W W W . W A T S O N W Y A T T . C O M

FUNDO de PENSÕESMember Briefing Session

2

Investment Basics

Risk and Return

Asset Classes

Correlation

3

Major Type of Risks

Maintaining your purchase power – a can of soft drink worth $3 10 years ago and now worth $6.

Inflation Risk

Concentration Risk

Market Timing Risk

Diversifying your investment – Investing in one stock has higher risk than investing in two or more stocks

Consistent investing – excessive timing the market would result in “buying high and selling low”

4

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 20.00%

Expected Risk (% p.a.)

Expected Return (% p.a.)

Risk and Return

Money Market

Global Bonds

Global Equities Higher Returns

Higher Risks

Source: WW Asset Model

5

100% 100% 100% 100%100%

-100%

0%

50%

-100%

-50%

0%

50%

100%

Correlation - Example

= Stock A

= Stock B

Perfect Positive Correlation

Perfect Negative Correlation

Perfectly Uncorrelated

Partially Correlated

6

Risk Management

Capital Appreciation

Diversification

Market Timing

7

0

50

100

150

200

250

300

350

400

Au

g-9

2

Au

g-9

3

Au

g-9

4

Au

g-9

5

Au

g-9

6

Au

g-9

7

Au

g-9

8

Au

g-9

9

Au

g-0

0

Au

g-0

1

Au

g-0

2

Au

g-0

3

Au

g-0

4

Au

g-0

5

Equity Bond Inflation Bank Deposit

Manage Inflation Risk

$350

$221

Inflation Risk can be mitigated by investing in Equities and Bonds

$148

$130

8

Global Equities and Global Bond

Invest in various stocks

– Region (US, Japan, Europe, Asia …)– Sector (Financial, Energy, Technology, Consumer …)– Companies with different attributes

Invest in various types of bonds

– Region (US, Japan, Europe, Asia ...)– Type (Corporate, Government …)– Maturity (short and long term …)– Credit Rating (various credit ratings)

Risk of specific single entity is diversified

9

Consistent Investing

Consistent Investing =

Monthly Investment

$ $ $ $ $

Accounts2006 2042

Long Term Perspective

+

2006 2042

36 years of investment horizon

+

Appropriate Asset Classes

0

50

100

150

200

250

300

350

400

Au

g-9

2

Au

g-9

3

Au

g-9

4

Au

g-9

5

Au

g-9

6

Au

g-9

7

Au

g-9

8

Au

g-9

9

Au

g-0

0

Au

g-0

1

Au

g-0

2

Au

g-0

3

Au

g-0

4

Au

g-0

5

Equities Bonds

Money Market

10

Investment Strategies

Thinking Process

Barbell Strategy

Dollar Cost Averaging

11

How much are you saving?MOP$15,000

21%

12

X

X

X

36

Estimated Future Savings *

Monthly Income

21%

12

X

X

X

Number of years until retirement

* Only serves as a reference

This formula aims to assess how much money you can save until retirement

Assumptions: Salary Inflation = Investment Return = Inflation

MOP$1,360,800

12

How much do you need?

* Only serves as a reference

This formula aims to assess how much money you need at retirement to maintain your expenditure

MOP$15,000

60%

12

X

X

X

15

Estimated Savings Needed*

Monthly Income

60%

12

X

X

X

Number of years lived after retirement

MOP$1,620,000

13

Implementation

When extended to equity or multi-asset investments, the barbell strategy means balancing the risk of investments by investing at two ends of the risk spectrum

Global Equity Global Bond

Money Market

High Risk Assets Low Risk Assets

14

Dollar-Cost-Averaging

Month $ / Share Amounted Invested

Shares Purchased

January 18 1,000 1,000 / 18 = 55

February 9 1,000 1,000 / 9 = 111

March 15 1,000 1,000 / 15 = 66

Total 3,000 55 + 111 + 66 = 232

Average Market Price

Sum of share prices (18 + 9 + 15)

Frequency (3) =

Average COST per share

Total amount invested ($3,000)

Total no. of shares purchased (232) = =$12.9

=$14.0

15

Portfolio Management

Switching Arrangement

Monitoring Framework

Post Retirement Management

16

-20

-10

0

10

20

30

40

Cumulative Return (%)

Switch at the Right Time?

Balanced Option

2000 2005

Switch future contributions to conservative option

17

-20

-10

0

10

20

30

40

Cumulative Return (%)

Balanced Option

Switch at the Right Time?

11%

2000 2005

Switch all balances to conservative option

18

-20

-10

0

10

20

30

40

Cumulative Return (%)

Switch at the Right Time?

35%

2000 2005

Balanced Option

19

Should I switch or not?

Switch depends on your own profile, not the market

Buy high and sell low

Bear the transaction cost

Remember it’s long term investing!

20

Retirement - Is it the end?

Run the inflation risk

Re-invest the benefits

Low risk asset classes

You are likely to live for many years after retirement!

W W W . W A T S O N W Y A T T . C O M

Thank You

The presentation is not intended for stock picking and does not represent MACAO SAR’s view

22

Preserve your gain!

Return

Age25 35 45 50 60 65

Aggressive Aggressive Balanced Conservative Conservative

90% Equities

10% Bonds

0% Cash

Aggressive AggressiveAggressive

50% Equities

30% Bonds

20% Cash

30% Equities

40% Bonds

30% Cash

100% Cash

23

Your moneys are saved!

You

Macao SAR Government

Trustee (Macao SAR Government)

7%

14%

Administrator (Macao SAR Government)

Custodian Investment Managers