Strategies for Mature Investors

RESPOND ING TO YOUShareholders like you call our representatives with a lot of good questions. In this column, we share our responses to some of those questions with the thought that for every shareholder whocalls to ask, there are a hundred who didn’t! We encourage you to call our helpful representativeswith your questions as well as to check here each quarter to see if your question is featured.

Decoding SEP IRAsI’m a small business owner and have heard that a SEP IRA might be a good way for me to save for retirement. Can you tell me more?A simplified employee pension (SEP) individual retirement arrangement (IRA)offers a simple retirement solution that is appropriate for certain savers. A SEP IRA allows employers to make tax-deductible contributions on behalf

of eligible employees, including the business owner. In addition, these contributions and their earnings continue to grow tax-deferred until they are withdrawn.

Most frequently a SEP IRA is established by a one-person business owner with no employees, such as a self-employed person who is a sole proprietor. Anytype of business entity may establish a SEP IRA— a soleproprietorship, partnership, corporation, nonprofit or governmental agency. The employer typically makes con-tributions directly to an IRA set up for each employee.

Some businesses cannot establish a SEP, includingthose businesses that currently maintain another quali-fied retirement plan as well as those that once main-tained a defined benefit plan. However, an employeewho participates in his or her employer's retirement plancan set up a SEP for self-employment income.

A SEP IRA has broad appeal due to its high annual contribution limits, com-pletely discretionary and flexible annual contributions and minimal administration.Many employers favor SEPs because they are simple to implement and main-tain. Also, they do not require trust documents, discrimination testing or IRSreporting. In addition, employers favor the flexibility of varying contributions fromyear to year and the option of skipping contributions entirely, if they want.

Also, SEPs involve no initial fees and minimal administrative costs. Plus, SEPrules are fairly easy to grasp: Except for higher contribution limits, Traditional IRAtax rules apply to SEP IRAs. H

63

in this issueeStrategies for

Mature Investors . . . . . . . . . . . .1eDecoding SEP IRAs . . . . . . . . . .3eThe Benefits of

Systematic Investing . . . . . . . . . .5eNews Briefs . . . . . . . . . . . . . . . .6

Horizons2nd Quarter 2012

A quarterly newsletter for Homestead Funds’ shareholdersItem number 00085941

Homestead Small-Company Stock Fund was named

as a top pick in the May 2012 cover story of

Kiplinger’s Personal Finance magazine, “Best Funds

for Your Goals: This Year’s Picks for the Kiplinger 25

Include New Ways to Generate Income.”

Sparkle Warthen and Ken Surick joined

Homestead Funds staff as client service associates

earlier this year. Welcome aboard!

Homestead Funds’ News Briefs

Small-Company Stock Fund

in Kiplinger’s Top 25 Funds

Warthen, SurickJoin Staff

Call 1-800-258-3030 to speak with one

of our friendly client service associates, available weekdays

between 8:30 a.m. and 5:00 p.m. Eastern Time.

4301 Wilson Boulevard Arlington, VA 22203-1860 1-800-258-3030 www.homesteadfunds.com

Mutual funds are subject to market risk, including the potential loss of principal invested. Homestead Funds’ investment manager, RE Advisers Corporation, and distributor, RE Investment Corporation,

are indirect, wholly owned subsidiaries of NRECA. RE Investment Corporation, Distributor. 06/12

If a SEP IRA sounds like it might be the right choice for you or your business, call us

toll-free at 1-800-258-3030 to learn more from one of our representatives.

Steven Ulrich Registered Representative

To learn more specificsabout SEP IRAs, read ourHelpful Tips guide, “Savingfor Retirement in a SEP IRA.”You can download it fromhomesteadfunds.comunder “Find a Document,” or you can call us at1- 800- 258- 3030 and we will gladly mail you a copy.

Are you eligible

to invest in a SEP IRA?

There is a lot of information out there about investing for retirement—

so much, in fact, that it can feel overwhelming at times. To help

our shareholders who are 50 years of age and older, we posed

this question to several Homestead Funds’ registered representa-

tives: What should investors do who are about to retire,

especially as it relates to their Homestead Funds’ investments?

Their responses, grouped by each life stage, follow.

