fwp
Filed Pursuant To Rule 433
Registration No. 333-167132
June 2, 2011
How Does Risk Affect Portfolio Return?
The word risk can be a sensitive topic in the context
of investing, and for good reason. After all, the
definition of risk is: the chance an investment will lose
value.1 Although the word itself can provoke
anxiety, it is important for investors to acknowledge that
risk does exist in the markets and if left unmanaged, these
risks can affect investors ability to reach their
financial goals. However, by honestly assessing their own
tolerance for risk and working closely with their advisors
to define an asset allocation strategy, investors can
actively manage risk in their portfolios.
FOUR TYPES OF INVESTMENT RISK AND HOW TO MANAGE THEM
ASSET RISK
Its an unfortunate fact of business: Some
companieseven entire industriesrun into financial
difficulties for periods of time. Some companies may not
survive at all in the long run. While diversification
cannot ensure a profit or guarantee against loss, it can
be an effective way for investors to help protect
themselves from performance risk. Investors should
diversify their portfolios across a wide variety of asset
classes with varying risk-return profiles. Investors can
achieve relative diversification within a specific sector
or industry by investing in diversified sector and
industry mutual funds and ETFs.
As illustrated in Figure 1, each asset class carries its
own level of risk and expected rate of return. By
constructing a diversified portfolio that invests in
multiple asset classes and investments across the
risk-return spectrum, investors can potentially reduce the
negative effects of higher risk assets held in a
portfolio. Investors should also keep in mind that neither
asset allocation nor diversification can ensure a profit
or guarantee against loss.
Source:
SSgA Global ETF Strategy & Research. For illustrative purposes only.
Risk / Return will vary for each asset class.
Past performance is not indicative of future results.
INTEREST RATE RISK
Rising interest rates and their impact on mortgages
has been a recent headline news topic. However, it can be
easy to overlook the effect that decreasing interest rates
have on the relative value of interest-bearing
investments. Instruments like bonds and money market funds
react strongly, positively or negatively, to real or
expected movements in interest rates. Fixed income
investments tend to decrease in value as interest rates
decline. Investors can help to address this type of risk
by diversifying their fixed income exposure across a
variety of short-term, intermediate and long-term fixed
income vehicles.
MARKET RISK
Prudent long-term investors know that markets go up
and down over time. They also understand that even the
most seasoned investment professionals find it next to
impossible to time these swings in the market. The
portfolios best equipped to weather changing market cycles
dont omit stocks or entire segments of the equity markets
simply because of their potential risk. For example, if
one looks at compounded annual returns over the last 20
years (see Figure 2), the S&P 500® Index
returned 9.14%. However, if one were out of the market for
the best 10 days, the return drops by approximately 40% to
5.41%. If one missed the 30 best days, the return drops
even further to 0.92%. Remaining invested over the
long-term can help investors ride out market cycles and
take advantage of potentially lower purchase prices and
the impact of compounding.
20 Years
Annualized Returns as of 12/31/2010. December 1990 to December 2010.
Source:
Bloomberg. SSgA Global ETF Strategy & Research.
For illustrative purposes only.
Past performance is not indicative of future results.
1
Further, as evidenced in Figure 3 below, the table of asset class returns below, what performs
well one year may not perform the next. For example, International Equity was the top performer
from 20052007, but the worst performer in 2008.
Source: S&P, MSCI, Barclays Capital, Citigroup, Zephyr StyleADVISOR, SSgA Global ETF Strategy &
Research, as of 12/31/2010. The following indexes were used: MSCI EAFE, S&P 500, S&P 500 Growth,
S&P 500 Value, S&P 400 MidCap, Barclays Capital Aggregate Bond Index, and Citigroup 3-Month T-Bill.
INFLATION RISK
Most investors
underestimate the
significant risk that
inflation poses to their
portfolios. For example, a
4% inflation rate can reduce
the purchasing power of a $1
million savings balance by
more than half in less than
20 years.2 Not
only should investors be
careful to select
investments with enough
upside potential to outpace
inflation, but they may also
want to consider investing
in assets that potentially
provide a degree of
protection against
inflation. Gold (see Figure
4, Gold Price vs. Inflation
chart at right) and other
precious metals, as well as
Treasury Inflation Protected
Securities (TIPS), are
examples of investments
available to investors
seeking to maintain their
purchasing power over the
long run.
