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
future.
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.

Cordially,

James F. Rothenberg
Chairman
Capital Research and Management Company,
SM

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

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investor
contents Spring | Summer 2010
Departments
2 From the Chairman’s desk
A message from Jim Rothenberg,
chairman of Capital Research and
Management Company.
4 At the opening
Roth IRA conversion opportunities
offer several benefits; going global
without leaving home; the arithmetic
of loss and recovery.
14 Closing bell
Veteran portfolio counselor and
4
growth investor Gordon Crawford
shares his investment philosophy and
discusses where he expects the best
growth opportunities will be over the
next decade.
Features
6 Does your investment
portfolio fit today’s changing
circumstances?
6
After a tumultuous two years in the
stock market, many investors have
found that their investment mix no
longer accurately reflects their goals
and risk tolerance. We talk with three
shareholder families to discover how
they rebalanced their portfolios to keep
their financial objectives on track.
10 2020 Vision: Six ways to
pursue your goals over the
next decade
What will your financial picture look
10
like a decade from now? Here are
six steps you can take to help achieve
your long-term financial goals.
investor 3
 at the opening
Retirement
Roth IRA conversion opportunities offer several benefits
Starting in 2010, anyone regardless of
their income can convert a traditional IRA
to a Roth IRA. In the past, people whose
adjusted gross income was more than
$100,000 were unable to take advantage
of this tax and retirement strategy.
If you elect to convert, you will have
to pay income taxes on any amount con-
verted that hasn’t already been taxed. (For
conversions in 2010 only, Congress has
approved a special rule allowing you to
treat half of the income from the conver-
sion as received in 2011 and the other
half in 2012.) Future withdrawals from the
Roth IRA that include earnings are free
from federal income tax and penalty after
you’ve had the account for at least five
© 2010 Wally Schwadron. All rights reserved. Cartoonstock.com
“Do you realize you’re not earning any interest on that?”
4 investor
years and reached the age of 59½
(certain other exceptions may apply).
In addition to income tax-free with-
drawals, a Roth IRA has several other
long-term benefits:
■ With a Roth IRA account, you aren’t
required to take yearly minimum
distributions starting at age 70½.
That could leave more money for your
beneficiaries if you don’t need it for
yourself. The money your beneficiaries
receive from your Roth IRA will be free
from federal income tax.
■ A Roth IRA can also provide tax diversi-
fication. Tax experts say that if you have
a mix of tax-free accounts (like a Roth
IRA) and tax-deferred accounts (such as
a 401(k) or traditional IRA), you’ll have
greater income flexibility as your need
for money changes during retirement.
■ Besides traditional IRAs, a rollover from
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
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
making any decisions. ■
 Trends

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

investor 5
Does your investment
portfolio fit today’s changing
circumstances?
Shareholders reveal how they adjusted their asset
allocations to meet important life goals.
After a tumultuous two years in the stock
market, it may be time to take another
look at your investment portfolio. What you
learn may surprise you. You may find that
your investment mix no longer accurately
reflects your financial situation, goals and
time horizon (i.e., number of years before
you will begin to withdraw the money).
Surveys of 401(k) plan holders conducted
by Hewitt Associates, a human resources
consulting firm, have shown that many
investors have not readjusted their port-
folios to reflect changing circumstances.
Whether or not that is your situation, it is
vitally important to meet with your financial
adviser to carefully consider your long-term
strategy.
According to Pam Hess, director of
retirement research at Hewitt, “While
participants in 401(k) plans continued
to save during the past several months,
investments in stocks dropped to 50% at
the end of 2008. That’s down from 68%
at the end of 2007, thanks to lower share
values and the movement out of equities.”
She adds, “Even with no action on their
parts, many investors’ asset allocations
have changed dramatically.”
Let’s consider what would have
happened had an investor made no adjust-
ments to a hypothetical $100,000 portfolio
consisting of 60% stocks and 40% bonds
from the market’s high on October 9,
2007, through its low on March 9, 2009.