Five to 10 years until retirement“If you are within five or 10 years of your planned retirement

date, evaluate your sources of retirement income with a

Homestead Funds investment advisor,” says Jamie Stone.

“We’ll work together to nail down your sources of retirement

income and how much each will provide.”

The most common sources of income are Social Security retire-

ment benefits, pensions, 401(k)s and IRAs. Some people like

to think of their income sources as being in one of two groups:

INSTALLMENT INCOME you will receive at regular intervals

throughout retirement, like Social Security and pension payments.

INVESTMENT INCOME, like the kind you can tap from your 401(k)

plan and IRAs.*

Ideally, it’s good, but not always necessary, to have both types

of income in retirement, since the first group gives you a guaran-

teed income stream through your lifetime,

Tips for investors 50 and up

continued on page 2

30 years

$760

$439

4 52

Strategies for Mature Investors, continued from page 1

while the second kind, although sometimes erratic, has the

potential to outstrip inflation over time.

“Also, it’s helpful to continue contributing to your 401(k) and

IRAs during this five- to 10-year period. Both of these types

of accounts offer you tax benefits as you save for your future,”

says Stone.

One to five years to retirement At this stage of life, refine the specifics of how much each

income source may provide. Everyone at this stage should

review their investment portfolio to be sure it is well-suited

to weather any market fluctuations.

“Generally, it should be positioned to favor income-oriented

investments, but you will likely want some exposure to growth

investments, like stock funds, since you’ll want your money

to last through retirement,” says Monty Bilkert.

“In any case, don’t make sudden drastic changes. If market

volatility is keeping you awake at night or is affecting your

everyday budget, make the move to a more conservative asset

allocation gradually.”

THE ABCS OF INVEST ING

The Benefits ofSystematic Investing

When investors suffer a loss,

they sometimes run for cover

and transfer their stock and bond

positions into money market

positions. They also may cut back

or stop contributions altogether.

While this reaction is entirely

natural, this move may not be

in the best interest of long-term

investors. Alaina Schrager

explains the potential benefits

of a regular, systematic investing

approach, especially during

periods of market volatility.

Buying more for lessEveryone loves a bargain.Let’s say you’re at thesupermarket and see thepaper towels you regularlybuy are on sale. If you’ve gotthe money, likely you’ll buy in quantity to save moneylater. When stocks suffer a setback, it’s a little like astore with stocks selling atbargain prices. Simply put,with lower share prices, yourmoney buys more sharesthan if prices are higher.

Owning more shares gives you more opportunityInvestors who focus only onaccount balance and shareprice are missing part of theequation. The number of

shares you hold is just asimportant because it repre-sents an opportunity foryour account balance togrow if the share price goesup. And, if you bought moreshares at a lower price, then your shares may havegreater potential for growth.

How systematic investing worksWhen the share price is down,your money buys more fundshares. On the other hand,during a rising market, yourmoney buys fewer shares.Investing systematically canaverage out the total cost ofshares purchased. It may taketime to see the benefit fromthe program, so it’s importantto remain committed. Also,

systematic investing does not ensure a gain or protectagainst a loss.

Homestead Funds offers a service that lets you invest on a regular, systematicschedule. The service allowsyou to designate a fixedamount from your payroll orbank at regular intervals andinvest that sum in the Fund(s)you select. There is no chargeto participate in the serviceand you can stop it at anytime. You will find a copy ofthe Automatic TransactionsSign-up Form on the web siteat homesteadfunds.comunder “Find a Document,” or you can call a client serviceassociate at 1- 800- 258- 3030to request one.

This example illustrates one method of systematicinvesting, known as dollar cost averaging. It com-pares price paid per share when $100 is investedin the S&P 500 on a monthly basis, beginningMarch 31, 1982, for a 10-, 20-, and 30-year periodversus the average respective unit prices.

Periodic investment plans do not assure a profit orprotect against loss in declining markets. This typeof plan involves continuous investments in securi-ties regardless of changes in price levels. Investorsshould consider their financial ability to continuepurchases through periods of volatile price levels.

AlainaSchrager RegisteredRepresentative

If the value of your 401(k) account has dropped and you want to recoup that value

before retiring, you may want to consider working beyond your planned retirement date

or adjusting your plans for retirement life, such as spending less or working part-time.

