” explains very strong that we needed to ride out the
of money market funds. But that’s as Gregory. “We like to keep 70% of our declines. So we just had to be patient
far as Evan wants to go. “I always want money in growth and growth-and-income and keep paying our bills.”
to have a significant equity exposure. mutual funds.” The positive mutual fund statements
I believe in the long-term future of the However, their investments in a 529 they began receiving in April 2009 — and
stock market,” he asserts. plan for son James, age 2½, and their that continued through the rest of the year
Investment lesson: When approaching 403(b) and 401(k) retirement plans took — cheered the couple. “We had some
retirement, it’s wise to add more income a beating with the market’s precipitous good success with our decisions to stay
funds to your investment mix to lower drop in 2008 and early 2009. In light of in the market and dollar cost average,”
volatility. However, it’s also a good strategy the fact that it would be another 20 years Gregory says. The couple meets twice
to keep a sizable equity fund exposure before they would need to tap their retire- yearly with their financial adviser. Charlie
because your money will have to last ment money, the couple chose to stay the likes the concept of having “someone who
through retirement, and stocks have often course. They built up their positions by is specifically focused on making money
been the best way to keep ahead of infla- investing even more when the market was for us. When we win, he wins.”
tion over the long term. down. They also continued to contribute Investment lesson: Dollar cost averaging,
$150 a month to their son’s 529 account, the practice of putting money aside auto-
Staying focused on long-term growth knowing it will be 16 years before toddler matically at regular intervals, keeps you
during difficult times: Gregory Brookins James starts as a college freshman in investing in good times and bad and can
and Charlie Jordan Brookins of Los the class of 2025. They began investing lead to lower average prices for your funds
Angeles, California $50 a month the year he was born and over the long-term. But, like Gregory and
Gregory, 44, is a professor of accounting increase it by $50 a month every year. Charlie, you need the fortitude to keep
at Santa Monica College. His wife Charlie, Charlie states, “It’s hard to watch your investing when stock prices are falling. ■

Professor Gregory Brookins on campus.

Bottom: son James and wife Charlie Jordan
Brookins. Right: James.

“We had some good

success with our decisions
to stay in the market
and dollar cost average.”

— Greg Brookins

investor 9
10 i n v e s t o r
2020 Vision:
Six ways to pursue your financial goals in
the next decade and beyond

When asked to reveal the biggest issue that stands in the way of his clients’ financial success, a longtime
financial adviser found it difficult to narrow it down to just one. Instead, he ticked off a list of common
mistakes, ranging from short-term decision-making to trying to time the market to living beyond one’s means.
All these roadblocks, he noted, can be avoided with a common solution: Develop a realistic financial plan
and stick to it.

It’s a familiar refrain to those of us who But ultimately there’s no substitute for constantly re-examine how and where
have taken the time to outline our long- getting a grasp on where your money is they spend their money. When they find
term goals and develop a basic strategy to being spent. opportunities to lower costs, they do.
achieve them, and yet still found ourselves The good news: Getting started isn’t As individuals, however, we often let
off track. A key problem is that many of us that hard. Advisers can often provide the perceived inconvenience of switching
may lack the basic day-to-day skills needed budgeting templates, and many free insurance providers or cell phone
to neutralize some of the challenges that worksheets can be downloaded from the carriers stand in the way of reducing our
invariably arise. Internet. In addition, most personal finance expenses.
As we enter a new decade, consider software offers budgeting functionality. But this cost-cutting approach to your
implementing some of the following strate- In terms of compiling data, strive for personal finances can really pay off. As
gies into your financial plan. By doing accuracy and thoroughness. One adviser an initial goal, focus on reducing your
so, we believe that you will have a better asks her clients to track expenses for a expenses by 5% to 10%. Then, every
chance at achieving your financial goals handful of different months in order to year at an appointed time, revisit your
over the next 10 years. capture less frequently incurred expenses budget with the aim of keeping it from
such as quarterly insurance payments, rising. At a minimum, make it your
1. Understand where your money taxes or holiday travel. objective to let your expenses rise at a
is going. Once you’ve developed a budget, rate slower than your income growth.
We all know that creating a budget plays consider the following steps for staying
a key part in ensuring financial health, on track: Increase your payment frequency.
no matter what your income. Yet it’s a At one time or another (and that time
step many of us don’t take, for reasons Revisit your costs at a set time may be right now) most of us have
ranging from procrastination to denial. each year. The best-run companies systematically chipped away at debt only