6 investor
The portfolio’s asset allocation, if not
rebalanced during that period, would have
automatically reversed to 61% bonds and
39% stocks because of the decline in
market values.
With these numbers in mind, the big
question today is: Are your investments
properly allocated to meet some of life’s
most basic goals, such as funding a
child’s college education and preparing
for retirement?
We talked with three couples to see
how they worked with their financial
advisers to reassess their asset allocations.
Our focus was how they adapted to
changing circumstances to meet their
individual goals. As you will see, most of
them didn’t make large-scale modifications
but they did make subtle yet important
shifts to keep their long-term investment
strategies on track.
Creating a portfolio to meet two invest-
ment challenges — college education
and retirement: David Kleve and Molly
Schneider of Redding, California
Dave Kleve, 46, is a stay-at-home father
caring for the couple’s two daughters,
Katherine, 10, and Karen, 6. He maintains
their home on the Sacramento River in
Redding, as well as manages their ranch
nearby, where his mother, Mary Jeanne,
resides. His wife Molly Schneider, 44, is
an emergency room physician at a hospital
“We’re pleased with these
shifts in our portfolio and
believe we’re in a good place
for the coming years.”
— Dave Kleve
in nearby Chico, California. The couple
moved from Los Angeles to the scenic
rural community of Redding to escape
Southern California’s high real estate
prices and to allow one of them to remain
at home.
For Dave and Molly, having ample funds
in 529 college savings plans for their
daughters is extremely important. When
Dave was an undergraduate science major
at UCLA, he worked 20 hours weekly to
pay for his education. “It was a disadvan-
tage because I couldn’t dedicate the time
needed for some of the tougher courses,”
he admits. By contrast, Molly had loans
and grants that made it possible for her
to focus solely on her medical studies
at Northwestern University. Through the
stock market’s ups and downs, Dave and
Molly have continued to invest monthly
in their daughters’ 529 plans. Katherine
 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
Karen will follow four years later.
Retirement funding is also a vital con-
cern for the couple. Molly has a physically
and mentally challenging job. With the
emergency room open 24 hours a day,
her schedule is never set. “The older you
become, the harder it is to work 10- to
14-hour days,” she says. For many ER
doctors, early retirement is an understand-
able goal.
Prior to the market’s steep dive in 2008
and early 2009, Dave and Molly’s portfolio
held an overall mix of 60% growth funds,
36% growth-and-income funds and 4%
money market funds. In late 2008, when
the market’s woes began to take a toll on
their investments, their financial adviser
recommended that they shift some of their
assets from pure growth mutual funds to
growth-and-income mutual funds that pay
dividends. The adviser also suggested they
move a portion of their daughters’ 529
plans from pure growth funds into interna-
tional dividend-paying growth-and-income
funds.
Why? The adviser believed the new
allocation was more in tune with the couple’s
ages, financial situation and time horizon.
Now Dave and Molly also have a larger
exposure to companies that pay dividends,
as well as to those that do business in
places such as China, Brazil, India and Asia,
where growth is expected to be greater
than in the U.S. over the next decade.
“We’re pleased with these shifts in our
portfolio and believe we’re in a good place
for the coming years,” Dave says. The cou-
ple meets with their financial adviser twice
a year to keep track of their progress.
Investment lesson: It’s good to meet
with your adviser regularly to monitor
your progress toward retirement and col-
lege funding goals, and to take advantage
of new investment opportunities. Dave
and Molly feel they’ve benefited from this
approach. Keep in mind that investing out-
side the United States involves additional
risks, such as currency fluctuations, peri-
ods of illiquidity and price volatility. These
risks may be heightened with investments
in developing countries.
Preparing for semi-retirement with a
balanced portfolio: Evan and Susan
Williams of Rochester, Michigan
By all accounts, Evan “Big Cat” Williams,
62, has had a storied career. More than
30 years ago, Evan won the National Long
Driving Championship of golf in both 1976
and 1977. In 1977, he hit a record 353
yards, which stood until 1995 when it was
broken by Sean “The Beast” Fister. Sports
Illustrated described him in action: When
Evan Williams drives a golf ball off the tee,
“caddies cower, Jack Nicklaus sticks his
fingers in his ears and owners of property
anywhere near the fairways get nervous
about their picture windows.”
