Greetings! My name is Charles Cummings, and I'm a Senior Employee Education Advisor here at PNC. I'd like to welcome you to today's presentation where we're going to be learning about the, "Basics of investing". But before we do that, let's run through our agenda. In Section 1, we're going to discuss contributions, what the changes were for 2025, how you can max out your contributions depending on your age. In Section 2, we'll talk about the power of compounding and inflation and how they could have an effect on your overall retirement portfolio. In Section 3, we're going to talk about asset allocation, what that means, and it's importance. In Section 4, we're going to discuss target date funds. A great way for investors that don't have the time, the interest, or quite frankly, just don't know how to pick through the investment choices within their retirement plan. So, it maybe a great option for you. And then we'll wrap up with a summary in Section 5.

So with that being said, let's get started. Contributions:  In 2025, if you're under the age of 50, you can max out your workplace retirement plan at $23,500. However, if you are 50 or older, the IRS allows what's called a catch up contribution for those individuals to allow you to contribute an additional $7,500 on on top of your $23,500. So, someone 50 or older could max out their plan at $31,000. Now, new in 2025, and we advise you to check with your plan administrator to see if this portion of the catch up contribution is available within your plan, individuals that are between 60 years of age and 63 years of age, have an additional contribution, a catch up a contribution amount of $11,250. So, someone between the ages of 60 and 63 could max out their plan at $34,750. But again, we advise you to check with your plan administrator to see if this additional catch up is available within your plan.

Moving on to the contribution types. There are two primary types or two ways you can contribute to your workplace retirement plan. There's traditional pre-tax and then Roth after-tax. Pre-tax contributions allow you to make a retirement plan contribution prior to federal taxes being taken out, which lowers your taxable income and allows you to pay less taxes now.

Your pre-tax contributions and any earnings associated with it are allowed to grow tax deferred, which means you're not paying taxes each year on your pre-tax contributions, nor are you paying taxes at the time on its account growth. A pre-tax contribution allows you to defer paying taxes until you take a distribution, which will most likely be in retirement. This feature allows you to keep those dollars in your account now, which could accelerate account growth before you need to pay those taxes on those assets. The second way I mentioned is Roth.

Roth contributions are made on an after tax basis. Any investment earnings on your Roth contributions will be tax free, provided you take a qualified distribution. What's a qualified distribution you may ask? Qualified distributions are tax free.

And it's defined as a distribution that you've taken, provided your at least aged 59 and a half or older, and you've held the account, the Roth account for at least five years after your first Roth contribution. The five year clock begins with your first Roth contribution.

Now, you don't have to necessarily pick one or the other. One isn't necessarily better than the other. However, we just ask that you take a look at your current tax situation and then try to forecast what your tax situation may look like at the time of retirement. You can choose pre-tax or Roth or you can combine the two.

There's no right or wrong way to do it. We just ask that you take a look and forecast what your tax situation may look like at retirement and make the appropriate selection. Now, since we're talking about contributions, let's discuss a general rule of thumb. Most retirement professionals recommend an annual retirement savings goal of 10% to 15 % of your income by the age of 25, and the 1% method can help you with that.

By using the 1% method to regularly increase your contributions annually together with other steps, this can help achieve the goal of maintaining your current lifestyle in retirement. Now, let's discuss the engine that drives your retirement plan: the power of compounding.

Compounding is described as earnings on earnings. The process consists of reinvesting your earnings, i.e. any interests or dividends or capital gains you may have received back into your investment so that over time the increasing value of your total investment can help your assets grow more quickly. So, a very quick example: if I invest $100 into an account, and over the course of the next year, I earned 10%. At the end of that year, my $100 has now grown to $110.

If I keep that $110 invested in that same account for a second year and get another 10%, my $110 is now worth $121, and that process will continue for as long as I have my money in that account. The key to compounding is time. The more time you have before you need access to your retirement dollars, the longer you can let the process of compounding work for you. Best case scenario is that you get 40 plus years of compounding returns throughout your working career. When these compounded returns are kept within your account, you get the added bonuses of those dollars being taxed deferred until you withdraw them, which will most likely be at age 59 and a half or older or at retirement.

Let's give you an example of the benefits of compounding. So, the earlier you begin investing, the longer your compounding earnings will accrue. So, here we have to compare the results of two different investors. Investor A, who makes their first contribution of $75 per month at age 25, and Investor B who makes a larger contribution of $100 per month, but they don't start until ten years later at age 35. The total investment for Investor A is $36,000, and the total investment for Investor B is also $36,000. So, looking at the 8% rate of return column for Investor A, they end up with the final balance of $263,571.

