Individual investors

Understanding inflation Your investments may not be growing as much as you think Inflation is the increase in the price of goods and services, which results in the gradual decrease in the value of our dollar. When investing, it's important to consider inflation. How would you react if you were told your $1-million nest egg will only buy what $200,000 does today? Unless your returns keep pace with inflation, it can diminish the value of your money over time. Real returns — the impact on your investments Most discussions of investment performance focus on nominal returns. The return on an investment before inflation is the nominal return, but after you subtract inflation, you are left with the real return. Consider the affect of inflation, measured by the U.S. Consumer Price Index, on three asset classes found in most retirement savings plans. Affect of inflation of 4.1% on returns Average annual returns 1959 - 2008     Nominal return   Real return U.S. stocks   9.2%   5.1% U.S. bonds   6.5%   2.4% Treasury bills   5.5%   1.4% Uninvested cash   0.0%   -4.1% Source - Stocks: S&P 500 Index, Bonds: S&P High Grade Bond Index (1959-1973), Barclays Long-Term High Quality Government/Corporate Bond Index (1974-1975), Barclays Capital US Aggregate™ Bond Index (1976-2008). , Three-month T-Bills: Ibbotson US 30 day T-Bill Index (1959-1977), Citigroup Treasury Bill 3-Month Index (1978-2008) The lesson to be learned is that stocks, based on their history, can potentially produce better returns above inflation compared to fixed-income investments. So how concerned should you be about real returns? That depends in part on your retirement investment goal. What does this mean for me now? Real returns take on greater meaning if you're a long-term investor. The longer you have to invest, the more time inflation has to impact the return on your investment. Higher real returns put more money in your account to counteract inflation. Real returns may be less of an issue if you've accumulated most of your nest egg and will soon start spending it. In this case, inflation has less time to erode your money's value. Still, it's probably a good idea to keep some of your money invested with the goal to achieve above-inflation growth. Retirement can last 20 years or more, and you don't want your savings to run short. Consider investments with real returns that keep pace with or are slightly ahead of inflation. Request a referral to a financial advisor who can help. Fund objectives, risks, charges and expenses should be carefully considered before investing. For a prospectus containing this and other important information call Russell at 1-866-676-7680 or go to the prospectus and reports page to download one. Please read the prospectus carefully before investing. Copyright © Russell Investments 2012. 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. Indices are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Although stocks have historically outperformed bonds, they also have historically been more volatile. Investors should carefully consider their ability to invest during volatile periods in the market. 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. Inflation may not maintain an even rate and may be more or less than the percentage indicated. Nominal return — sometimes used to differentiate between the earnings or yield on an investment (nominal return) and the 'real' earnings/yield. It is the return in simple monetary terms with no allowance for the effects of inflation on the value of the return. Real return — The rate of return on an investment — or any income plus or minus any change in value — minus the rate of inflation gives you a real rate of return. The consumer price index (CPI) is a monthly gauge of inflation that measures changes in the prices of basic goods and services, such as housing, food, clothing, transportation, medical care, and education. Compiled monthly by the U.S. Bureau of Labor Statistics, the CPI — often incorrectly referred to as the cost-of-living index — is used as a benchmark for making adjustments in Social Security payments, wages, pensions, and tax brackets to keep them in tune with the buying power of the dollar. The S&P 500 Index: An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. Standard & Poor's Corporation is the owner of the trademarks, service marks, and copyrights related to its indexes. Indexes are unmanaged and cannot be invested in directly. Barclays Capital U.S. Aggregate Bond Index: An index, with income reinvested, generally representative of intermediate-term government bonds, investment grade corporate debt securities, and mortgage-backed securities. The Citigroup 3-Month Treasury Bill Index is an index, with income reinvested, representative of three-month Treasury bills. Prior to April 7, 2003 the Index was named the Salomon Smith Barney 3-Month Treasurey Bill Index. Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns. Securities products and services offered through Russell Financial Services, Inc., member FINRA, part of Russell Investments. For information on the Financial Industry Regulatory Authority, go to www.finra.org. RFS-2471. First used: October 2009.			Value of an advisor Benefits of working with a financial advisor Request a list of advisors in your area   Tools & resources Savings calculator How much can setting aside a little over time add up? Retirement savings calculator How much could you save if you start now? Printer friendly version of this page

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