Evan says he recognized right away that
“hitting a golf ball farther than anyone
else was something I could market.” He
went to a sports agent, who booked him
for teaching exhibitions and corporate golf
outings in the United States, Japan and
elsewhere around the world. He even met
his wife, Susan, at a golfing exhibition. The
only drawback was that he spent an aver-
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
fund/50% income fund mix. The couple’s
income fund mix includes bond funds,
equity-income funds and a small amount
of money market funds. But that’s as
far as Evan wants to go. “I always want
to have a significant equity exposure.
I believe in the long-term future of the
stock market,” he asserts.
Investment lesson: When approaching
retirement, it’s wise to add more income
funds to your investment mix to lower
volatility. However, it’s also a good strategy
to keep a sizable equity fund exposure
because your money will have to last
through retirement, and stocks have often
been the best way to keep ahead of infla-
tion over the long term.
Staying focused on long-term growth
during difficult times: Gregory Brookins
and Charlie Jordan Brookins of Los
Angeles, California
Gregory, 44, is a professor of accounting
at Santa Monica College. His wife Charlie,
44, is vice president of programming
operations for Black Entertainment
Television, the cable television channel.
“Our focus is long-term growth,” explains
Gregory. “We like to keep 70% of our
money in growth and growth-and-income
mutual funds.”
However, their investments in a 529
plan for son James, age 2½, and their
403(b) and 401(k) retirement plans took
a beating with the market’s precipitous
drop in 2008 and early 2009. In light of
the fact that it would be another 20 years
before they would need to tap their retire-
ment money, the couple chose to stay the
course. They built up their positions by
investing even more when the market was
down. They also continued to contribute
$150 a month to their son’s 529 account,
knowing it will be 16 years before toddler
James starts as a college freshman in
the class of 2025. They began investing
$50 a month the year he was born and
increase it by $50 a month every year.
Charlie states, “It’s hard to watch your
money go down month after month.
Everyone has the urge to get out of the
market, but our financial adviser came out
very strong that we needed to ride out the
declines. So we just had to be patient
and keep paying our bills.”
The positive mutual fund statements
they began receiving in April 2009 — and
that continued through the rest of the year
— cheered the couple. “We had some
good success with our decisions to stay
in the market and dollar cost average,”
Gregory says. The couple meets twice
yearly with their financial adviser. Charlie
likes the concept of having “someone who
is specifically focused on making money
for us. When we win, he wins.”
Investment lesson: Dollar cost averaging,
the practice of putting money aside auto-
matically at regular intervals, keeps you
investing in good times and bad and can
lead to lower average prices for your funds
over the long-term. But, like Gregory and
Charlie, you need the fortitude to keep
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
have taken the time to outline our long-
term goals and develop a basic strategy to
achieve them, and yet still found ourselves
off track. A key problem is that many of us
may lack the basic day-to-day skills needed
to neutralize some of the challenges that
invariably arise.
As we enter a new decade, consider
implementing some of the following strate-
gies into your financial plan. By doing
so, we believe that you will have a better
chance at achieving your financial goals
over the next 10 years.
1. Understand where your money
is going.
We all know that creating a budget plays
a key part in ensuring financial health,
no matter what your income. Yet it’s a
step many of us don’t take, for reasons
ranging from procrastination to denial.
But ultimately there’s no substitute for
getting a grasp on where your money is
being spent.
The good news: Getting started isn’t
that hard. Advisers can often provide
budgeting templates, and many free
worksheets can be downloaded from the
Internet. In addition, most personal finance
software offers budgeting functionality.
In terms of compiling data, strive for
accuracy and thoroughness. One adviser
asks her clients to track expenses for a
handful of different months in order to
capture less frequently incurred expenses
such as quarterly insurance payments,
taxes or holiday travel.