Retired or just about to retire At this stage, your primary investment goal is likely preserving the value of your nest

egg. “I advise the retired shareholders who are on a fixed income to keep a portion

of their money in investments designed for stability,” says Suzanne Gillespie.

“However, you may want to keep another portion of your nest egg invested in funds

that hold stocks. Historically, stock investments have outpaced inflation over time better

than bonds or money market investments.”

Gillespie also recommends making sure your withdrawal strategy considers the effect

of taxes. In some cases, that means tapping taxable accounts first as you allow any

income on your tax-deferred and tax-free accounts to continue growing. “That strat-

egy can keep more of your money working for you, rather than siphoned off in taxes.”

For information specific to your tax situation, consult a tax professional.

Whether you are 10 years from retirement or already retired, Homestead Funds can help.

For personalized assistance with your financial plan, call 1-800-258-3030 any weekday

between 8:30 a.m. and 5 p.m. Eastern Time.

*Distributions can be taken from these accounts as regular installments also, if desired.

H

£Initiate rollover paperwork for retirement plans

£Double-check that paperwork for your pension and health benefits is complete

£Prepare your retirement budget

£Discuss with your benefits administrator:

eYour optimal retirement date

ePension distribution options and the income each will generate

eSpousal pension benefits in theevent of your death

eProcedures for rolling over any retirement plan accounts

eOptions for retaining employer-provided benefits and your estimated costs

£Contact the local Social Security office:

eSet up the date on which benefits, including Medicare, will start

£Review long-term care, life, home and auto insurance:

eDetermine if appropriate for retirement

£Discuss with an NRECA investment advisor:

eYour financial plan

eCompany pensions and benefits

eWhen to start your Social Security benefits

eInvesting rollovers and distributions

eMinimizing taxes, maximizing tax-deferred portfolio growth

eWhether your current investment assetallocation is appropriate for retirement

£Review health and prescription drug coverage:

eEvaluate whether you need aMedigap policy

eTake care of dental and medicalprocedures while still covered under your employer’s health plan

*For information specific to your situation, consult a tax professional.

Pre-Retirement Timeline A YEAR BEFORE RETIRING AT RETIREMENTTHREE MONTHS BEFORE RETIRING

To learn more specifics aboutthe steps you can take to get ready for retirement, read our Helpful Tips brochure,“Managing Your Savings inRetirement.” You can downloadit from homesteadfunds.comunder “Find a Document,” or you can call us at1- 800- 258- 3030 and we willgladly mail you a copy.

Taking Advantage of Price Fluctuations Through Dollar Cost Averaging

AVERAGE PRICE PAIDAVERAGE UNIT PRICE

Source: ChartSource, Standard & Poor’s Financial Communications

10 years

1

2

6

8

4

Price, in

hun

dred

s of dollars

Time Period, ending March 3120 years

7

5

3

$251$221

$554

$336

30 years

$760

$439

4 52

Strategies for Mature Investors, continued from page 1

while the second kind, although sometimes erratic, has the

potential to outstrip inflation over time.

“Also, it’s helpful to continue contributing to your 401(k) and

IRAs during this five- to 10-year period. Both of these types

of accounts offer you tax benefits as you save for your future,”

says Stone.

One to five years to retirement At this stage of life, refine the specifics of how much each

income source may provide. Everyone at this stage should

review their investment portfolio to be sure it is well-suited

to weather any market fluctuations.

“Generally, it should be positioned to favor income-oriented

investments, but you will likely want some exposure to growth

investments, like stock funds, since you’ll want your money

to last through retirement,” says Monty Bilkert.

“In any case, don’t make sudden drastic changes. If market

volatility is keeping you awake at night or is affecting your

everyday budget, make the move to a more conservative asset

allocation gradually.”

THE ABCS OF INVEST ING

The Benefits ofSystematic Investing

When investors suffer a loss,

they sometimes run for cover

and transfer their stock and bond

positions into money market

positions. They also may cut back

or stop contributions altogether.

While this reaction is entirely

natural, this move may not be

in the best interest of long-term

investors. Alaina Schrager

explains the potential benefits

of a regular, systematic investing

approach, especially during

periods of market volatility.