investor 11
to find ourselves back in the same to spend more as you make more.
position a few months or years down the To ensure that saving and investing keep
road. Staving off debt is not a “one and pace with income, consider switching your
done” event but an ongoing commitment focus from dollar amounts to percentages.
requiring vigilance and systematic effort. For example, if you commit to saving 8%
If credit cards are your downfall, get of your income rather than a flat amount,
rid of them. But if you’re unwilling to such as $250 per month, your saving will
The important “pay yourself
part with your plastic, limit it to a single rise in step with your income. first” dictum means that saving
card and be dogged about paying off Many experts agree that automating
your balance each month. To make increases is the best way to ensure that and investing should be part of
doing so easier, one adviser suggests you save more as you earn more. For an overall budgeting strategy,
that rather than paying credit card bills those investing for retirement within an
monthly, do so each time you receive employer-sponsored vehicle such as a not simply afterthoughts to be
a paycheck. That way, the amount you 401(k) plan, such step-ups often happen
considered once the bills are
owe at any one time becomes more automatically. But to the extent that it’s
manageable, and the temptation to carry possible, strive to automate the increases paid. Make saving and investing
a balance is reduced. in your higher education and taxable
The importance of keeping revolving investments as well.
a “cost” on your budgeting
debt in check cannot be overstated. If you know that a raise is in your worksheet.
According to one adviser, “In my experi- future, make certain your adviser
ence, the aftereffects of accumulating increases the amount automatically trans-
significant revolving debt can set one’s ferred from your checking account into
finances back 10 years — five if they’re your brokerage account as soon as the that researchers in behavioral finance have
lucky.” increase takes effect. If you never get brought to light in recent years.
accustomed to seeing the extra money in “The investment community long
Make room for investing. The important your checking account, you’ll feel less operated under the assumption that
“pay yourself first” dictum means that tempted to spend it. markets were efficient and investors were
saving and investing should be part of rational,” says John Armour, executive vice
an overall budgeting strategy, not simply 3. Don’t follow the herd. president of the Personal Investment
afterthoughts to be considered once the We need look no further than the technol- Management division of Capital Guardian
bills are paid. Make saving and investing ogy bubble of the late 1990s or the recent Trust Company, an affiliate of Capital

a “cost” on your budgeting worksheet. housing boom to see that investors don’t Research and Management Company.
always act in their own best interests. Our “But it turns out that human nature can
2. Avoid lifestyle inflation. inclination to dive headlong into various lead us astray. For example, we take too
With the recent economic downturn, assets as they are peaking is matched much or too little risk and we pay too
warnings about how personal spending only by our instinct to sell assets when much attention to recent events and ignore
invariably rises with income may not seem their prices are in decline. This tendency the long-term tendencies of the markets.”
timely. But when wage growth returns, to buy high and sell low is one of many When it comes to blunting the negative
it’s important to recognize the tendency subconscious and self-defeating tendencies impact of these tendencies, a system-