Once you’ve developed a budget,
consider the following steps for staying
on track:
Revisit your costs at a set time
each year. The best-run companies
constantly re-examine how and where
they spend their money. When they find
opportunities to lower costs, they do.
As individuals, however, we often let
the perceived inconvenience of switching
insurance providers or cell phone
carriers stand in the way of reducing our
expenses.
But this cost-cutting approach to your
personal finances can really pay off. As
an initial goal, focus on reducing your
expenses by 5% to 10%. Then, every
year at an appointed time, revisit your
budget with the aim of keeping it from
rising. At a minimum, make it your
objective to let your expenses rise at a
rate slower than your income growth.
Increase your payment frequency.
At one time or another (and that time
may be right now) most of us have
systematically chipped away at debt only

investor 11
 to find ourselves back in the same
position a few months or years down the
road. Staving off debt is not a “one and
done” event but an ongoing commitment
requiring vigilance and systematic effort.
If credit cards are your downfall, get
rid of them. But if you’re unwilling to
part with your plastic, limit it to a single
card and be dogged about paying off
your balance each month. To make
doing so easier, one adviser suggests
that rather than paying credit card bills
monthly, do so each time you receive
a paycheck. That way, the amount you
owe at any one time becomes more
manageable, and the temptation to carry
a balance is reduced.
The importance of keeping revolving
debt in check cannot be overstated.
According to one adviser, “In my experi-
ence, the aftereffects of accumulating
significant revolving debt can set one’s
finances back 10 years — five if they’re
lucky.”
Make room for investing. The important
“pay yourself first” dictum means that
saving and investing should be part of
an overall budgeting strategy, not simply
afterthoughts to be considered once the
bills are paid. Make saving and investing
a “cost” on your budgeting worksheet.
2. Avoid lifestyle inflation.
With the recent economic downturn,
warnings about how personal spending
invariably rises with income may not seem
timely. But when wage growth returns,
it’s important to recognize the tendency
12 investor
to spend more as you make more.
To ensure that saving and investing keep
pace with income, consider switching your
focus from dollar amounts to percentages.
For example, if you commit to saving 8%
of your income rather than a flat amount,
such as $250 per month, your saving will
rise in step with your income.
Many experts agree that automating
increases is the best way to ensure that
you save more as you earn more. For
those investing for retirement within an
employer-sponsored vehicle such as a
401(k) plan, such step-ups often happen
automatically. But to the extent that it’s
possible, strive to automate the increases
in your higher education and taxable
investments as well.
If you know that a raise is in your
future, make certain your adviser
increases the amount automatically trans-
ferred from your checking account into
your brokerage account as soon as the
increase takes effect. If you never get
accustomed to seeing the extra money in
your checking account, you’ll feel less
tempted to spend it.
3. Don’t follow the herd.
We need look no further than the technol-
ogy bubble of the late 1990s or the recent
housing boom to see that investors don’t
always act in their own best interests. Our
inclination to dive headlong into various
assets as they are peaking is matched
only by our instinct to sell assets when
their prices are in decline. This tendency
to buy high and sell low is one of many
subconscious and self-defeating tendencies
The important “pay yourself
first” dictum means that saving
and investing should be part of
an overall budgeting strategy,
not simply afterthoughts to be
considered once the bills are
paid. Make saving and investing
a “cost” on your budgeting
worksheet.
that researchers in behavioral finance have
brought to light in recent years.
“The investment community long
operated under the assumption that
markets were efficient and investors were
rational,” says John Armour, executive vice
president of the Personal Investment
Management division of Capital Guardian
Trust Company, an affiliate of Capital
SM
Research and Management Company.
“But it turns out that human nature can
lead us astray. For example, we take too
much or too little risk and we pay too
much attention to recent events and ignore
the long-term tendencies of the markets.”
When it comes to blunting the negative
impact of these tendencies, a system-
atic investment plan is perhaps the most
effective strategy. By committing to auto-
matically invest a predetermined amount
on a weekly, monthly or quarterly basis,
you reduce the likelihood that hot trends,
unexpected market events or bad news
will drive you to make decisions out of step
with your long-term goals. And remember
that while remaining true to your plan
is especially tough when markets are in
retreat, it can increase your account’s
potential for growth when markets recover.
