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Our time-tested approach to investing is very straightforward. And we re ready to make it work for you.

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Our time-tested approach to investing is very straightforward.

And we’re ready to make it work for you.

What Works

Three important steps.

Ten effective principles.

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Create a plan 1 2

Having an investment plan that is realistic and actionable is crucial to meeting goals.

Understand your plan, follow it and adjust it when things change in your life.

Put it into action 3 4

5

6

7

Saving and spending rates have the greatest impact on success.

Diversification is the second most important factor in reaching goals.

Select the asset allocation that’s right for you and stick with it.

Choosing professionally managed investments can be a better way to invest.

Acting now generally beats waiting.

Stay on track 8

9

10

Periodic checkups keep a portfolio healthy.

Progress toward goals is more important than short-term performance.

Use the right benchmarks to evaluate performance.

Three important steps. Ten effective investing principles.

Whether you invest on your own, need an occasional sounding board or want us to manage your investments for you, we are committed to helping you understand—

and do—what works.

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1 Having an investment plan that is realistic and actionable is crucial to meeting goals.

Happier with retirement

Those who thought ahead a lot—

57%

Those who thought ahead hardly at all—

18%

Source: Lusardi, Annamaria, “Saving for Retirement:

The Importance of Planning,” Research Dialogue, TIAA-CREF Institute, December 2000.

4

Ready to put these principles to work for you? So are we.

Our investing approach starts with a simple truth: It’s hard to get somewhere if you don’t know where you’re going.

What makes for a good plan?

It doesn’t have to be complex. In fact, simpler and more straightforward may be better.

A good plan:

• States your goals in terms of how much money you’ll need and when.

• Includes an assessment of how much you’ve already saved and how it’s invested.

• Considers all your relevant assets—not just those at Schwab.

• Specifies a suggested saving and/or withdrawal rate.

• Identifies your risk tolerance.

• Estimates your potential future investment returns.

4

Do a retirement assessment online to see if you’re on track. Go to schwab.com/retirementassessment.

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Create a plan Put it into action Stay on track

2 Understand your plan, follow it and adjust it when things change in your life.

On average, people who stick with a plan tend to have two to three times more wealth than non-planners. So what can you do to give yourself the best chance of sticking with yours?

Key factors in your plan’s success:

• You agree with the underlying assumptions of your plan and aren’t tempted to bail out when the market goes south. You know that the average return specified by your plan allows for both up years and down years.

1 Source: Lusardi, Annamaria and Olivia S. Mitchell, “Financial Literacy and Planning: Implications for Retirement Wellbeing,” October 2006, page 26. Successful planners are defined as those who stuck to their savings plans. The total number of observations is 1,269. The original data came from a special retirement planning module for the 2004 Health and Retirement Study targeting Americans over the age of 50.

4

Find helpful checklists for managing major life changes at schwab.com/lifeevents.

Planners vs.

Non-planners

When people were asked if they had a savings plan, those who did—and stuck with it—had the highest average net worth.

Average total net worth three times higher1

Non-planners Successful Planners

• The amount you plan to save or spend each year is really doable. If it’s not, you may fall behind or overspend and get discouraged.

• You adjust your plan when significant life changes occur. A marriage, job change, birth, loss of a spouse or retirement can significantly affect your assets or savings goals.

4

Ready to put these principles to work for you? So are we.

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3 Saving and spending rates have the greatest impact on success.

1 Simulation assumes average 7.4% rate of return and 2.6% inflation. Spending adjusts for inflation each year.

2 Source: Schwab Center for Financial Research. Savings example assumes that the total savings from the paycheck was invested into the Schwab Aggressive Model Portfolio, whose anticipated annual rate of return over 25 years is estimated at 9.1%. The Aggressive Model Portfolio may not be suitable for all clients. This chart represents a hypothetical investment and is for illustrative purposes only. The actual annual rate of return will fluctuate with market conditions.

$600,000

$400,000

$200,000

$0

The power of increased savings

5 10 15 20 25 Time Horizon (Years)

Saving = $250 per paycheck

Saving = $125 per paycheck

To match the effect of saving and investing an extra $125 per paycheck for 25 years, you’d need to earn an extra 4.29% per year on your investments—without increasing risk.2

At the end of the day, the amount you save and/or spend is the most important factor in achieving goals.

Investing can’t do it all.

• Taking on more investment risk is unlikely to make up for saving too little or spending too much.

• Even with a well-constructed portfolio, your return is ultimately determined by the markets.

• While you can’t control the markets, you can control how much you save and spend.

What are your chances of making $1 million last 25 years?1

• 90%, if you spend $47,000 a year

• Only 50%, if you spend $68,000 a year

4

Explore different saving and spending scenarios with the Retirement Assessment tool at schwab.com/retirementassessment.

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Create a plan Put it into action Stay on track

4 Diversification is the second most important factor in reaching goals.

1 Diversification strategies do not assure a profit and do not protect against losses in declining markets.

2 Source: Data from more than 2 million Schwab client portfolios as of February 28, 2007, excluding those in Schwab Private Client.