12 investor
atic investment plan is perhaps the most Research your options. When deciding event of an emergency or job interrup-
effective strategy. By committing to auto- how to invest your contributions, the tion is essential to one’s financial health.
matically invest a predetermined amount temptation may be to select funds with Otherwise, you may have to fall back
on a weekly, monthly or quarterly basis, above-average recent returns. But it’s on credit cards to meet living expenses
you reduce the likelihood that hot trends, important to look at results over longer or suffer the tax consequences of raiding
unexpected market events or bad news time periods and consider whether investments earmarked for retirement
will drive you to make decisions out of step fund objectives and risk profiles match or higher education purposes. As one
with your long-term goals. And remember your own. Enlisting your adviser to help adviser puts it, “We never want to have
that while remaining true to your plan evaluate the funds being offered and to sell long-term assets to meet shorter
is especially tough when markets are in suggest an allocation aligned with your term needs.”
retreat, it can increase your account’s overall retirement strategy can help take In fact, this adviser views the liquid
potential for growth when markets recover. the guesswork out of it. assets that comprise a rainy day fund
as the base of an “investment pyramid.”
4. Be proactive with your Maximize your contributions. When Until that base has been established,
retirement. it comes to employer-sponsored plans she’s reluctant to move clients to the
Getting a complete picture of your retire- such as a 401(k) or 403(b), maximizing pyramid’s next level — stock and bond
ment investments and making sure they your contributions is a vital step — investments, for example. “Based on
are on track to meet your long-term needs particularly if they are matched by your a client’s employment longevity and job
can be a challenge. Taking the following employer. For example, those earning security, the amount may differ, but it
steps can help: $35,000 per year who consistently should never really be less than three
contributed 3% of their annual salary months of living expenses,” she says.
Consolidate when possible. How many to their 401(k) plan — the equivalent
pieces of paper must you sort through of about $40 every two weeks — would 6. Don’t let past mistakes
to tally up your retirement assets? have over $16,000 at the end of 10 paralyze you.
If you’re one of the many who hasn’t years (assuming an 8% annual rate of For those with false starts and stumbles
consolidated retirement accounts return on their investment). If just half in their pasts, taking another stab at
(including IRAs and employer-sponsored that 3% annual contribution was matched shaping up your finances can be tough.
accounts from previous jobs) the picture by their employer, that amount would Don’t dwell on past mistakes or what you
may be jumbled. To clarify it and help be more than $24,000.* should have done. Instead, learn from
ensure that your retirement assets are those mistakes and plan your future based
collectively invested in keeping with your 5. Expect the unexpected. on where you are now. Many times,
long-term goals, consider consolidating The uncertainty brought about by the your greatest ally in helping you to move
your accounts. Your adviser can help recent economic downturn is a harsh forward can be your financial adviser.
select the option that’s best for you. One reminder that even the most secure By working with you to develop a plan,
piece of good news: For 2010, investors financial situation could one day be continuously measuring your progress
of all income levels can convert tradi- challenged. That’s why having several against it and providing you with a valu-
tional IRAs to Roth IRAs, which could months of living expenses on hand in the able perspective on markets, an adviser
provide added long-term tax advantages can help you focus on achieving your
* This example is for illustrative purposes only and
for many (see article on page 4). does not portray an actual investment. long-term financial objectives. ■

investor 13
closing bell
The future of growth investing

Since he began his investment career with Capital Research and Management Company nearly four decades ago,
portfolio counselor Gordy Crawford has witnessed a number of political, technological and economic changes,
including six major stock market declines, innovations such as the cell phone and the Internet, and the emergence
of developing countries as leading economic players. A growth-oriented investor who covered the media and
entertainment industries for 35 years, Gordy manages money for The Growth Fund of America, The New Economy
Fund and SMALLCAP World Fund. We asked Gordy to share his investment philosophy as well as his thoughts on
where he expects the primary areas of growth will be for investors over the next 10 to 20 years.