4. Be proactive with your
retirement.
Getting a complete picture of your retire-
ment investments and making sure they
are on track to meet your long-term needs
can be a challenge. Taking the following
steps can help:
Consolidate when possible. How many
pieces of paper must you sort through
to tally up your retirement assets?
If you’re one of the many who hasn’t
consolidated retirement accounts
(including IRAs and employer-sponsored
accounts from previous jobs) the picture
may be jumbled. To clarify it and help
ensure that your retirement assets are
collectively invested in keeping with your
long-term goals, consider consolidating
your accounts. Your adviser can help
select the option that’s best for you. One
piece of good news: For 2010, investors
of all income levels can convert tradi-
tional IRAs to Roth IRAs, which could
provide added long-term tax advantages
for many (see article on page 4).
Research your options. When deciding
how to invest your contributions, the
temptation may be to select funds with
above-average recent returns. But it’s
important to look at results over longer
time periods and consider whether
fund objectives and risk profiles match
your own. Enlisting your adviser to help
evaluate the funds being offered and
suggest an allocation aligned with your
overall retirement strategy can help take
the guesswork out of it.
Maximize your contributions. When
it comes to employer-sponsored plans
such as a 401(k) or 403(b), maximizing
your contributions is a vital step —
particularly if they are matched by your
employer. For example, those earning
$35,000 per year who consistently
contributed 3% of their annual salary
to their 401(k) plan — the equivalent
of about $40 every two weeks — would
have over $16,000 at the end of 10
years (assuming an 8% annual rate of
return on their investment). If just half
that 3% annual contribution was matched
by their employer, that amount would
be more than $24,000.*
5. Expect the unexpected.
The uncertainty brought about by the
recent economic downturn is a harsh
reminder that even the most secure
financial situation could one day be
challenged. That’s why having several
months of living expenses on hand in the
* This example is for illustrative purposes only and
does not portray an actual investment.
event of an emergency or job interrup-
tion is essential to one’s financial health.
Otherwise, you may have to fall back
on credit cards to meet living expenses
or suffer the tax consequences of raiding
investments earmarked for retirement
or higher education purposes. As one
adviser puts it, “We never want to have
to sell long-term assets to meet shorter
term needs.”
In fact, this adviser views the liquid
assets that comprise a rainy day fund
as the base of an “investment pyramid.”
Until that base has been established,
she’s reluctant to move clients to the
pyramid’s next level — stock and bond
investments, for example. “Based on
a client’s employment longevity and job
security, the amount may differ, but it
should never really be less than three
months of living expenses,” she says.
6. Don’t let past mistakes
paralyze you.
For those with false starts and stumbles
in their pasts, taking another stab at
shaping up your finances can be tough.
Don’t dwell on past mistakes or what you
should have done. Instead, learn from
those mistakes and plan your future based
on where you are now. Many times,
your greatest ally in helping you to move
forward can be your financial adviser.
By working with you to develop a plan,
continuously measuring your progress
against it and providing you with a valu-
able perspective on markets, an adviser
can help you focus on achieving your
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
changes you’ve seen in the markets and
investing since you began your career?
When I started in the business, it was
a much simpler time. There were some
mutual funds managing money and some
banks managing money, but we didn’t
have 9,000 hedge funds or enormous
derivatives markets. The whole world
has become much more complex, much
more global, with many more players in
the markets. Despite all that change in
the marketplace, the way I invest has not
fundamentally changed since I did my first
industry review on the fire and casualty
insurance business in the summer of 1971.
You were a relatively new investor
during the 1973–1974 market crash,
which at the time was considered the
worst since the Great Depression.
How does the 2007–2009 financial
crisis compare?
They’re not even in the same league to
me. I’ve been through the market declines
of 1973–1974, 1980–1982, 1987, 1990,
2000–2002 and this most recent one.
This one was by far the most difficult
of my career. From 1973 to 1974, we
had the worst down market since the
Great Depression. Stocks declined almost
50%. There was a global recession. The
President of the United States was being
impeached. The first oil shock happened.