And Investor B ends up with a final balance of $150,030. For investor B, by waiting ten years to begin contributing to their workplace retirement plan, it costs them approximately $113,00 in lost account growth. This is the power of time and compounding. Compounding is an essential piece in combating the negative effects of our next topic, which is inflation. Inflation is the increase in the price of goods and services that reduces your purchasing power and your standard of living. An example here from my own personal life is when I got my driver's license, I remember paying $0.98 a gallon in 1998 to fill up my parents' 1997 Toyota Camry.

Now you're not going to find anywhere currently where you can get a gallon of gas for $0.98. However, it's going to cost you a lot more which limits your purchasing power. In the short term, it may not affect you as much, but when planning for retirement, which maybe ten years or more away, you can see how detrimental of an effect this can have on your overall purchasing power. With the impact of inflation may not be substantial from one year to the next, imagine the impact over an extended period of time. Historically, average annual inflation in the United States has hovered around 3% per year. That said, let's take a look at an example.

So, you can see at $1, at one point with the average rate of inflation at 3% would then will cost you $0.97. Over a two year period, that same dollar is now worth $0.94 and over a 30 year period, that same dollar is now only worth $0.41.

To further drive the point home, let's look at some common products and see how inflation has affected this price you must pay to consume those products. In all three examples, these products cost at least twice as much or more than they did in the year 2000. So we'll first look at the postage stamp. In the year 2000: $0.33. More recently: $0.73 for a postage stamp. Coffee: $3.54 in 2000. More recently, upwardly above $7.00 for a cup of coffee, and we pretty much have an idea as to what places we're discussing because I'm guilty of it, as well. I love the coffee from these two establishments that I'm speaking of.

Gasoline in 2000, roughly $1.36. More recently: $3.34. So, you can see how inflation has infect impacted these basic consumer goods. Prices go up over time. Generally, purchasing power is reduced, so you must account for inflation, when creating an investment plan.

So, we talked about compounding being the engine that drives your account. Now we're going to talk about dollar cost averaging, one of the greatest assets you can have within your workplace retirement plan. Dollar cost averaging is the practice of systematically investing equal amounts of money at regular intervals regardless of the price of the security. Dollar cost averaging can reduce the overall impact of price volatility and lower the average cost per share, which can ultimately improve your portfolio's potential for long term growth. So, let's look at the example.

Here on the screen, you have an example of a 12-month period. Over that 12-month period, an investor will pay varying prices for the investment, the mutual fund investment within their plan. They're going to invest consistently $100 per month.

Now, you can see in January, the price per share of their investment was $25, so their $100 bought them four shares. The same for February. However, in March, the price dipped to $20, so they were able to buy five shares. So I'm not going to read all of them, you can see them there on the screen, but what I want you to understand the importance of dollar cost averaging is the total investment over the course of that year, $1,200. Total shares purchased was 61.9 shares. The average price per share was $19.38. So, you can see during that 12-month period, there were only five months in which the investor paid a lower price than his average price per share for the year. So, in essence, what we want you to understand is that when the markets are lower, you're able to purchase more shares at a lower cost per share, utilizing dollar cost averaging. And when the markets are high, you're purchasing less shares at a higher cost per share. So, we've talked about contribution benefits. We talked about the power of compounding and how inflation could affect your account. Now, let's move on to asset allocation. You remember earlier I said if compounding was the engine of your retirement account, then asset allocation is the gas and the brake.

Asset allocation is the importance, excuse me, is the percentage of your retirement assets that are invested across the three major asset classes. A sample asset allocation would be 60% stock, 30% bond, and 10% cash. Now, at no point is PNC recommending that that be your asset allocation. We just want to give you an example of what an asset allocation looks like. So, asset allocation is driven by two things: your time horizon and your risk tolerance. The general theory here is the more time you have from retirement, the more risk you should take; the closer you are to retirement, the less risk you should take. The reason being is that when you are closer to retirement, you have less time to make up any significant market downturns and should assume less risk.

The retirement accounts traditionally offer investors the opportunity to invest in the three primary asset classes, and they are, as you can see there on the screen, stocks, bonds, and cash/ cash equivalents, some people like to refer them to as money markets. Each of the three have their own levels of risk and reward.

And it's important for you to know which asset classes maybe more appropriate for your investment allocation. Many investors will have a combination of all three, but that doesn't mean that it's right for you and your strategy.

Let's take a closer look at three primary asset classes available to retirement investors. At the bottom of the pyramid, we have the stock asset class. Stocks offer the most possible risk, but also the most possible reward. Stock funds invest in individual companies, for instance, like Home depot, Microsoft, Exxon Mobile, for example.