3 Source: Schwab Center for Financial Research with data provided by Ibbotson Associates, Inc. Stocks are represented by total annual returns of the S&P 500® Index, and bonds are represented by total annual returns of the Ibbotson U.S. Intermediate-Term Government Bond Index. The return figures are the average, the maximum and the minimum annual total returns for the portfolios represented in the chart, and are rebalanced annually. Returns include reinvestment of dividends, interest and capital gains. Indices are unmanaged, do not incur fees or expenses, and cannot be invested in directly. Past performance is no guarantee of future results.

4

Check your portfolio’s diversification at schwab.com/portfoliocheckup.

How you diversify your portfolio is key to moderating your risk and driving your portfolio’s performance.1 In fact, it’s even more important than the individual securities you choose.

Manage your risk three ways:

• Diversify across asset classes with a long- term asset allocation (see next page) that combines small-/mid-cap and large-cap U.S.

securities, international securities, bonds and cash.

• Diversify within asset classes to reduce the risk of concentrations in any one market sector, individual company or country.

• Diversify equity styles by holding both value and growth equity securities to reduce the risks associated with strategies that perform better or worse in certain markets.

Avoid this costly mistake.

A review of over 2 million investors’ portfolios found that nearly one-third held more than 20%

of their assets in just one stock.2 What if it’s another Enron?

Diversifying helps lower portfolio risk

Range of annual returns 1970–20063

Worst Year Average

Best Year 37.4%

11.2%

–26.5%

26.0%

9.7%

–7.2%

100% Stocks 40% Stocks

60% Bonds

Bonds generally help temper the volatility of stocks.

Combining stocks and bonds in different proportions provides varying levels of risk and return.

4

Ready to put these principles to work for you? So are we.

(7)

5 Select the asset allocation that’s right for you and stick with it.

We believe it’s your asset allo- cation plan—the percentage of stocks, bonds and cash in your portfolio—that will ultimately reap the greatest rewards.

What’s right for you?

Your plan should reflect your goals, time frame and feelings about risk. You must be able to stick with it during years when there’s a loss instead of a gain.

4

Determine your risk profile and target asset allocation with the Schwab Portfolio Checkup® tool at schwab.com/portfoliocheckup.

22.8%

+0.1%

8.6%

Historic returns for asset allocations by risk profile

(1970–2006)1

27.0%

9.8%

–6.6%

30.9%

10.6%

–12.9%

34.4%

11.1%

–19.1%

Conservative Moderately

Conservative Moderate Moderately

Aggressive Aggressive 39.9%

11.4%

–23.8% Worst Year Average Best Year

Stocks Large-cap 15%

Int’l 5%

Bonds 50%

Cash 30%

Stocks Large-cap 25%

Small-cap 5%

Int’l 10%

Bonds 50%

Cash 10%

Stocks Large-cap 35%

Small-cap 10%

Int’l 15%

Bonds 35%

Cash 5%

Stocks Large-cap 45%

Small-cap 15%

Int’l 20%

Bonds 15%

Cash 5%

Stocks Large-cap 50%

Small-cap 20%

Int’l 25%

Cash 5%

Achieving the 11.4% average yearly return shown above for the “Aggressive”

asset allocation was possible only if you didn’t bail out the year the return was –23.8%.

1 Source: Schwab Center for Financial Research with data provided by Ibbotson Associates, Inc. The return figures represented are the average, minimum and maximum annual total returns of hypothetical asset allocation plans. The asset allocation plans are weighted averages of the performance of the indices used to represent each asset class in the plans and are rebalanced annually. Returns include reinvestment of dividends and interest. The indices representing each asset class are S&P 500®

Index (large-cap stocks), Russell 2000® Index (small-cap stocks), MSCI EAFE® Index Net of Taxes (international stocks), Lehman Brothers U.S. Aggregate Index (bonds) and Citigroup U.S. 3-Month Treasury Bills (cash). CRSP 6-8 was used for small-cap stocks prior to 1979, Ibbotson Intermediate-Term Government Bond Index was used for bonds prior to 1976, and Ibbotson U.S. 30-day Treasury Bill Index was used for cash prior to 1978. Indices are unmanaged, do not incur fees or expenses, and cannot be invested in directly. Past performance is no guarantee of future results.

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Create a plan Put it into action Stay on track

7 Acting now generally beats waiting.

All too often, people take the right steps to create a sound investment strategy and then fail to put it in motion. But if you think you’ll do better by waiting until the next “perfect” time to buy or sell, you’re probably wrong.

Market timing—a big risk.

In 2004, three-quarters of the year’s return came in just 14 trading days. If you missed those days, your return was dramatically lower.1

1 Source: Schwab Center for Financial Research, “The Biggest Mistake You Can Make” by Bryan Olson at schwab.com/marketinsight.

2 Schwab’s Automatic Investment Plan (“AIP”) does not assure a profit and does not protect against loss in declining markets.

3 Source: Schwab Center for Financial Research, “What Is the Right Time to Invest?” by Mark W. Riepe at schwab.com/marketinsight. Average results remained unchanged when the study was extended to 12-month periods that begin with a month other than January. In the case of the 12-month period that goes from February to January, Investor B invested immediately on the first day of February in each 12-month period for 20 years. Past performance is no guarantee of future results.