Monthly average gold prices, adjusted to US CPI rebased to 1974.
Inflation: US Consumer Expected Inflation. Source:
www.clevelandfed.org/, as of 12/31/2010.
2
MANAGING PORTFOLIO RISK
Striking the right risk-reward balance in a portfolio
is critical to long-term success. Higher risk portfolios
may capture large gains when the market climbs, but these
portfolios may suffer heavy losses during a market
downturn. On the other hand, lower risk portfolios may not
deliver the returns investors need to keep pace with
inflation or their spending goals.
Risk-managed portfolios attempt to capture the best of both
worlds. Long-term investors who accept a moderate degree of
risk give up some upside potential in the short-term, but
can potentially preserve more of their capital during
market downturns. Then, by exploiting the benefits of
compounding, investors with risk-managed portfolios may be
able to achieve greater profit than a higher risk portfolio
(i.e., a portfolio with a higher level of volatility) over
longer investment horizons.
Figure 6, at right, illustrates the returns of two
hypothetical portfolios with different levels of
volatility, but identical year-over-year performance
spreads during a 30-year period. Each portfolio is created
with an initial lump sum investment of $100,000.
Capitalizing on the power of compounding, Portfolio B with
its more moderate risk/return profile, performs better
than the more volatile investment strategy. At the end of
the 30-year investment period, returns of the moderately
volatile portfolio exceed the returns of the portfolio
with a higher volatility by more than 300%. In sum,
risk-managed equity exposure over the long-term may help
investors capture attractive returns and also potentially
diminish losses associated with downward swings in the
market, enabling investors to potentially achieve higher
gains.
FIGURE 5: METHODOLOGY (MONTH-OVER-MONTH RETURNS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MONTH |
|
GAIN/LOSS % |
|
|
PORTFOLIO A |
|
|
GAIN/LOSS % |
|
|
PORTFOLIO B |
|
1 |
|
|
+12 |
|
|
$ |
112,000 |
|
|
|
+6 |
|
|
$ |
106,000 |
|
2 |
|
|
-10 |
|
|
$ |
100,800 |
|
|
|
-4 |
|
|
$ |
101,760 |
|
3 |
|
|
+12 |
|
|
$ |
112,896 |
|
|
|
+6 |
|
|
$ |
107,866 |
|
4 |
|
|
-10 |
|
|
$ |
101,606 |
|
|
|
-4 |
|
|
$ |
103,551 |
|
5 |
|
|
+12 |
|
|
$ |
113,799 |
|
|
|
+6 |
|
|
$ |
109,764 |
|
6 |
|
|
-10 |
|
|
$ |
102,419 |
|
|
|
-4 |
|
|
$ |
105,373 |
|
Source: SSgA Global ETF Strategy & Research. The performance illustrations shown are
hypothetical and provided only to illustrate mathematic formulas and their results.
This is not
a representation of actual investment results.
Portfolio A = High Volatility (+12% & -10%)
$100,000 $104,997 $115,422 $127,004 $161,299 $204,856 $250,174
$330,430 $419,658
Portfolio B = Low Volatility (+6% & -4%)
$100,000 $111,036 $136,895 $168,777 $284,856 $480,772 $811,431
$1,369,509 $2,311,414
Source: SSgA Global ETF Strategy & Research. The
performance illustrations shown are hypothetical and
provided only to illustrate mathematic formulas and their
results. This is not a representation of actual investment
results.
TALK TO YOUR FINANCIAL ADVISOR
For more information about how risk affects
portfolio returns, contact your financial advisor.
Your advisor will thoroughly analyze your current
investments, risk tolerance, tax situation and time
horizon, then recommend strategies to help you achieve
your goals.
3
ABOUT SPDR ® ETFS
SPDR ETFs are a comprehensive fund family of over 90 ETFs, spanning an array of international
and domestic asset classes. Offered by State Street Global Advisors, SPDR ETFs provide investors
with the flexibility to select investments that are precisely aligned to their investment strategy.
Recognized as the industry pioneer, State Street created the first ETF in 1993 (SPDR S&P
500® Ticker SPY). Since then, weve sustained our place as an industry innovator
through the introduction of many ground-breaking products, including first-to-market launches with
gold, international real estate, international fixed income and sector ETFs.