Yet you knew these were events that
would eventually correct themselves. You
knew that economies would eventually
recover. That was also true in 1980–1982
and even in the dot-com bust of 2000–
2002. What was distinctly different this
time is that the global financial system
came dangerously close to breaking. I
don’t think most people realize how near
we were to a total collapse of financial
markets worldwide. I’ve never felt fear like
that before.
As a growth investor, what criteria do
you use to choose companies for your
portfolios?
I try to identify industries and countries
and groups of stocks that have large secu-
lar tailwinds behind them. So the first step
for me as a portfolio manager is getting
the forest right before I worry about the
trees. Once I determine what I think the
world is going to look like two or three
years down the road, I then build portfolios
from the bottom up, picking individual
stocks one at a time. But I’m picking them
with that forest in mind.
What trends are informing your choices
right now?
There are vast changes going on in the
global economy. The United States, Japan
and parts of Western Europe are in secular
decline in relative terms, while emerging
markets — Brazil, India, China, the rest of
Southeast Asia, Russia — are gaining
market share. As a result, my whole
portfolio is shaped around that. Over the
next 20 years, I think as much as 70% of
incremental growth in the global economy
will occur in emerging markets. Although
there are other risks to investing in devel-
oping countries, that’s where the people
are. That’s where the unmet needs are. So
in the broadest of senses, that’s where I’m
looking to invest.
That’s a considerable shift.
Twenty years ago, developed markets like
the United States, Japan and Western
Europe were the places that were safe and
stable. The countries were well run, they
had their fiscal affairs in order, they had

14 investor

strong currencies and they had strong rule
of law. Emerging markets were banana
republics. They had volatile currencies,
poor fiscal discipline, and opaque and
illiquid stock markets. Today, China is our
creditor; we are a debtor to them. They
have a slight fiscal deficit; we have a 12%
fiscal deficit. They have a trade surplus;
we have a trade deficit. The whole world
has been turned upside down. In many
ways, the entire concept of emerging and
developed markets is becoming obsolete
right before our eyes.
In addition to emerging markets,
what other factors do you believe will
have a major impact in the next 10
to 20 years?
There’s no question that energy is one
of the most important economic themes of
our lifetime. In the United States, energy
is a large part of an intractable trade
deficit that may result in the U.S. losing
its reserve status as a currency, because
people are tired of us shipping dollars
overseas.
Another ongoing trend is the digitization
of the world. The advent of the Internet
and the digitization of content have reaped
“Over the next 20 years, I think as much as 70% of incremental
growth in the global economy will occur in emerging markets. …
That’s where the people are. That’s where the unmet needs are.
So in the broadest of senses, that’s where I’m looking to invest.”
enormous havoc with the old media
companies and created giant new ones,
and that process is not done. What I need
to do as a portfolio counselor is determine
where those big trends are headed and
how best to invest our clients’ money in
the businesses most likely to profit in
those thematic areas.
What do you know now that you wish
you’d known when you began your
career?
There is no set of facts I could have been
given in 1971 that would have provided
the kind of insight that only experience
brings. Living through the 1973–1974
and 1980–1982 market downturns, the
impeachment of a president, an oil crisis
and a dot-com bust is part of the whole
process of instinctively learning how to
manage through a market that has become
Gordon Crawford
Position: Director of The Capital Group
Companies, Inc. ; senior vice president of
SM
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.
excessive or how to have the conviction
to hold onto a stock when everyone else
is selling. Older people acquire wisdom
because they have lived through various
events and witnessed the mistakes of
others. The same is true of the investment
business.
What advice would you give share-
holders right now?
I still believe that equities are going to
outperform other asset classes over the
long term. I believe that’s always been the
case. So, depending on their age and risk
tolerance, I think investors should have a
certain percentage of equities in their port-
folio. They should also be diversified. That
lesson has been learned over and over
again. And frankly, I think investors should
have a substantial portion of their money
invested outside the United States. ■
investor 15
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