Developing Your Investment Strategy Investing vs. Speculating As many investors discover, mapping out an investment plan is the easy part. Sticking with that plan is what separates investors from speculators. To make the most of your investment opportunities, allow your lifestyle — not stock market gyrations — to dictate your investment approach. Your goals are what count, so keep them firmly in mind when you make financial decisions. Are You an Investor or a Speculator? Many investors use a consistent, long-term strategy to build a more secure financial future through steady purchases of well-diversified investments. Speculators and market timers are usually less concerned about consistency. They may switch investment philosophies on an emotional whim, sometimes treating their investments more like play money than the serious money needed for their financial future. Most people would probably say they are investors, but the question is not so easily answered. During a bull market, it can be relatively easy to be a long-term investor. However, when the stock market starts gyrating, investors' mettle can be tested — revealing many closet speculators. For example, according to October 1998 numbers compiled by the Investment Company Institute, a mutual fund research firm, investors pulled $11.7 billion out of mutual funds during the August 1998 market downturn. When the stock market rebounded in September 1998, investors reversed course, pouring $6.5 billion back into the funds. This kind of emotional response to short-term market fluctuation can be an example of speculative behavior. The Risks of Market Timing Market timers follow a fairly predictable cycle. When prices seem low relative to historical norms, they buy. When an investment's value seems to peak, they sell. This cycle is repeated with the next "hot tip." In theory, market timing seems fairly rational, but in practice it rarely works. Even the most sophisticated investors, with years of experience and the best analytical tools, cannot predict the whims of the financial markets. What's more, market timers are often misled by emotional factors such as greed or fear. Many end up buying at the tail end of a market rally or selling in a panic at a loss. As shown in the chart, a market timer who missed the S&P 500 Index's 10 best months over a 30-year period had a return only a little above that of Treasury bills. An investor who consistently invested in the market and held on to stocks, as represented here by the S&P 500 Index, earned over twice as much during the same period. Market Timing Isn't the Solution Value of $1, invested for 30 Years (Jan. 1, 1967 — Dec. 31, 1996) Source: Russell Capital Markets Research The difficulty of timing the markets is complicated by the fact that most market rallies occur in brief spurts. Market timers waiting for the right opportunity to buy or sell risk being out of the market during these sudden market changes. To benefit from market timing, you must accurately predict the future, not once, but twice. First you must correctly determine when to sell. Second, you must accurately determine when to get back in. Because falling markets can rise steeply within days, your timing must be nearly perfect. Making Decisions Like an Investor To avoid falling into the speculator's trap, focus on the term "individual" before making any investment decision. Your individual long-term goals and your individual financial circumstances — not the daily gyrations of the stock market — should govern your decision. By focusing on your individual needs and sticking to your investment plan, you could actually benefit from the stock market's gyrations. For example, a good long-term investment strategy generally includes investing a set amount at regular intervals. If you maintain this schedule during a market dip, you may be purchasing some strong stocks at discount prices. Of course, changing your investments during a gyrating market is not always speculating. It can be the mark of an astute investor if the reasons for your changes are consistent with your individual long-term goals. Lifestyle Timing: Making Decisions Based on Your Goals Instead of market timing, try lifestyle timing. Look at your own investment portfolio and compare it to your long- and short-term goals. Do you need to withdraw money within the next year or so to begin financing your retirement or to make some other lifestyle change? If so, you might want to rebalance your portfolio to a more conservative mix of assets. What about your long-term goals? Short-term market gyrations will probably not significantly affect your long-term plans, and it may be wise to stick with your current strategy. To make the most of your investment opportunities, use disciplined, systematic investing — like dollar cost averaging. Dollar Cost Averaging Dollar cost averaging is a policy by which the same dollar amount is placed in your investments at fixed, successive intervals, enabling you to average the purchase of your shares over time. Assuming that each investment is for the same number of dollars, a greater number of shares are purchased when the price is low and fewer when the price is high. So you may get a satisfactory average price, instead of buying all the shares at the high levels of the market. Over the long run, dollar cost averaging helps market fluctuations work for you, not against you. Because you buy more shares when prices are lower, and fewer shares when prices are higher, the average cost of your total accumulated shares in an investment increasing in value over time is below the average market price for all of the shares you purchased. Disciplined, systematic investing does not promise a profit or protect you from a loss, but it does reduce the odds of you putting too much money into an investment when prices are high, and it also removes the emotional factor from your investment strategy. Fund objectives, risks, charges, and expenses should be carefully considered before investing. A prospectus containing this and other important information can be obtained by calling (866) 676-7680 or by visiting this page on russell.com. Please read the prospectus carefully before investing. Copyright © Russell Investments 2005. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an as is basis without warranty. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Dollar Cost Averaging does not assure a profit or prevent a loss in declining markets, and you should consider your ability to continue investing during low price levels. Treasury Bills (.T-bills.) are short-term debt securities issued by the U.S. Government with maturities of usually one year or less. Fixed income investors should carefully consider risks such as interest rate risk, credit risk, securities lending, repurchase and reverse repurchase transaction risk. Indexes and/or benchmarks are unmanaged and are provided for general comparison purposes only. They cannot be invested in directly. S&P 500 Index: An index, with dividends reinvested, of 500 issues representative of leading companies in the U.S. large cap securities market (representative sample of leading companies in leading industries). Standard & Poor's Corporation is the owner of the trademarks, service marks, and copyrights related to its indexes. The index is unmanaged and cannot be invested in directly. Securities products and services offered through Russell Financial Services, Inc. (formerly Russell Fund Distributors, Inc.), member FINRA, part of Russell Investments. For information on the Financial Industry Regulatory Authority, go to www.finra.org. RFD 05-5603. First used: November 2005.			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