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Investment Considerations
- Key Investing Concepts
- Discussion of Specific Investment Considerations
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Investment Considerations
Q. Which investments are best for me?
A. The answer depends on your investment objective and risk tolerance. All investments involve
some risk. Failure to make an investment decision can be risky, too.
For example, inflation will erode the purchasing power of your savings.
By understanding the potential risks and returns for each of the Savings
Plan’s investment options – and what your own short-term and long-term
investment goals are – you can begin to make important investment decisions
that will be right for you.
Answering the questions below will
help you make decisions about which Savings Plan investment options
to choose:
- How conservative or aggressive an investor are
you? Are you comfortable holding riskier assets, which may fluctuate
more in the short term, to try to achieve higher long-term returns?
Would you rather try to minimize short-term risk?
- What is your investment time horizon? Are you just
beginning to save for retirement or are you nearing retirement
now?
- Do you want to diversify your investments
to minimize the potential risk associated with any one investment
option?
All of the investment options in the Savings Plan entail some
risk – the value of your assets can decline. Remember that past
performance of any investment option is not a guarantee, nor
is it necessarily indicative, of future returns.
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Key Investing Concepts
Time Horizon
If you have a longer investment time horizon
(time until you need to use your money), you may be willing to tolerate
a greater level of risk, typically associated with equity-based investments,
in the expectation that you will have better investment results over the
long run. But, if you have a shorter investment time horizon, year-to-year
stability of returns associated with lower-risk investments such as fixed-income
securities (e.g. Common Assets) may fit your needs better.
Diversification
To help achieve long-term retirement security, you should give careful
consideration to the benefits of a well-balanced and diversified
investment portfolio. Spreading your assets among different types of
investments can help you achieve a favorable rate of return, while
minimizing your overall risk of losing money. This is because market or
other economic conditions that cause one category of assets, or one
particular security, to perform very well often cause another asset
category, or another particular security, to perform poorly. If you invest
more than 20% of your retirement savings in any one company or industry,
your savings may not be properly diversified. Your savings may not be
properly diversified even if you have 20% or less of your retirement
savings invested in one company or industry, depending on your particular
circumstances. Although diversification is not a guarantee against loss,
it is an effective strategy to help you manage investment risk. In
deciding how to invest your retirement savings, you should take into
account all of your assets, including any retirement savings outside of
the Savings Plan. No single approach is right for everyone because, among other
factors, individuals have different financial goals, different time
horizons for meeting their goals, and different tolerances for risk. It is also
important to periodically review your investment portfolio, your
investment objectives, and the investment options under the Savings Plan to help
ensure that your retirement savings will meet your retirement goals.
Dollar Cost Averaging
You may wish to invest a regular
amount on a periodic basis instead of investing one lump-sum amount. This
tends to average out the cost of investing and avoids possibly making
one investment at the most expensive point during a market cycle. This
is known as "dollar cost averaging" and you do this automatically
with payroll deductions for your contributions and the company match.
Market Risk
This represents the potential for fluctuation in the amount of return
on your investment or in the value of your investment.
It is important to know that all of the investment options
involve risk. While some
investments have historically fluctuated more than others (i.e.
they have a higher risk), you could lose money by investing in any
of the funds. Generally, an investment with a higher expected rate
of long-term return also will have a higher risk.
| Market risk is the risk associated with
the rise and fall of investment prices. Risk
generally increases with higher potential investment return. If you want a
higher potential return, you have to be willing to accept
more market risk. |
Discussion of Specific Investment Considerations
The following points highlight some specific risks and investment considerations
that apply to each investment option in the Savings Plan. While some investment
options are generally considered more conservative (less risky) than others,
all involve some degree of risk that your investment could lose value
or that your rate of return could decline.
- Common Assets – Because the Common Assets
fund is invested solely in fixed-income securities, its return tends
to fluctuate less widely than the returns on equity-based investments
(see Equity-based Investment Options below for more information). Historically,
Common Assets have not provided as high a level of return over longer
periods as the other investment options. However, Common Assets have
outperformed the equity-based investments during periods of declining
stock market prices. Common Assets is a relatively conservative option
for your portfolio based on risk and potential return.
- Bond Units – Bonds in this fund have a
longer average maturity than securities in the Common Assets fund, so
the returns on Bond Units generally will fluctuate more than those on
the Common Assets fund, though generally less than those on equity-based
investments.
- ExxonMobil Stock – With an investment
in ExxonMobil stock, you have the potential risks and rewards of investing
in a single stock. As a shareholder, the return on your investment depends
on the performance of Exxon Mobil Corporation. It is therefore considered
a non-diversified investment. Keep in mind that investing all your assets
in any single stock typically carries higher risk than a more diversified
portfolio of investments. See discussion on diversification page 22.
- Equity-based Investment Options – Equity-based
investments (i.e., stocks and funds composed primarily of stocks, such
as Equity Units, Extended Market Units, International Equity Units and
Balanced Fund Units) are subject to increased market risk. This means
that common stock prices may decline over short or even extended periods
of time. The U.S. stock market has tended to be cyclical. However, in
every 20-year period since the end of World War II, common stocks have
provided higher returns than either intermediate- or long-term government
bonds (based on 2006 data from Ibbotson Associates, an investment research
firm).
- Equity Units and Extended Market Units –
These investments represent interests in broadly diversified domestic
stock funds but the return on Extended Market Units may vary more than,
and independently from, that of Equity Units. This is because the underlying
values of the small- and mid-capitalization stocks in the Extended Market
Units fund generally have fluctuated more than the large-capitalization
stocks in the Equity Units fund.
- International Equity Units – This fund
offers diversification outside the U.S. since this investment option
excludes domestic stocks. It may fluctuate independently of Equity Units
or Extended Market Units and can be used to balance the risk of investing
in U.S. stocks alone. Because this fund is subject to risk based on
conditions in other parts of the world, including government actions
and currency fluctuations, returns may vary more widely than for Equity
Units or Extended Market Units.
- Balanced Fund Units – This fund is the
most broadly diversified investment option because each unit represents
an investment in the same funds as Equity Units, Extended Market Units,
International Equity Units, and Bond Units. This diversification may
result in less fluctuation of returns over time than for the other stock-based
investment options individually. However, during periods of strong stock
market returns, the Balanced Fund Units may have lower returns than
those of the all-stock investment options.
The
Savings Plan Web site at http://xomsavings.ingplans.com
and the Savings Telephone
Service (STS) at 877-966-4015 are available for account information and
transactions.
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