Buying more for lessEveryone loves a bargain.Let’s say you’re at thesupermarket and see thepaper towels you regularlybuy are on sale. If you’ve gotthe money, likely you’ll buy in quantity to save moneylater. When stocks suffer a setback, it’s a little like astore with stocks selling atbargain prices. Simply put,with lower share prices, yourmoney buys more sharesthan if prices are higher.

Owning more shares gives you more opportunityInvestors who focus only onaccount balance and shareprice are missing part of theequation. The number of

shares you hold is just asimportant because it repre-sents an opportunity foryour account balance togrow if the share price goesup. And, if you bought moreshares at a lower price, then your shares may havegreater potential for growth.

How systematic investing worksWhen the share price is down,your money buys more fundshares. On the other hand,during a rising market, yourmoney buys fewer shares.Investing systematically canaverage out the total cost ofshares purchased. It may taketime to see the benefit fromthe program, so it’s importantto remain committed. Also,

systematic investing does not ensure a gain or protectagainst a loss.

Homestead Funds offers a service that lets you invest on a regular, systematicschedule. The service allowsyou to designate a fixedamount from your payroll orbank at regular intervals andinvest that sum in the Fund(s)you select. There is no chargeto participate in the serviceand you can stop it at anytime. You will find a copy ofthe Automatic TransactionsSign-up Form on the web siteat homesteadfunds.comunder “Find a Document,” or you can call a client serviceassociate at 1- 800- 258- 3030to request one.

This example illustrates one method of systematicinvesting, known as dollar cost averaging. It com-pares price paid per share when $100 is investedin the S&P 500 on a monthly basis, beginningMarch 31, 1982, for a 10-, 20-, and 30-year periodversus the average respective unit prices.

Periodic investment plans do not assure a profit orprotect against loss in declining markets. This typeof plan involves continuous investments in securi-ties regardless of changes in price levels. Investorsshould consider their financial ability to continuepurchases through periods of volatile price levels.

AlainaSchrager RegisteredRepresentative

If the value of your 401(k) account has dropped and you want to recoup that value

before retiring, you may want to consider working beyond your planned retirement date

or adjusting your plans for retirement life, such as spending less or working part-time.

Retired or just about to retire At this stage, your primary investment goal is likely preserving the value of your nest

egg. “I advise the retired shareholders who are on a fixed income to keep a portion

of their money in investments designed for stability,” says Suzanne Gillespie.

“However, you may want to keep another portion of your nest egg invested in funds

that hold stocks. Historically, stock investments have outpaced inflation over time better

than bonds or money market investments.”

Gillespie also recommends making sure your withdrawal strategy considers the effect

of taxes. In some cases, that means tapping taxable accounts first as you allow any

income on your tax-deferred and tax-free accounts to continue growing. “That strat-

egy can keep more of your money working for you, rather than siphoned off in taxes.”

For information specific to your tax situation, consult a tax professional.

Whether you are 10 years from retirement or already retired, Homestead Funds can help.

For personalized assistance with your financial plan, call 1-800-258-3030 any weekday

between 8:30 a.m. and 5 p.m. Eastern Time.

*Distributions can be taken from these accounts as regular installments also, if desired.

H

£Initiate rollover paperwork for retirement plans

£Double-check that paperwork for your pension and health benefits is complete

£Prepare your retirement budget

£Discuss with your benefits administrator:

eYour optimal retirement date

ePension distribution options and the income each will generate

eSpousal pension benefits in theevent of your death

eProcedures for rolling over any retirement plan accounts

eOptions for retaining employer-provided benefits and your estimated costs

£Contact the local Social Security office:

eSet up the date on which benefits, including Medicare, will start

£Review long-term care, life, home and auto insurance:

eDetermine if appropriate for retirement

£Discuss with an NRECA investment advisor:

eYour financial plan

eCompany pensions and benefits

eWhen to start your Social Security benefits

eInvesting rollovers and distributions

eMinimizing taxes, maximizing tax-deferred portfolio growth

eWhether your current investment assetallocation is appropriate for retirement

£Review health and prescription drug coverage:

eEvaluate whether you need aMedigap policy

eTake care of dental and medicalprocedures while still covered under your employer’s health plan

*For information specific to your situation, consult a tax professional.