Stock mutual funds are made up of hundreds to thousands of individual investments that fit within the mutual funds objectives. Moving up the pyramid, we have bond funds. Bond funds offer a little less risk, but also offer a little less reward than stocks. Bonds represent money lent to corporations or government entities.

And the third category at the top of the pyramid are cash or cash equivalents. Cash offers the least risk and the least reward of the three primary asset classes. You can expect the rate to return within this asset class to be slightly better than what you might find through your bank's traditional bank savings or credit union savings account.

Okay.

Now, to delve a little deeper, we're going to talk about stock funds at a higher level. I've used the term mutual fund a few times so far, so let me explain what they are. When you select your investments in your retirement fund, you're most likely going to be investing in, in, not investing in individual stocks, but instead through your investment vehicle that invests in hundreds or thousands of individual companies. Stocks, which is called a mutual fund. Mutual funds are run by a fund manager and their job is to pick out the underlying investments that would make up a mutual fund based on the objective of that fund. Mutual funds can be made up of only stocks, only bonds, only cash investments or a combination of all three asset classes. Mutual funds are pulled investments, meaning that the investors across the world can invest in the same mutual fund with which increases the buying power and lowers the mutual funds expenses.

There are stock funds, there are bond funds, and there are cash equivalent funds and also blended funds. Now that we understand what a mutual fund is, let's go into more detail about stock funds. Another word for stocks is equities. So if you're listening to the news and you hear them reference the equities market, you know that they're referring to the stock market. The goal of stock funds is is long term appreciation.

You expect the value of these investments to rise over a long period of time understanding that in the short term they could, there could be times where they experience negative returns. When you hear that stocks can be volatile, it means that they can rise and fall in the value quickest of the three primary asset classes.

The recent March 2020 market downturn during the pandemic of the Coronavirus is a great example of how quickly values can change in the stock market. Let's now discuss bond funds. Bond funds focus on current income. Bonds produce periodic interest income payments and offer more stability than stocks.

Bonds are categorized by the bonds duration, also known as how many years the bond will be outstanding and thus making those interest payments. Bonds can be issued by individual corporations or by government entities. Corporate bonds generally carry more risk than those interest payments are relied upon those businesses staying solvent and being able to make those payments over the bonds duration. Government bonds are considered to be less risk because they have the back, they're backed by the taxing authority of the United States government. Lastly, let's discuss cash equivalents.

As I mentioned earlier, cash offers the least risk and also the least reward of the three primary asset classes. You can expect rates of return within this asset class to be slightly better than what you may find through your bank or credit union savings account. For this reason, it's important to note that cash assets are susceptible to the concept called inflationary risk. Inflation risk is the rate of return of your investment is not keeping pace or exceeding the general rate of inflation. As we mentioned in the inflation section, the long term US inflation rate has always hovered around historically 3%. So, if the cash investment in your plan is only returning 1%, your dollars are lagging the general rate of inflation by 2%. This is a great example of inflationary risk and the loss of purchasing power. What you see before you is a strategy for diversification. The strategy of diversifying your portfolio. You may have heard the saying don't put all of your eggs in one basket. That advice can be particularly helpful and is very true for investors. What this chart shows is how different kinds of investments performed over a 15-year period. Each color block represents a different type of investment. So, for example, in 2010 at the top of the bar chart, you'll see a purple square that represents the stocks of companies in emerging markets outside of the United States. Stocks in that category were the best performers that year. However, if you look at 2011, you'll see the purple box, is at the bottom of the bar because they were the worst performers for that year. No one can predict with certainty which type of investment would do the best or the worst at any given year. That's why we recommend, excuse me, that investors build a portfolio with many different asset classes so that when the market volatility has a negative impact on one, you increase your chances that another asset class may offset that loss with positive performance. So, all of the strategies we've discussed so far were primarily geared towards individuals that may be comfortable looking at their overall investment choices within their retirement plan and making the appropriate choice as to how they would build their portfolio. However, if picking funds is something you're not comfortable with, then there's a style of mutual fund that takes care of your asset allocation and diversification decisions for you. Let's now talk about target date funds.

Before we get into the specifics of target date funds, I feel it's important to define what makes an investor an active investor or a passive investor. In most retirement plans, the fund provided will allow you to either be an active or passive investor. Active investors are those participants who are comfortable looking at their investment options and building a portfolio of three to six funds based on their research and their due diligence.

They are essentially the quarterback of their own portfolio. All investment changes and decisions fall on the shoulders of that investor. Now, not every participant is comfortable with picking and making the needed changes to their investment selections throughout their working careers. If you're someone who feels that they will be better off with a guided approach that takes care of their asset allocation and diversification decisions for them, then you are what we would consider a passive investor. Now active is not better than passive and passive is not better than active. The key here is to pursue the strategy that you're most comfortable with and you feel will give you the best shot at hitting your retirement goals.