$200,000

$100,000

$50,000

0

The costs of waiting

Average ending wealth for four types of investors over all 20-year periods (1926–2006)3

INVESTOR A

Perfect Timing

INVESTOR B

Invest Immediately

INVESTOR C

TimingBad

INVESTOR D

Stay in Cash

$189,789 $176,183

$154,292

$66,890

When we compared four hypothetical clients who invested $2,000 a year for 20 years (going back to 1926), we found that investing immediately over all 20-year periods on the same day each year regardless of market conditions almost always led to better out- comes. Only an investor with impossibly perfect timing—investing on the best day of each year for 20 years—did slightly better. And waiting—keeping money in cash—had the worst results.

4

Invest regularly the easy way. Set up your Automatic Investment Plan to make regular contributions to selected mutual funds (and avoid temptation to time the market) at schwab.com/aip.2

Call us to talk or schedule a complimentary consultation at 1-888-302-1565.

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8 Periodic checkups keep a portfolio healthy.

Even the best-planned portfolio needs regular evaluation to make sure it continues to reflect your comfort with risk and your strategy for achieving goals. We recommend regular checkups—at least annually.

What to check for:

• An asset allocation that no longer matches your risk profile and needs rebalancing.

• Overconcentrations in particular industries, sectors, companies or equity

strategies.

• Ratings changes on funds and stocks (on average, 10% of A-rated stocks fall to D or F within a year).1

• Life changes that require adjustments to your portfolio.

Portfolios go out of balance over time

2002 Balanced Portfolio Moderate Risk

2006 Unbalanced Portfolio Increased Risk

4 years later

60% Stocks 40% Bonds 68% Stocks 32% Bonds

1 Schwab Equity Ratings® is our proprietary methodology for identifying and rating stocks that we believe will outperform or underperform the market over the next 12 months.

2 Source: Schwab Center for Financial Research with data provided by Ibbotson Associates, Inc. The portfolio above was composed of 60% stocks and 40% bonds on October 31, 2002, and was not rebalanced through October 31, 2006. Without rebalancing during that time, on October 31, 2006, stock allocation represented 68% of the portfolio, and bonds represented 32%. Asset class allocations are derived from a weighted average of the total monthly returns of indices representing each asset class. The indices representing the asset classes are the S&P 500® Index (stocks) and the Lehman Brothers U.S. Aggregate Index (bonds). Results assume reinvestment of dividends and interest. Indices are unmanaged, do not incur fees or expenses, and cannot be invested in directly.

This chart shows how your portfolio’s composition—and risk level—can shift on its own as different asset classes in the portfolio increase in value. In this case, the percentage of stocks increased, creating a higher risk potential than the client originally intended.2

4

Sign up for your free Schwab Quarterly Portfolio Profile. Take action based on this detailed quarterly portfolio report at schwab.com/qpp.

4

Ready to put these principles to work for you? So are we.

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Create a plan Put it into action Stay on track

9 Progress toward goals is more important than short-term performance.

You may enjoy tracking the day-to-day fluctuations in the value of your investments, but the truth is, what happens in the short term has little impact on your overall investment outcome.

Ask the right questions.

• Am I saving (or spending) at the rate specified in my investment plan?

• Is my portfolio still allocated according to my asset allocation plan?

• Are my decisions driven by recent performance? Or long-term goals?

• Do I need to adjust my plan for things that have changed in my life?

No single benchmark is appropriate for all investors.

To measure success, you need to use benchmarks that reflect the way you invest.

One benchmark is rarely enough.

• If your portfolio contains a combination of stocks, bonds and cash, you should compare its performance to bench- mark indices for each asset category.

• The performance of your individual investments should be measured against the index that tracks its asset category and against similar investments in its category.

Even star performers have bad years.

99%

of equity funds in the top quartile of 10-year performance records had at least one year where poor performance put them in the bottom half of their peer group.1

Large-Cap U.S. Stocks S&P 500® Index Small-Cap U.S. Stocks Russell 2000® Index International Stocks MSCI EAFE® Index

Bonds Lehman Brothers

U.S. Aggregate Index

Cash Citigroup U.S.

3-Month Treasury Bills Asset Category Benchmarks

1 Source: Schwab Center for Financial Research.

10 Use the right benchmarks to evaluate performance.

Call us to talk or schedule a complimentary consultation at 1-888-302-1565.

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just one stock.1 What if it’s another Enron? That’s a risky situation we’d like to help you avoid.

1 Source: Data from more than 2 million Schwab client portfolios as of February 28, 2007, excluding those in Schwab Private Client.

©2008 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

Let’s discuss what works for you.

Call us to talk or schedule a complimentary consultation at 1-888-302-1565.

See more ways we can help with your investments at schwab.com/financialguidance.

Inside:

4

Read what makes a good investing plan and how to give yourself the best chance of making it work.

4

See why we believe it pays to stick with investing principles that have weath- ered the test of time in all kinds of markets.

4

Learn how to stay on track and remain focused on the things that really matter.

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