Pre-Retirement Timeline A YEAR BEFORE RETIRING AT RETIREMENTTHREE MONTHS BEFORE RETIRING

To learn more specifics aboutthe steps you can take to get ready for retirement, read our Helpful Tips brochure,“Managing Your Savings inRetirement.” You can downloadit from homesteadfunds.comunder “Find a Document,” or you can call us at1- 800- 258- 3030 and we willgladly mail you a copy.

Taking Advantage of Price Fluctuations Through Dollar Cost Averaging

AVERAGE PRICE PAIDAVERAGE UNIT PRICE

Source: ChartSource, Standard & Poor’s Financial Communications

10 years

1

2

6

8

4

Price, in

hun

dred

s of dollars

Time Period, ending March 3120 years

7

5

3

$251$221

$554

$336

Strategies for Mature Investors

RESPOND ING TO YOUShareholders like you call our representatives with a lot of good questions. In this column, we share our responses to some of those questions with the thought that for every shareholder whocalls to ask, there are a hundred who didn’t! We encourage you to call our helpful representativeswith your questions as well as to check here each quarter to see if your question is featured.

Decoding SEP IRAsI’m a small business owner and have heard that a SEP IRA might be a good way for me to save for retirement. Can you tell me more?A simplified employee pension (SEP) individual retirement arrangement (IRA)offers a simple retirement solution that is appropriate for certain savers. A SEP IRA allows employers to make tax-deductible contributions on behalf

of eligible employees, including the business owner. In addition, these contributions and their earnings continue to grow tax-deferred until they are withdrawn.

Most frequently a SEP IRA is established by a one-person business owner with no employees, such as a self-employed person who is a sole proprietor. Anytype of business entity may establish a SEP IRA— a soleproprietorship, partnership, corporation, nonprofit or governmental agency. The employer typically makes con-tributions directly to an IRA set up for each employee.

Some businesses cannot establish a SEP, includingthose businesses that currently maintain another quali-fied retirement plan as well as those that once main-tained a defined benefit plan. However, an employeewho participates in his or her employer's retirement plancan set up a SEP for self-employment income.

A SEP IRA has broad appeal due to its high annual contribution limits, com-pletely discretionary and flexible annual contributions and minimal administration.Many employers favor SEPs because they are simple to implement and main-tain. Also, they do not require trust documents, discrimination testing or IRSreporting. In addition, employers favor the flexibility of varying contributions fromyear to year and the option of skipping contributions entirely, if they want.

Also, SEPs involve no initial fees and minimal administrative costs. Plus, SEPrules are fairly easy to grasp: Except for higher contribution limits, Traditional IRAtax rules apply to SEP IRAs. H

63

in this issueeStrategies for

Mature Investors . . . . . . . . . . . .1eDecoding SEP IRAs . . . . . . . . . .3eThe Benefits of

Systematic Investing . . . . . . . . . .5eNews Briefs . . . . . . . . . . . . . . . .6

Horizons2nd Quarter 2012

A quarterly newsletter for Homestead Funds’ shareholdersItem number 00085941

Homestead Small-Company Stock Fund was named

as a top pick in the May 2012 cover story of

Kiplinger’s Personal Finance magazine, “Best Funds

for Your Goals: This Year’s Picks for the Kiplinger 25

Include New Ways to Generate Income.”

Sparkle Warthen and Ken Surick joined

Homestead Funds staff as client service associates

earlier this year. Welcome aboard!

Homestead Funds’ News Briefs

Small-Company Stock Fund

in Kiplinger’s Top 25 Funds

Warthen, SurickJoin Staff

Call 1-800-258-3030 to speak with one

of our friendly client service associates, available weekdays

between 8:30 a.m. and 5:00 p.m. Eastern Time.

4301 Wilson Boulevard Arlington, VA 22203-1860 1-800-258-3030 www.homesteadfunds.com

Mutual funds are subject to market risk, including the potential loss of principal invested. Homestead Funds’ investment manager, RE Advisers Corporation, and distributor, RE Investment Corporation,

are indirect, wholly owned subsidiaries of NRECA. RE Investment Corporation, Distributor. 06/12

If a SEP IRA sounds like it might be the right choice for you or your business, call us

toll-free at 1-800-258-3030 to learn more from one of our representatives.