For information about our ETF family, visit www.spdrs.com
STATE STREET GLOBAL ADVISORS
State Street Financial Center
One Lincoln Street
Boston, MA 02111
866.787.2257
1 |
|
Understanding Risk, 360 Degrees of Financial Literacy,
http://www.360financialliteracy.org/Life+Stages/Retirement/Articles/Investments/Understanding+risk.htm |
2 |
|
Retirement Purchasing Power, introductory paragraph to the calculator,
http://www.forbes.com/tools/calculator/retire_purchase.jhtml |
FOR PUBLIC USE.
IMPORTANT RISK INFORMATION
ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETFs
net asset value. Brokerage commissions and ETF expenses will reduce returns.
Diversification does
not ensure a profit or guarantee against loss.
All investing involves risk. Investors are encouraged to seek the advice of well-qualified
financial advisors, accountants, attorneys and other professionals before making any investment
decision.
The SPDR Gold Shares Trust (GLD) has filed a registration statement (including a prospectus) with
the Securities and Exchange Commission (SEC) for the offering to which this communication
relates. Before you invest, you should read the prospectus in that registration statement and other
documents GLD has filed with the SEC for more complete information about GLD and this offering. You
may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov or by visiting
www.spdrgoldshares.com. Alternatively, the Trust or any authorized participant will arrange to send
you the prospectus if you request it by calling 1-866-320-4053.
Past performance is not indicative of future results.
This material is for informational purposes only and does not constitute investment, legal or tax
advice and it should not be relied on as such. SSgA does not provide legal or tax advice. You
should contact your legal or tax advisor regarding your specific tax situation prior to taking any
action based upon this information. It is not a solicitation to buy or an offer to sell a security.
It does not take into account any investors particular investment objectives, tax status or
investment horizon. There is no representation or warranty as to the accuracy of, nor liability
for, decisions based on such information. The performance illustrations shown are hypothetical and
provided only to illustrate mathematic formulas and their results. This is not a representation of
actual investment results. All investing involves risk. SSgA encourages investors to seek the
advice of well-qualified financial advisors, accountants and other professionals before making any
investment decision. The views expressed are the current views of Advisor Strategies and are
subject to change.
All information has been obtained from sources believed to be reliable, but its accuracy is not
guaranteed. This material or any portion thereof may not be reprinted or redistributed without the
written consent of SSgA.
Barclays Capital is a trademark of Barclays Capital, the investment banking division of Barclays
Bank PLC (Barclays Capital) and has been licensed for use in connection with the listing and
trading of the SPDR Barclays Capital
ETFs. The products are not sponsored by, endorsed, sold or promoted by Barclays Capital and
Barclays Capital makes no representation regarding the advisability of investing in them.
The MSCI EAFE Index is a trademark of Morgan Stanley Capital International.
The Russell 1000® Index and Russell 2000® Index are trademarks of the Frank
Russell Company. RussellTM is a trademark of the Frank Russell Company.
SPDR is a registered trademark of Standard & Poors Financial Services LLC (S&P) and has been
licensed for use by State Street Corporation. STANDARD & POORS, S&P, S&P 500 and S&P
MIDCAP 400 are registered trademarks of Standard & Poors Financial Services LLC. No financial
product offered by State Street Corporation or its affiliates is sponsored, endorsed, sold or
promoted by S&P or its affiliates, and S&P and its affiliates make no representation, warranty or
condition regarding the advisability of buying, selling or holding units/shares in such products.
Further limitations and important information that could affect investors rights are described in
the prospectus for the applicable product.
This communication is distributed by State Street Global Markets, LLC, member
FINRA, SIPC, One Lincoln Street, Boston, MA 02111.
© 2011 State Street Corporation. All Rights Reserved. IBG-3525 Exp. Date: 12/31/2011
IBG.EDU.RAPR.0511
4
SPDR® GOLD TRUST has filed a registration statement (including a prospectus) with the
SEC for the offering to which this communication relates. Before you invest, you should read the
prospectus in that registration statement and other documents the issuer has filed with the SEC for
more complete information about the Trust and this offering. You may get these documents for free
by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, the Trust or any Authorized
Participant will arrange to send you the prospectus if you request it by calling toll free at
1-866-320-4053 or contacting State Street Global Markets, LLC, One Lincoln Street, Attn:
SPDR® Gold Shares, 30th Floor, Boston, MA 02111.