Staying with the topic of target date funds. Target date funds are very easy to identify as they will have a year at the end of their name or somewhere within the name of the fund. Those years that are in the title of those funds represented around the year you as the participant think that you're going to retire.

With a target date fund or asset allocation fund, you can eliminate the guesswork that maybe involved in assembling a portfolio of individual mutual funds while still benefiting from a fully diversified portfolio. The fund managers who manage these target date funds will then set up the funds asset allocation to have the appropriate amount of stocks, bonds, and cash, based on that estimated retirement year.

These funds are designed to have a very high stock allocation if you're very far from retirement. For instance, if you're looking to retire in the year 2060 or 2070. But the magic behind these funds is that the allocation will automatically adjust to become more conservative, less stock, more bonds and cash as you approach your target retirement year.

So, let me give you an example. Let's say that I'm a 25 year old participant and I'm looking to retire at age 40. I mean excuse me, at 40 years at age 65. So that puts my estimated retirement at 2065. I would start my investment search by looking for the 2065 target date fund offered within my plan or if the 2065 is not available, then the closest target date available to the year 2065.

Right now in 2025, that 2065 fund is going to have a very high allocation to stocks, most likely 90% or more, and a very low allocation to bonds and cash. Again, the reason for the high allocation to stocks at this stage is because I won't be using these dollars for 40 years or more, and I can afford to take a lot of risk while I'm 40 years away from retirement.

If we flash forward to 2040, the allocation continues to scale back the risk and may be at roughly 70% as opposed to 90% stock and then say 30% bond. By the time I get close to 2065, my year of retirement, the allocation will much be much less risk associated and may have an an allocation of say, 40% stock, 40% bond, and 20% cash. So, a more balanced approach.

So, how exactly do target date funds work and how do they change their allocation over time? Target date funds take care of the three most important investment decisions which are asset allocation, diversification, and rebalancing. For you, they do this for you automatically. Now it's important to note that these funds, even though they are professionally managed, they do not guarantee positive investment returns or that you'll have enough money to retire on when you hit your desired retire retirement date. They simply provide a roadmap to follow that takes care of the asset allocation, diversification, and rebalancing for you so that you don't have to make those decisions as you move through your career.

Now with that being said, this slide shows you it's called a glide path, so it shows you the glide path, which is the track of a target date fund. So as you can see the dark blue represents stocks, the light blue represents bonds, and then the gray at the very top represents cash equivalents or money markets. So, as I stated, with someone with a long time horizon, we'll use the example of someone with 40 years or more before retirement. You can see that the, their stock allocation is roughly 90%, and their bond allocation is to 10%. But as they move through their career and get closer and closer to retirement, now if you look at the zero on the bottom at the X axis, that represents when the participant in the target date fund has retired. But you see that their allocation, the target date fund doesn't just stop investing once the person has retired.

This is an example of a target date fund that continues to work for you through retirement. There are two types generally of target date funds. There's target date funds that work to retirement and then there are target date funds that work through retirement. And again, the example I'm showing you is a through retirement example, meaning this target date funds stays invested for the participant up to 30 years after they've retired. Now, I often get the questions from participants, well why are we still having a significant allocation of stocks in the portfolio after we've retired? We shouldn't become ultra conservative? If you remember when I described the three primary asset classes and the top of the pyramid was the cash equivalent category, and I stated that that's intended for short term growth and it hasn't kept pace with

Inflation. That's the reason why you still have a significant amount of stock allocation and bond allocation even after you've retired. Because if you went ultra conservative and went all cash equivalents, inflationary risk would eat that money up and reduce your buying power.

Now, to wrap things up, what we would like for you to do, as a result of what we discussed during the, "Basics of Investing". Enroll in your workplace retirement plan as soon as you can. Increase your contributions on an annual basis, if possible, by utilizing the 1% method.

Review your investment strategy at least on an annual basis. Don't forget to check your beneficiaries. You'd be surprised at how often I have to remind participants of this. We're doing great by making our investment selections, our account portfolio is prospering. However, if something were to happen to us, then the money would be

sitting in limbo would have to go through probate. So, what we'd like for you to do is to make sure that you update your beneficiary information. And then lastly, stay on course and monitor your progress. Because this is a retirement account, it's not necessary for you to look at it on a daily basis, but at least look at your quarterly statements just to make sure that you're the funds you've selected are performing as you desired them to, and then make those adjustments. Thank you so much and we appreciate the time, and I hope you enjoy the rest of your day.