Steven Ulrich Registered Representative

To learn more specificsabout SEP IRAs, read ourHelpful Tips guide, “Savingfor Retirement in a SEP IRA.”You can download it fromhomesteadfunds.comunder “Find a Document,” or you can call us at1- 800- 258- 3030 and we will gladly mail you a copy.

Are you eligible

to invest in a SEP IRA?

There is a lot of information out there about investing for retirement—

so much, in fact, that it can feel overwhelming at times. To help

our shareholders who are 50 years of age and older, we posed

this question to several Homestead Funds’ registered representa-

tives: What should investors do who are about to retire,

especially as it relates to their Homestead Funds’ investments?

Their responses, grouped by each life stage, follow.

Five to 10 years until retirement“If you are within five or 10 years of your planned retirement

date, evaluate your sources of retirement income with a

Homestead Funds investment advisor,” says Jamie Stone.

“We’ll work together to nail down your sources of retirement

income and how much each will provide.”

The most common sources of income are Social Security retire-

ment benefits, pensions, 401(k)s and IRAs. Some people like

to think of their income sources as being in one of two groups:

INSTALLMENT INCOME you will receive at regular intervals

throughout retirement, like Social Security and pension payments.

INVESTMENT INCOME, like the kind you can tap from your 401(k)

plan and IRAs.*

Ideally, it’s good, but not always necessary, to have both types

of income in retirement, since the first group gives you a guaran-

teed income stream through your lifetime,

Tips for investors 50 and up

continued on page 2

30 years

$760

$439

4 52

Strategies for Mature Investors, continued from page 1

while the second kind, although sometimes erratic, has the

potential to outstrip inflation over time.

“Also, it’s helpful to continue contributing to your 401(k) and

IRAs during this five- to 10-year period. Both of these types

of accounts offer you tax benefits as you save for your future,”

says Stone.

One to five years to retirement At this stage of life, refine the specifics of how much each

income source may provide. Everyone at this stage should

review their investment portfolio to be sure it is well-suited

to weather any market fluctuations.

“Generally, it should be positioned to favor income-oriented

investments, but you will likely want some exposure to growth

investments, like stock funds, since you’ll want your money

to last through retirement,” says Monty Bilkert.

“In any case, don’t make sudden drastic changes. If market

volatility is keeping you awake at night or is affecting your

everyday budget, make the move to a more conservative asset

allocation gradually.”

THE ABCS OF INVEST ING

The Benefits ofSystematic Investing

When investors suffer a loss,

they sometimes run for cover

and transfer their stock and bond

positions into money market

positions. They also may cut back

or stop contributions altogether.

While this reaction is entirely

natural, this move may not be

in the best interest of long-term

investors. Alaina Schrager

explains the potential benefits

of a regular, systematic investing

approach, especially during

periods of market volatility.

Buying more for lessEveryone loves a bargain.Let’s say you’re at thesupermarket and see thepaper towels you regularlybuy are on sale. If you’ve gotthe money, likely you’ll buy in quantity to save moneylater. When stocks suffer a setback, it’s a little like astore with stocks selling atbargain prices. Simply put,with lower share prices, yourmoney buys more sharesthan if prices are higher.

Owning more shares gives you more opportunityInvestors who focus only onaccount balance and shareprice are missing part of theequation. The number of

shares you hold is just asimportant because it repre-sents an opportunity foryour account balance togrow if the share price goesup. And, if you bought moreshares at a lower price, then your shares may havegreater potential for growth.

How systematic investing worksWhen the share price is down,your money buys more fundshares. On the other hand,during a rising market, yourmoney buys fewer shares.Investing systematically canaverage out the total cost ofshares purchased. It may taketime to see the benefit fromthe program, so it’s importantto remain committed. Also,

systematic investing does not ensure a gain or protectagainst a loss.

Homestead Funds offers a service that lets you invest on a regular, systematicschedule. The service allowsyou to designate a fixedamount from your payroll orbank at regular intervals andinvest that sum in the Fund(s)you select. There is no chargeto participate in the serviceand you can stop it at anytime. You will find a copy ofthe Automatic TransactionsSign-up Form on the web siteat homesteadfunds.comunder “Find a Document,” or you can call a client serviceassociate at 1- 800- 258- 3030to request one.