What have been the most significant had the worst down market since the from the bottom up, picking individual
changes you’ve seen in the markets and Great Depression. Stocks declined almost stocks one at a time. But I’m picking them
investing since you began your career? 50%. There was a global recession. The with that forest in mind.
When I started in the business, it was President of the United States was being
a much simpler time. There were some impeached. The first oil shock happened. What trends are informing your choices
mutual funds managing money and some Yet you knew these were events that right now?
banks managing money, but we didn’t would eventually correct themselves. You There are vast changes going on in the
have 9,000 hedge funds or enormous knew that economies would eventually global economy. The United States, Japan
derivatives markets. The whole world recover. That was also true in 1980–1982 and parts of Western Europe are in secular
has become much more complex, much and even in the dot-com bust of 2000– decline in relative terms, while emerging
more global, with many more players in 2002. What was distinctly different this markets — Brazil, India, China, the rest of
the markets. Despite all that change in time is that the global financial system Southeast Asia, Russia — are gaining
the marketplace, the way I invest has not came dangerously close to breaking. I market share. As a result, my whole
fundamentally changed since I did my first don’t think most people realize how near portfolio is shaped around that. Over the
industry review on the fire and casualty we were to a total collapse of financial next 20 years, I think as much as 70% of
insurance business in the summer of 1971. markets worldwide. I’ve never felt fear like incremental growth in the global economy
that before. will occur in emerging markets. Although
You were a relatively new investor there are other risks to investing in devel-
during the 1973–1974 market crash, As a growth investor, what criteria do oping countries, that’s where the people
which at the time was considered the you use to choose companies for your are. That’s where the unmet needs are. So
worst since the Great Depression. portfolios? in the broadest of senses, that’s where I’m
How does the 2007–2009 financial I try to identify industries and countries looking to invest.
crisis compare? and groups of stocks that have large secu-
They’re not even in the same league to lar tailwinds behind them. So the first step That’s a considerable shift.
me. I’ve been through the market declines for me as a portfolio manager is getting Twenty years ago, developed markets like
of 1973–1974, 1980–1982, 1987, 1990, the forest right before I worry about the the United States, Japan and Western
2000–2002 and this most recent one. trees. Once I determine what I think the Europe were the places that were safe and
This one was by far the most difficult world is going to look like two or three stable. The countries were well run, they
of my career. From 1973 to 1974, we years down the road, I then build portfolios had their fiscal affairs in order, they had

14 investor
Gordon Crawford

Position: Director of The Capital Group

Companies, Inc. ; senior vice president of

Capital Research and Management Company;

vice chairman and portfolio counselor for
SMALLCAP World Fund; senior vice president
and portfolio counselor for The New Economy
Fund; senior vice president and portfolio
counselor for The Growth Fund of America.

Investment experience: 39 years as an

investment professional. Joined Capital
Research and Management Company in 1971.

Education: Bachelor’s degree from Wesleyan

University in 1969; master of business
administration from the University of Virginia
in 1971.
strong currencies and they had strong rule
of law. Emerging markets were banana
republics. They had volatile currencies, “Over the next 20 years, I think as much as 70% of incremental
poor fiscal discipline, and opaque and
growth in the global economy will occur in emerging markets. …
illiquid stock markets. Today, China is our
creditor; we are a debtor to them. They That’s where the people are. That’s where the unmet needs are.
have a slight fiscal deficit; we have a 12% So in the broadest of senses, that’s where I’m looking to invest.”
fiscal deficit. They have a trade surplus;
we have a trade deficit. The whole world enormous havoc with the old media excessive or how to have the conviction
has been turned upside down. In many companies and created giant new ones, to hold onto a stock when everyone else
ways, the entire concept of emerging and and that process is not done. What I need is selling. Older people acquire wisdom
developed markets is becoming obsolete to do as a portfolio counselor is determine because they have lived through various
right before our eyes. where those big trends are headed and events and witnessed the mistakes of
how best to invest our clients’ money in others. The same is true of the investment
In addition to emerging markets, the businesses most likely to profit in business.
what other factors do you believe will those thematic areas.
have a major impact in the next 10 What advice would you give share-
to 20 years? What do you know now that you wish holders right now?
There’s no question that energy is one you’d known when you began your I still believe that equities are going to
of the most important economic themes of career? outperform other asset classes over the
our lifetime. In the United States, energy There is no set of facts I could have been long term. I believe that’s always been the
is a large part of an intractable trade given in 1971 that would have provided case. So, depending on their age and risk
deficit that may result in the U.S. losing the kind of insight that only experience tolerance, I think investors should have a
its reserve status as a currency, because brings. Living through the 1973–1974 certain percentage of equities in their port-
people are tired of us shipping dollars and 1980–1982 market downturns, the folio. They should also be diversified. That
overseas. impeachment of a president, an oil crisis lesson has been learned over and over
Another ongoing trend is the digitization and a dot-com bust is part of the whole again. And frankly, I think investors should
of the world. The advent of the Internet process of instinctively learning how to have a substantial portion of their money
and the digitization of content have reaped manage through a market that has become invested outside the United States. ■

investor 15
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