This example illustrates one method of systematicinvesting, known as dollar cost averaging. It com-pares price paid per share when $100 is investedin the S&P 500 on a monthly basis, beginningMarch 31, 1982, for a 10-, 20-, and 30-year periodversus the average respective unit prices.

Periodic investment plans do not assure a profit orprotect against loss in declining markets. This typeof plan involves continuous investments in securi-ties regardless of changes in price levels. Investorsshould consider their financial ability to continuepurchases through periods of volatile price levels.

AlainaSchrager RegisteredRepresentative

If the value of your 401(k) account has dropped and you want to recoup that value

before retiring, you may want to consider working beyond your planned retirement date

or adjusting your plans for retirement life, such as spending less or working part-time.

Retired or just about to retire At this stage, your primary investment goal is likely preserving the value of your nest

egg. “I advise the retired shareholders who are on a fixed income to keep a portion

of their money in investments designed for stability,” says Suzanne Gillespie.

“However, you may want to keep another portion of your nest egg invested in funds

that hold stocks. Historically, stock investments have outpaced inflation over time better

than bonds or money market investments.”

Gillespie also recommends making sure your withdrawal strategy considers the effect

of taxes. In some cases, that means tapping taxable accounts first as you allow any

income on your tax-deferred and tax-free accounts to continue growing. “That strat-

egy can keep more of your money working for you, rather than siphoned off in taxes.”

For information specific to your tax situation, consult a tax professional.

Whether you are 10 years from retirement or already retired, Homestead Funds can help.

For personalized assistance with your financial plan, call 1-800-258-3030 any weekday

between 8:30 a.m. and 5 p.m. Eastern Time.

*Distributions can be taken from these accounts as regular installments also, if desired.

H

£Initiate rollover paperwork for retirement plans

£Double-check that paperwork for your pension and health benefits is complete

£Prepare your retirement budget

£Discuss with your benefits administrator:

eYour optimal retirement date

ePension distribution options and the income each will generate

eSpousal pension benefits in theevent of your death

eProcedures for rolling over any retirement plan accounts

eOptions for retaining employer-provided benefits and your estimated costs

£Contact the local Social Security office:

eSet up the date on which benefits, including Medicare, will start

£Review long-term care, life, home and auto insurance:

eDetermine if appropriate for retirement

£Discuss with an NRECA investment advisor:

eYour financial plan

eCompany pensions and benefits

eWhen to start your Social Security benefits

eInvesting rollovers and distributions

eMinimizing taxes, maximizing tax-deferred portfolio growth

eWhether your current investment assetallocation is appropriate for retirement

£Review health and prescription drug coverage:

eEvaluate whether you need aMedigap policy

eTake care of dental and medicalprocedures while still covered under your employer’s health plan

*For information specific to your situation, consult a tax professional.

Pre-Retirement Timeline A YEAR BEFORE RETIRING AT RETIREMENTTHREE MONTHS BEFORE RETIRING

To learn more specifics aboutthe steps you can take to get ready for retirement, read our Helpful Tips brochure,“Managing Your Savings inRetirement.” You can downloadit from homesteadfunds.comunder “Find a Document,” or you can call us at1- 800- 258- 3030 and we willgladly mail you a copy.

Taking Advantage of Price Fluctuations Through Dollar Cost Averaging

AVERAGE PRICE PAIDAVERAGE UNIT PRICE

Source: ChartSource, Standard & Poor’s Financial Communications

10 years

1

2

6

8

4

Price, in

hun

dred

s of dollars

Time Period, ending March 3120 years

7

5

3

$251$221

$554

$336

Strategies for Mature Investors

RESPOND ING TO YOUShareholders like you call our representatives with a lot of good questions. In this column, we share our responses to some of those questions with the thought that for every shareholder whocalls to ask, there are a hundred who didn’t! We encourage you to call our helpful representativeswith your questions as well as to check here each quarter to see if your question is featured.

Decoding SEP IRAsI’m a small business owner and have heard that a SEP IRA might be a good way for me to save for retirement. Can you tell me more?A simplified employee pension (SEP) individual retirement arrangement (IRA)offers a simple retirement solution that is appropriate for certain savers. A SEP IRA allows employers to make tax-deductible contributions on behalf

of eligible employees, including the business owner. In addition, these contributions and their earnings continue to grow tax-deferred until they are withdrawn.

Most frequently a SEP IRA is established by a one-person business owner with no employees, such as a self-employed person who is a sole proprietor. Anytype of business entity may establish a SEP IRA— a soleproprietorship, partnership, corporation, nonprofit or governmental agency. The employer typically makes con-tributions directly to an IRA set up for each employee.

Some businesses cannot establish a SEP, includingthose businesses that currently maintain another quali-fied retirement plan as well as those that once main-tained a defined benefit plan. However, an employeewho participates in his or her employer's retirement plancan set up a SEP for self-employment income.

A SEP IRA has broad appeal due to its high annual contribution limits, com-pletely discretionary and flexible annual contributions and minimal administration.Many employers favor SEPs because they are simple to implement and main-tain. Also, they do not require trust documents, discrimination testing or IRSreporting. In addition, employers favor the flexibility of varying contributions fromyear to year and the option of skipping contributions entirely, if they want.

Also, SEPs involve no initial fees and minimal administrative costs. Plus, SEPrules are fairly easy to grasp: Except for higher contribution limits, Traditional IRAtax rules apply to SEP IRAs. H

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in this issueeStrategies for

Mature Investors . . . . . . . . . . . .1eDecoding SEP IRAs . . . . . . . . . .3eThe Benefits of

Systematic Investing . . . . . . . . . .5eNews Briefs . . . . . . . . . . . . . . . .6

Horizons2nd Quarter 2012

A quarterly newsletter for Homestead Funds’ shareholdersItem number 00085941

Homestead Small-Company Stock Fund was named

as a top pick in the May 2012 cover story of

Kiplinger’s Personal Finance magazine, “Best Funds

for Your Goals: This Year’s Picks for the Kiplinger 25

Include New Ways to Generate Income.”

Sparkle Warthen and Ken Surick joined

Homestead Funds staff as client service associates

earlier this year. Welcome aboard!

Homestead Funds’ News Briefs

Small-Company Stock Fund

in Kiplinger’s Top 25 Funds

Warthen, SurickJoin Staff

Call 1-800-258-3030 to speak with one

of our friendly client service associates, available weekdays

between 8:30 a.m. and 5:00 p.m. Eastern Time.

4301 Wilson Boulevard Arlington, VA 22203-1860 1-800-258-3030 www.homesteadfunds.com

Mutual funds are subject to market risk, including the potential loss of principal invested. Homestead Funds’ investment manager, RE Advisers Corporation, and distributor, RE Investment Corporation,

are indirect, wholly owned subsidiaries of NRECA. RE Investment Corporation, Distributor. 06/12

If a SEP IRA sounds like it might be the right choice for you or your business, call us

toll-free at 1-800-258-3030 to learn more from one of our representatives.

Steven Ulrich Registered Representative

To learn more specificsabout SEP IRAs, read ourHelpful Tips guide, “Savingfor Retirement in a SEP IRA.”You can download it fromhomesteadfunds.comunder “Find a Document,” or you can call us at1- 800- 258- 3030 and we will gladly mail you a copy.

Are you eligible

to invest in a SEP IRA?

There is a lot of information out there about investing for retirement—

so much, in fact, that it can feel overwhelming at times. To help

our shareholders who are 50 years of age and older, we posed

this question to several Homestead Funds’ registered representa-

tives: What should investors do who are about to retire,

especially as it relates to their Homestead Funds’ investments?

Their responses, grouped by each life stage, follow.

Five to 10 years until retirement“If you are within five or 10 years of your planned retirement

date, evaluate your sources of retirement income with a

Homestead Funds investment advisor,” says Jamie Stone.

“We’ll work together to nail down your sources of retirement

income and how much each will provide.”

The most common sources of income are Social Security retire-

ment benefits, pensions, 401(k)s and IRAs. Some people like

to think of their income sources as being in one of two groups:

INSTALLMENT INCOME you will receive at regular intervals

throughout retirement, like Social Security and pension payments.

INVESTMENT INCOME, like the kind you can tap from your 401(k)

plan and IRAs.*

Ideally, it’s good, but not always necessary, to have both types

of income in retirement, since the first group gives you a guaran-

teed income stream through your lifetime,

Tips for investors 50 and up

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